2021 (7) TMI 902 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - Penny stock - exemption u/s 10(38) - HELD THAT - Denial of claim u/s 10(38) is not justified and the order of learned CIT(A) is reversed and ground of the appeal are allowed.

Issues Involved:
1. Confirmation of addition of ?19,709,875.
2. Denial of exemption under Section 10(38) of the Income Tax Act.
3. Legitimacy of transactions of purchase/sale of shares.
4. Treatment of the appellant as a genuine customer.
5. Burden of proof regarding losses and gains.
6. Ex Parte order under Section 144 of the IT Act.
7. Relevance of judgments cited by revenue authorities.
8. Accountability for defaults at Kolkata level.

Detailed Analysis:

1. Confirmation of Addition of ?19,709,875:
The learned CIT(A) confirmed the addition of ?19,709,875, which the assessee claimed as Long Term Capital Gain (LTCG) exempt under Section 10(38). The authorities relied on an investigation report from the Kolkata wing, suggesting managed transactions for LTCG through a racket involving operators, exit providers, and promoters.

2. Denial of Exemption under Section 10(38):
The CIT(A) denied the exemption under Section 10(38) based on the investigation report, which was considered vague by the assessee. The assessee argued that all transactions were conducted through banking channels, with payments made for Security Transaction Tax, Service Tax, brokerage charges, and stamp duty. The transactions were carried out through SEBI-registered stock brokers. The authorities' adverse view on abnormal price rise and alleged price rigging was contested by the assessee, citing the Delhi High Court's decision in Pr. CIT vs. Smt. Krishna Devi, which dismissed the theory of preponderance in favor of evidence.

3. Legitimacy of Transactions of Purchase/Sale of Shares:
The assessee provided documentary evidence, including sale bills, ledger accounts, DEMAT account statements, and bank statements, proving the purchase and sale of shares. The authorities disallowed the claim solely based on the investigation report, which did not mention the assessee or their broker. The assessee's broker was not examined, and the authorities relied on statements from other brokers and persons not related to the assessee.

4. Treatment of the Appellant as a Genuine Customer:
The authorities failed to appreciate that the appellant was a genuine customer, conducting transactions through a proper DEMAT account and approved share brokers. The transactions were dismissed as 'quite unusual and unbelievable' without concrete evidence.

5. Burden of Proof Regarding Losses and Gains:
The revenue authorities did not consider the burden on the appellant for losses while gains were held 'non-genuine.' The principle of equity, justice, and good conscience was argued by the assessee, citing various tribunal decisions favoring similar cases.

6. Ex Parte Order under Section 144 of the IT Act:
The Ex Parte order under Section 144 was challenged as a denial of reasonable opportunity, including the absence of cross-examination of witnesses. The decision was deemed hasty to adhere to limitations.

7. Relevance of Judgments Cited by Revenue Authorities:
The CIT(A) relied on case laws related to share capital and share premium, which were not applicable to the assessee's case of LTCG exemption. The Delhi High Court's decision in Pr. CIT vs. Smt. Krishna Devi and other tribunal decisions under similar facts and circumstances were cited to support the assessee's claim.

8. Accountability for Defaults at Kolkata Level:
The appellant argued that they should not be held responsible for defaults at the Kolkata level, if any, at that point in time.

Conclusion:
The appeal was partly allowed, with the denial of claim under Section 10(38) being reversed. The authorities' reliance on the investigation report without corroborative evidence was deemed unjustified. The Stay Application filed by the assessee became infructuous. The judgment emphasized the need for concrete evidence over suspicion and upheld the assessee's documentary proof of genuine transactions.

← Previous Next →