2020 (7) TMI 241 - AT - Income Tax

Addition u/s 68 on account of Sale of Shares - unexplained cash credit - HELD THAT - We find that the sale transactions have taken place through an independent broker and the sale proceeds have been received through banking channels. The sale could not take place without making purchases thereof. The purchases were supported by contract notes, holding letter and the payment was through banking channels. The shares were credited in the demat account of the assessee - stated purchase transactions were doubted by Ld.AO in AY 2008-09 and the purchase value of shares of MMTC was added to the income of the assessee as unexplained cash credit. Upon further appeal, Ld. CIT(A) deleted the same by observing that the assessee had discharged the onus by producing the brokers note and AO had not found any reason to doubt the same. Nothing was brought on record to show that these were false or untrue. Matter of purchase of shares has already attained finality in assessee s favor and hence, the purchase transactions were to be accepted as genuine and carried out in AY 2008- 09 only. When the purchase of shares was to be accepted as genuine then the sale thereof could also not be doubted. Grounds raised, in this regard, stands allowed. Addition on account of Sale of Jewellery - HELD THAT - Assessee, being a lady, as per the customs, would certainly acquire Jewellery in gifts on the occasion of marriage and on the occasion of the birth of a child. The said fact could be fortified with instruction No.1916 dated 11/05/1994 issued by CBDT which recognizes a fact that a married lady of reputed family could be expected to own 500 grams of ornaments and therefore the same need not be seized. This is coupled with the fact that the sale consideration has been received by the assessee through banking channels in subsequent financial years. Nothing on record would show that the said receipts have flown back to the purchaser of Jewellery. The assessee has placed on record financial statements of the three purchasers along with copies of their computation of income Income Tax Returns. In their respective Balance Sheets, these purchase transactions have been recognized by the three purchasers and confirmation of account has also been placed on record. Therefore, claim of the assessee was to be accepted. Therefore, we are inclined to delete the impugned additions and allow grounds raised by the assessee, in this regard.

Summary

Issues Involved:
1. Addition of ?33.37 Lacs under Section 68 of the Income Tax Act, 1961 on account of sale of shares.
2. Addition of ?17.40 Lacs under Section 68 of the Income Tax Act, 1961 on account of sale of jewelry.

Detailed Analysis:

1. Addition of ?33.37 Lacs under Section 68 on account of Sale of Shares:

1.1 The assessee, a resident individual, was assessed for AY 2010-11 under Section 143(3) read with Section 147, with income determined at ?53.97 Lacs after certain additions, against a returned income of ?3.20 Lacs. The assessee declared Long-Term Capital Gains (LTCG) of ?28.94 Lacs on the sale of 200 shares of MMTC, claiming exemption under Section 10(38).

1.2 Reassessment proceedings were initiated based on information from a search and seizure operation on M/s Mahasagar Securities Private Limited and its group concerns, revealing that the assessee benefited from bogus capital gains on these shares. The shares were allegedly purchased for ?4.43 Lacs using bogus purchase bills.

1.3 During the reassessment, the assessee provided contract notes showing the shares were purchased through M/s Alliance Intermediaries & Network Pvt. Ltd. (AINPL) and sold through M/s Joindre Capital Services Ltd. (JCSL). However, the AO found discrepancies, such as AINPL not being a registered trading member and the shares being de-matted just before their sale.

1.4 The AO concluded that the transactions were accommodation entries to convert unaccounted money into accounted money, and added the sale amount of ?33.37 Lacs as unexplained cash credit under Section 68.

1.5 The CIT(A) upheld the addition, noting that AINPL was not a registered broker and the transactions did not attract Securities Transaction Tax (STT), indicating bogus transactions.

1.6 On appeal, the Tribunal found that the facts were similar to the case of the assessee’s husband, where the Tribunal had allowed the appeal, recognizing the genuineness of the transactions supported by broker bills, contract notes, and bank statements. The Tribunal observed that the sale transactions were through an independent broker, and the purchase transactions were genuine and carried out in AY 2008-09.

1.7 The Tribunal concluded that the purchase transactions were genuine, and the sale transactions could not be doubted. Therefore, the addition of ?33.37 Lacs was deleted.

2. Addition of ?17.40 Lacs on account of Sale of Jewelry:

2.1 The assessee declared LTCG of ?1.60 Lacs on the sale of old jewelry acquired in FY 1986-87 at a cost of ?3.50 Lacs, with an indexed cost of ?15.80 Lacs against a sale price of ?17.40 Lacs.

2.2 During assessment, the AO found that the assessee could not establish possession of jewelry worth ?17.40 Lacs, as no wealth tax return or valuation report was provided, nor were purchase bills submitted. Consequently, the AO treated the entire sale consideration as unexplained cash credit under Section 68.

2.3 The CIT(A) upheld the AO’s decision, noting that confirmatory notices sent to the purchasers were returned undelivered, and only confirmed copies of ITRs were provided.

2.4 On appeal, the Tribunal accepted the assessee’s explanation that the jewelry was acquired as customary gifts on marriage and childbirth, consistent with the status of the assessee. The Tribunal referenced CBDT Instruction No.1916, recognizing that a married lady of reputed family could own 500 grams of ornaments.

2.5 The Tribunal noted that the sale consideration was received through banking channels, and the purchasers’ financial statements and ITRs confirmed the transactions. Therefore, the Tribunal deleted the addition of ?17.40 Lacs.

Conclusion:

The Tribunal allowed the appeal, deleting the additions of ?33.37 Lacs on account of the sale of shares and ?17.40 Lacs on account of the sale of jewelry, thereby quashing the order of the CIT(A). The decision was pronounced through circulation on 05/05/2020.