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2022 (12) TMI 252 - AT - Income TaxAddition u/s 68 - unexplained cash credit - bogus gain on sale of shares - HELD THAT - It is not in dispute that assessee had sold the shares in piecemeal spreading over two assessment years that too at a price ranging from Rs.41 to 70/- per share. We find that assessee was selling the shares only from 16/02/2013 onwards in piecemeal. Even according to the ld. AO, the price rigging of shares of ACEL had happened only during the period 29/11/2010 to 26/12/2012. Assessee had not sold the shares during this period. Hence, the entire basis of rigging of prices, manipulation of prices, role of the assesee thereon, completely falls flat and fails. In any case, one of the main grievance of the ld. AO is that there were 47 investors to whom preferential allotment of shares were made on 02/03/2012 by ACEL. Admittedly, the assessee s name does not figure in those 47 investors. On this ground also, the case of the ld. AO fails. Despite all these strong points, the assessee has come forward to buy mental peace and to avoid protracted litigation pursuant to the survey by offering gain arising on sale of shares of ACEL as business income instead of short term capital gains offered at special rates of tax. Assessee has actually paid excess tax to the Government. It is not in dispute that assessee had duly paid the differential taxes together with interest thereon along with revised return filed by the assessee on 22/03/2016. It is also pertinent to note that in the various statements recorded by the AO from various persons, the name of the assessee was never mentioned by any of them. Hence, it could be safely concluded that the assessee herein has got absolutely no link with either promoters of the company, entry providers, exit providers, 47 individuals to whom preferrential allotment of shares were made and other private individuals. Hence, we have no hesitation to uphold the order passed by the ld CIT(A) in this regard. Hence, we direct the ld. AO to accept the gain arising on sale of shares to be taxed only under the head income from business and not as unexplained cash credit u/s.68 of the Act. Accordingy, the grounds 1-3 raised by the Revenue are dismissed. Speculative transaction - Deduction for loss claimed by the assessee in respect of commodity transactions of National Spot Exchange Ltd., (NSEL) treating it as not speculative in nature - HELD THAT - It is a fact that assessee had made payment for purchase of commodities during the regular course of commodity trading activity carried out by it. These payments are made through regular registered brokers to NSEL. Pursuant to the said payment, the assessee would be issued warehousing receipt evidencing the storage of commodities in the designated warehouse. Pursuant to the scam broke down in NSEL wherein it revealed that they were involved in issuing fake warehousing receipts to various investors like assessee without storing physical commodities in such warehouse, the investors like assessee could not subequently sell those goods in view of the fact that there were no commodities that were actually stored in the warehouse. Accordingly, the assessee being an investor had to file the case alongwith other investors before competent authority. All these facts are in public domain and NSEL was able to pay part of the amount back to various investors from time to time. The assessee after reducing the amount recovered thereon, had claimed balance amount as normal business loss incurred by it in the regular course of carrying out its business transactions. As corectly stated by the ld. CIT(A), as per the provisions of Section 43(5)(d) of the Act, transactions carried out by the assessee cannot be treated as a speculative transaction. Hence, it should be considered as regular business transaction and in case it resulted in a loss, it should be construed as normal business loss. Hence, no infirmity in the order of the ld. CIT(A) granting relief to this extent. Accordingly, the ground raised by the Revenue are dismissed. Allowaibility of other regular business expenses, warehouse rent, brokerage and commission and stamp charges - HELD THAT - As already held that the commodity transactions were carried out in the regular course of its business and the same cannot be treated as a speculative business carried on by the assessee. Once, it is held that these are regular business transactions, the aforesaid business expenditure also would become squarely allowable as deduction u/s.37 of the Act. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly,the ground raised by the Revenue are dismissed.
Issues Involved:
1. Treatment of profits and gains from the purchase and sale of shares under Section 68 of the Income Tax Act. 2. Applicability of Section 68 to the assessee's transactions in shares. 3. Alleged tax evasion by categorizing receipts to benefit from lower tax rates. 4. Classification of commodity transactions on National Spot Exchange Ltd. (NSEL) as speculative transactions. 5. Allowability of business loss claimed in respect of commodity transactions on NSEL. 6. Deductibility of expenses related to warehousing rent, brokerage, commission, and stamp charges on NSEL transactions. Issue-Wise Detailed Analysis: 1. Treatment of Profits and Gains from Purchase and Sale of Shares under Section 68: The Revenue contended that the profits and gains derived by the assessee from the purchase and sale of shares of M/s Anukaran Commercial Enterprises Ltd. (ACEL) should be treated as unexplained cash credits under Section 68 of the Income Tax Act. The assessee had originally shown these gains as short-term capital gains but later revised the returns, offering the gains as business income. The Revenue argued that ACEL was involved in providing accommodation entries for Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG). 2. Applicability of Section 68 to the Assessee's Transactions in Shares: The assessee provided evidence including contract notes, Demat account statements, and bank statements to substantiate the genuineness of the transactions. The assessee argued that there was no incriminating evidence found during the survey, and the gains were offered as business income to avoid litigation. The CIT(A) observed that the assessee had purchased shares in the open market and sold them over an extended period, indicating genuine transactions. The CIT(A) concluded that the provisions of Section 68 were not applicable as the assessee had satisfactorily explained the nature and source of the income. 3. Alleged Tax Evasion by Categorizing Receipts to Benefit from Lower Tax Rates: The Revenue claimed that the assessee attempted to evade tax by categorizing receipts as STCG, taxable at 15%, instead of business income taxable at 30%. The assessee revised the returns and offered the gains as business income, paying the differential tax. The CIT(A) noted that the assessee had paid the excess tax and there was no evidence linking the assessee to the alleged accommodation entries. 4. Classification of Commodity Transactions on NSEL as Speculative Transactions: The Revenue argued that the commodity transactions on NSEL were speculative as there was no evidence of actual delivery of goods. The CIT(A) held that the transactions were covered by Section 43(5)(d) of the Act, which excludes certain transactions from being considered speculative. The CIT(A) concluded that the loss incurred in these transactions should be treated as a normal business loss. 5. Allowability of Business Loss Claimed in Respect of Commodity Transactions on NSEL: The assessee claimed a business loss of Rs. 24,39,25,896/- due to the NSEL scam, where it was revealed that NSEL had issued fake warehousing receipts. The CIT(A) observed that the loss was incurred in the regular course of business and should be treated as a normal business loss. The CIT(A) noted that the transactions were genuine and the loss was a result of the NSEL scam. 6. Deductibility of Expenses Related to Warehousing Rent, Brokerage, Commission, and Stamp Charges on NSEL Transactions: The Revenue disallowed expenses of Rs. 21,68,322/- related to warehousing rent, brokerage, commission, and stamp charges, arguing that they were incurred in speculative transactions. The CIT(A) held that since the transactions were not speculative, the expenses were allowable as business expenses under Section 37 of the Act. Conclusion: The Tribunal upheld the CIT(A)'s order, concluding that the gains from the sale of shares should be taxed as business income and not as unexplained cash credits under Section 68. The Tribunal also upheld the treatment of the commodity transactions as normal business transactions and allowed the related expenses as business deductions. The appeal of the Revenue was dismissed.
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