2021 (6) TMI 1015 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - gain derived from sale of such share was treated as long term capital gain and claimed to be exempt under section 10(38) - genuineness of the capital gain derived from sale of shares of GFL Financials - HELD THAT - As observed by CIT (A) that even on the date on which the shares were split, i.e. on 09-03-2013, the shares were not credited to the demat account of the assessee. All these facts certainly raise some amount of doubt and suspicion regarding the share transaction - it is trite that doubt and suspicion howsoever strong, cannot take the place of evidence - merely based on doubt and suspicion, no addition can be made - in our considered opinion, the assessee must also come clean on facts and prove the genuineness of the transaction by properly explaining the doubts raised by the departmental authorities with regard to the belated credit of the shares to her demat account and encashment of cheque after more than a year of transaction. Doubts raised by the departmental authorities in their respective orders, may not have been put forward to the assessee seeking clarification. It is also a fact that enquiry which was required to be done by the departmental authorities to go to the root of the matter and ascertain the genuineness of the shares of GFL Financials, have not been done. The entire issue relating to the genuineness of share transaction involving the shares of GFL Financials requires fresh consideration at the end of the AO. As regards the decisions relied upon by learned counsels appearing for the parties, though, there cannot be any dispute regarding the principle/ratio laid therein; however, they have to be applied only after full facts are brought on record. Since, in the facts of the present case we are of the view that the facts relating to the disputed issue have not been fully brought on record, we cannot apply the ratio laid down in the decisions relied upon in vacuum. Accordingly, we deem it appropriate to set aside the impugned order of CIT(Appeals) and restore the issue to the file of the AO for fresh adjudication keeping in view our observations hereinabove. Grounds are allowed for statistical purposes.

Issues Involved:
1. Addition of ?19,39,532/- under section 68 of the Income Tax Act.
2. Genuineness of the long-term capital gain derived from the sale of shares of GFL Financials.
3. Assessment procedures and evidence evaluation by the assessing officer and Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Addition of ?19,39,532/- under section 68 of the Income Tax Act:
The primary grievance of the assessee concerns the addition of ?19,39,532/- under section 68 of the Income Tax Act, 1961. The assessee, an individual, filed her return for the assessment year 2014-15, declaring a total income of ?4,70,600/-. During the assessment proceedings, the assessing officer discovered that the assessee sold shares of GFL Financials and claimed the derived gain as exempt under section 10(38) of the Act. However, the assessing officer was skeptical about the genuineness of the capital gain, leading to the addition under section 68, which was upheld by the Commissioner of Income Tax (Appeals).

2. Genuineness of the long-term capital gain derived from the sale of shares of GFL Financials:
The assessing officer issued summons under section 131 to the assessee and her son, who managed the share transactions. The son admitted to handling the transactions and provided details about the purchase and sale of shares through brokers Pragati Shares & Stock Services and Nirmal Bang Securities Pvt Ltd, respectively. Despite the son's explanation, the assessing officer doubted the genuineness of the transactions based on a report from the Investigation Wing in Kolkata, which labeled GFL Financials as a penny stock company with artificially inflated share prices. The assessing officer treated the sale consideration as unexplained cash credit under section 68, a stance supported by the Commissioner of Income Tax (Appeals).

3. Assessment procedures and evidence evaluation by the assessing officer and Commissioner of Income Tax (Appeals):
The assessee's counsel argued that the share transactions were legitimate, conducted through banking channels, and supported by contract notes, demat accounts, bank statements, and broker confirmations. They contended that the assessing officer's reliance on an unverified investigation report and lack of independent enquiry into GFL Financials' transactions were unjustified. The departmental representative countered, emphasizing the assessee's ignorance of the transactions and the suspicious nature of the share dealings, including delayed transfer to the demat account and cheque encashment.

The Tribunal noted that while the assessee provided documents to support the genuineness of the transactions, the assessing officer's doubts were based on the investigation report and incomplete responses from entities involved in the share purchases. The Tribunal highlighted the need for a thorough examination of the investigation report and independent enquiry into GFL Financials to ascertain the transaction's authenticity.

Conclusion:
The Tribunal concluded that the issue of the genuineness of the share transactions required fresh consideration by the assessing officer. The Tribunal set aside the Commissioner of Income Tax (Appeals)'s order and remanded the case for a fresh adjudication, emphasizing the need for a comprehensive enquiry and providing the assessee a reasonable opportunity to present her case. The appeal was allowed for statistical purposes, and the assessing officer was directed to conduct a detailed investigation into the matter.

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