2021 (12) TMI 301 - AT - Income Tax

Unexplained cash credit u/s.68 - Bogus share transactions - denying the exemption claimed in respect of Long Term Capital Gains u/s.10(38) - HELD THAT - All evidences demonstrate that assessee had sold the shares through screen based trading through SEBI registered broker and the transactions were subjected to Security Transaction Tax and proceeds of the sales, after deduction of such expenses, were credited to the bank accounts of the assessee. The authorities below has not commented on the veracity of such crucial evidence filed by the assessee and they have disallowed the claim of the assessee by holding that the broker, through whom the assessees had sold shares, was a tainted stock broker who was banned by SEBI in 2010. However, while holding so the authorities below has further observed that such ban was revoked by the SEBI and the only order remained in force was that the broker was not allowed to trade in its proprietary name. The findings of the Assessing Officer in the assessment order demonstrates that the ban was only for its proprietary trades and there was no ban on the transactions for clients, therefore, the reliance placed by Revenue on this order of SEBI is misplaced. Moreover, we find that the ban was imposed by SEBI in 2010 (which was later on revoked also) and assessees had sold the shares in the year 2016 i.e. after a gap of about six years and in the meantime the Investigation Wing of the Income Tax Department had carried out investigation and vide report dated 27/04/2015 had identified 84 companies which were engaged in the business of providing accommodation entries and name of the scrip on which the assessee had earned capital gain does not find its name in that list and neither name of broker finds place in the list of broker investigated by the Investigation Wing of the Department. Denial of claim u/s 10(38) of the Act is not justified and the orders of learned CIT(A) are reversed and Assessing Officer is directed to allow the claim of the assessee u/s. 10(38) of the Act. As we have allowed relief to the assessee on account of denial of long term capital gain the addition on account of assumed commission which the Revenue has assumed to have been paid to the brokers is also deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?2,93,82,349/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Denial of exemption claimed in respect of Long Term Capital Gains (LTCG) under Section 10(38) of the Income Tax Act, 1961.
3. Addition of ?8,81,470/- under Section 69C of the Income Tax Act, 1961, for presumptive payment to the broker.
4. Validity of assessment order passed under Section 143(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis of the Judgment:

1. Addition of ?2,93,82,349/- as Unexplained Cash Credit under Section 68:
The assessees contended that they had provided complete details of purchase and sale of shares, including bills, contract notes, and transactions made through proper banking channels, credited to their demat accounts. The authorities below, however, denied the exemption under Section 10(38) by suspecting the transactions as managed long-term capital gains with the help of entry providers. The authorities cited that the broker involved was banned by SEBI in 2010 for price manipulation, although the ban was later revoked. The Tribunal noted that the broker's ban was lifted, and the transactions were conducted much later in 2016. The Tribunal found that the assessees had provided substantial documentary evidence supporting their claims and that the authorities had not conducted any independent inquiries to disprove the assessees' claims. The Tribunal relied on various judicial precedents, including the Delhi High Court's judgment in the case of Smt. Krishna Devi, which emphasized that suspicion alone cannot justify disallowing genuine transactions. The Tribunal concluded that the assessees had successfully discharged their onus under Section 68, and the addition was not justified.

2. Denial of Exemption Claimed in Respect of LTCG under Section 10(38):
The authorities argued that the assessees' transactions were accommodation entries, citing the involvement of a tainted broker and the significant rise in share prices. The assessees countered by providing evidence of regular investments in shares, proper banking channels for payments, and demat account statements. The Tribunal observed that the authorities had not provided any concrete evidence to substantiate their claims of accommodation entries. The Tribunal referred to various case laws where similar issues were decided in favor of the assessees, including the Delhi High Court's judgment in Smt. Krishna Devi, which held that the theory of human probabilities cannot override documentary evidence. The Tribunal concluded that the denial of exemption under Section 10(38) was not justified and directed the authorities to allow the claim.

3. Addition of ?8,81,470/- under Section 69C for Presumptive Payment to Broker:
The authorities had made an addition under Section 69C on the presumption that the assessees had paid commission to the broker. The Tribunal noted that there was no evidence or material on record to support this presumption. The Tribunal referred to judicial precedents which emphasized that disallowance under Section 69C can only be made where an expenditure has been "actually incurred." The Tribunal concluded that the addition under Section 69C was not justified and directed its deletion.

4. Validity of Assessment Order under Section 143(3):
The assessees argued that the assessment order was passed without jurisdiction as it was approved by the JCIT, which was against the mandate of Section 144A. The Tribunal did not find merit in this ground as it was not argued in detail. Therefore, this ground was dismissed as not pressed.

Conclusion:
The Tribunal allowed the appeals of the assessees, directing the authorities to delete the additions made under Sections 68 and 69C and to allow the exemption claimed under Section 10(38). The stay applications filed by the assessees were dismissed as infructuous.