2021 (10) TMI 103 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - Denial of long-term capital gain u/s 10 (38) - HELD THAT - When the assessee has produced all the information/documents to prove the genuineness of the transaction of the earning of the long-term capital gain which is exempt u/s 10 (38) and the learned assessing officer do not make any enquiry on such documents but merely relied on the report of the SEBI and other material and makes the addition, it cannot be sustained. However, in this case we find that assessee could not produce the contract notes of entering into sale of the above shares on online trading platform of the stock exchange where the time and date stamp and the evidence of payment of security transaction tax is shown Assessee could not produce the contract notes having the date and time stamp and evidence of payment of securities transaction tax, which proves that assessee has sold his shares online on stock exchange trading platform. These documents are of the paramount importance to determine the claim of the assessee. In view of this we set-aside the whole issue back to the file of the learned assessing officer to examine the claim of the assessee of earning the long-term capital gain u/s 10 (38) of the income tax act as claimed by the assessee. We also grant full liberty to the assessee to raise all the pleadings raised before us or any further pleadings before the learned assessing officer. AO is also directed to consider all the arguments of the assessee and peruse the evidence produced by the assessee. The assessing officer may also conduct due enquiries after the assessee submits the necessary evidence and decide the issue in accordance with the law. Appeal of the assessee is allowed for statistical purposes

Issues Involved:
1. Whether the capital gain earned by the assessee on the sale of shares is genuine and eligible for exemption under Section 10(38) of the Income Tax Act.
2. Whether the transaction of ?1,60,38,880/- was a sham transaction.
3. Whether the amount received on account of sale proceeds of shares should be taxed as income from other sources under Section 68 of the Income Tax Act.
4. Whether the sale proceeds of shares on the Bombay Stock Exchange were bogus transactions.
5. Whether the assessee earned any Long Term Capital Gain on the sale of shares of Goldline Finvest International Ltd.
6. Whether the addition of ?4,81,116/- as commission charges was justified.

Detailed Analysis:

1. Capital Gain and Exemption under Section 10(38):
The assessee declared a long-term capital gain of ?1,55,98,712/- from the sale of shares of Goldline Finvest International Ltd. and claimed exemption under Section 10(38) of the Income Tax Act. The Assessing Officer (AO) denied this exemption, citing an investigation report indicating that the company was involved in providing bogus entries for long-term capital gains. The AO noted that the financials of the company did not justify the investment and the extraordinary appreciation of shares was against human probabilities. The AO relied on judicial precedents and concluded that the assessee indulged in dubious transactions to claim non-genuine credits under Section 68 of the Act.

2. Sham Transaction:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, stating that the assessee's investment in a company with poor financials and no market reputation indicated a pre-arranged conversion of unaccounted income into long-term capital gain. The CIT(A) noted that the transactions were part of a series of pre-conceived steps and artificial structures aimed at tax evasion.

3. Income from Other Sources under Section 68:
The AO treated the sale proceeds of ?1,60,38,880/- as income from other sources under Section 68 of the Income Tax Act, citing the lack of genuine investment rationale and the extraordinary appreciation of shares. The CIT(A) supported this view, emphasizing that the entire transaction was a sham and part of a tax evasion scheme.

4. Bogus Transactions:
The AO and CIT(A) both concluded that the sale proceeds of shares on the Bombay Stock Exchange were bogus transactions. The AO referred to statements from brokers and entry operators admitting to providing bogus entries, and the CIT(A) noted that the assessee failed to provide a valid reason for investing in such a dubious company.

5. Long Term Capital Gain:
The CIT(A) held that the assessee did not earn any genuine long-term capital gain on the sale of shares of Goldline Finvest International Ltd. The CIT(A) emphasized that the transactions were part of a tax evasion scheme and could not be accepted at face value.

6. Commission Charges:
The AO made an addition of ?4,81,116/- under Section 69C of the Act, representing commission charges for obtaining the alleged non-genuine long-term capital gain. The CIT(A) upheld this addition, stating that the assessee resorted to a ready-made scheme involving commission payments to entry operators.

Conclusion:
The Tribunal directed the AO to re-examine the claim of the assessee regarding the long-term capital gain under Section 10(38) of the Income Tax Act. The Tribunal emphasized the importance of contract notes with time and date stamps and evidence of payment of securities transaction tax to determine the genuineness of the transactions. The case was remanded back to the AO for further examination, granting the assessee the opportunity to present all relevant evidence and arguments. The appeal was allowed for statistical purposes.

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