2022 (1) TMI 1037 - AT - Income Tax

Bogus LTCG - sale of shares in this case is not a natural phenomenon but an arrangement of dubious design of providing accommodation entry - As per DR when the claim of the assessee was rejected u/s. 10(38) of the Act the amount represented by the sale of shares has been rightly added u/s. 69A - additions made by AO on the basis of an investigation conducted by DDIT whereby a racket involving thousands of crores of rupees was unearthed and wherein on the basis of statements recorded by investigation department of certain operators and stock brokers the Revenue had come to the conclusion that various persons were engaged in arranging long term capital gains through the medium of manipulating stock prices - CIT-A deleted the addition on the basis that the stock brokers and the persons from whom the assessee had purchased and sold shares has not been examined by the Assessing Officer and Assessing Officer had made the additions on the basis of general statement of certain persons - HELD THAT - CIT(A) has held that the Assessing Officer has ignored the various documentary evidences which were in favour of the assessee. As findings recorded by ld. CIT(A) are quite exhaustive whereby he has discussed the basis on which the Assessing Officer had made the additions. While allowing relief to the assessee, CIT(A) has specifically held that there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions and he held that Assessing Officer only quoted facts pertaining to various completely unrelated persons whose statement were recorded and on the basis of unfounded presumptions - the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the investigation Wing. CIT(A) relying on various orders of Lucknow Benches and other Benches has allowed relief to the assessee by placing reliance on the evidences filed by the assessee before Assessing Officer. Thus find no adversity in the order of ld. CIT(A) specifically keeping in view the fact that Lucknow Benches in a number of cases after relying on the judgment of Hon'ble Delhi High Court in the case of Krishna Devi and others 2021 (1) TMI 1008 - DELHI HIGH COURT had allowed relief to various assessee - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition by CIT(A) without considering the merits of the case.
2. Allegation of organized scam/tax evasion activity involving bogus LTCG through penny stocks.
3. Condonation of delay in filing the appeal by the Revenue.

Detailed Analysis:

1. Deletion of Addition by CIT(A) Without Considering the Merits of the Case:
The Revenue argued that the CIT(A) erred in deleting the addition of ?5,41,223 without addressing the merits and ignoring the findings of the Assessing Officer (AO). The AO had concluded that the sale of shares was a dubious arrangement designed to introduce unaccounted money as exempt income in the form of Long Term Capital Gain (LTCG). The CIT(A) deleted the addition, holding that the AO did not carry out necessary verifications, such as examining the stock brokers involved in the transactions. The CIT(A) relied on documentary evidence provided by the assessee, including sale and purchase bills, STT payment, and Demat accounts, which showed that the transactions were conducted through proper banking channels.

2. Allegation of Organized Scam/Tax Evasion Activity Involving Bogus LTCG Through Penny Stocks:
The Revenue contended that the issue pertained to an organized scam involving tax evasion through penny stocks, as highlighted by CBDT's Circular No. 23 of 2019. The AO had disallowed the LTCG claim based on an investigation that revealed a racket involving manipulated stock prices to create fictitious LTCG. The CIT(A), however, found that the AO's additions were based on general statements and not specific evidence against the assessee. The CIT(A) noted that there was no adverse evidence from the stock exchange or the company whose shares were involved, and the AO had ignored various documentary evidences in favor of the assessee.

3. Condonation of Delay in Filing the Appeal by the Revenue:
The Revenue sought condonation for a delay of 479 days in filing the appeal, citing exceptional circumstances such as the COVID-19 pandemic and subsequent lockdowns. The delay was also attributed to the issuance of CBDT's Circular No. 23/2019, which allowed filing appeals in cases of organized tax evasion activities. The Tribunal decided to condone the delay, rejecting the assessee's objection that the delay was due to the Revenue's internal reasons and not beyond their control.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to delete the additions. The Tribunal noted that the CIT(A) had provided a detailed analysis and relied on various judicial precedents, including the judgment of the Hon'ble Delhi High Court in the case of Krishna Devi and others. The Tribunal emphasized that the AO's conclusions were based on presumptions and lacked specific adverse material against the assessee. The Tribunal also highlighted that the AO did not conduct an independent and thorough enquiry, relying instead on general information from the investigation wing.

Final Order:
Both appeals filed by the Revenue were dismissed, and the Tribunal's decision was pronounced in the open court on 17/01/2022.