2022 (11) TMI 622 - AT - Income Tax

Addition u/s 68 - bogus LTCG claimed u/s.10(38) - whether the name of the script M/s Shree Nath Commercial Finance Ltd. is appearing in the investigation report carried out by investigation wing of income tax department or during any proceeding carried out by the Revenue or other agencies? - HELD THAT - The income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and assumptions of certain facts. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In the absence of such finding, no adverse inference can be drawn against the assessee. In absence of any specific finding against the assessee, the assessee cannot be held to be guilty or linked to the wrong acts merely on basis of surmises and assumptions. In view of the above discussion, we hold that the capital gain earned by the assessee cannot be held bogus merely on the basis of some assumption of the AO unless cogent material is brought on record. Therefore, we don t find any reason to disturb the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of Revenue s appeal is hereby dismissed. Income from House Property - deduction of interest on loan u/s 25 - the payment of interest was made from the account of her husband instead of her own account - HELD THAT - There is no mention about the payment of the interest cost on the housing loan. In other words, it is not necessary to make the payment by the assessee on the money borrowed by him for acquiring the housing loan. What is necessary is this that the money should have been borrowed by the assessee for the purchase of the property on which the interest is payable. As far as, borrowing and the interest thereon is concerned, there is no dispute that the interest-bearing fund has been used by the assessee for acquiring the house property. Thus, to our understanding, the provisions of section 24(b) of the Act have been duly complied with as source of payment for the interest is known i.e. the husband of the assessee. Accordingly, we are of the view that the assessee cannot be denied the benefit of deduction with respect to the interest expenses provided under the provisions of section 24(b) of the Act. Hence, the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 39,37,423/- being bogus Long Term Capital Gain (LTCG) claimed under section 10(38) of the Income Tax Act.
2. Deletion of disallowance of Rs. 1,50,000/- being wrong claim of housing loan interest payment.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 39,37,423/- as Bogus LTCG:

The Revenue's first issue challenged the deletion of an addition of Rs. 39,37,423/- made by the Assessing Officer (AO) on the grounds of bogus long-term capital gain (LTCG). The assessee, an individual deriving income from business, profession, and investments, declared exempted LTCG of Rs. 39,37,423/- under section 10(38) of the Income Tax Act from the sale of shares of M/s Shree Nath Commercial & Finance Ltd. The AO observed that the shares were purchased at a low price, held for over a year, and sold at a significantly higher price, which resembled the modus operandi of penny stock transactions. The AO summoned the assessee, and her husband appeared, admitting to making the transactions but lacking knowledge about the company's financials. The AO, suspecting the transactions were bogus, added the LTCG to the assessee's total income as income from other sources due to the lack of a satisfactory explanation.

Upon appeal, the assessee provided evidence of genuine transactions, including purchase and sale through recognized stock exchanges, payments via banking channels, and dematerialized shares. The CIT(A) found the transactions genuine, supported by documentary evidence, and noted that the AO's assumptions lacked corroborative material. The CIT(A) thus deleted the addition.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's assumptions and the absence of specific evidence or investigation reports linking the assessee to bogus transactions were insufficient to treat the LTCG as bogus. The Tribunal highlighted that the AO's contradictory stance'accepting the purchase of shares as genuine while treating the sale as bogus'was not sustainable. The Tribunal also noted that the rise in share price alone, without evidence of manipulation or collusion, could not justify the addition. The Tribunal concluded that the assessee's transactions were genuine and directed the AO to delete the addition.

2. Deletion of Disallowance of Rs. 1,50,000/- for Housing Loan Interest Payment:

The Revenue's second issue concerned the deletion of a disallowance of Rs. 1,50,000/- claimed by the assessee as housing loan interest under section 24 of the Act. The AO disallowed the claim because the payment was made from the account of the assessee's husband. The CIT(A) found that the loan was taken jointly by the assessee and her husband, and the payment of interest, though made by the husband, was genuine. The CIT(A) concluded that the technicality of the payment source was not significant and directed the AO to delete the disallowance.

The Tribunal upheld the CIT(A)'s decision, noting that section 24(b) of the Act allows for the deduction of interest payable on borrowed capital used for acquiring property, without specifying that the payment must be made by the assessee. The Tribunal emphasized that the interest-bearing fund was used for acquiring the house property, and the source of payment (the husband) was known. Therefore, the assessee was entitled to the deduction, and the Tribunal directed the AO to delete the disallowance.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition of Rs. 39,37,423/- as bogus LTCG and the disallowance of Rs. 1,50,000/- for housing loan interest payment. The Tribunal emphasized the need for specific evidence and corroborative material to substantiate claims of bogus transactions and highlighted the importance of genuine documentary evidence in supporting the assessee's claims. The appeal filed by the assessee was allowed.