2022 (12) TMI 443 - AT - Income Tax

Addition u/s 69 - bogus transactions of purchase of shares - HELD THAT - We find that assessee had made the purchase of share of Sacheta Metals Ltd only in A.Y. 2006-07 in accordance with settlement rules of Bombay Stock Exchange. Though the contract note was issued by the broker for purchase of shares on 30/03/2005, the assessee had time to make the payment within 2 days from the date of transaction. Accordingly, the assessee had made the payment by account payee cheque on 01/04/2005 and accounted for the said purchase of shares in his books in A.Y. 2006-07. It could be safely concluded that there was absolutely no purchase of shares that had happened in respect of Sacheta Metals Ltd in A.Y. 2005-06. There is absolutely no case made out by the Revenue to make an addition under section 69 in respect of purchase of shares as the entire transactions of purchase of shares of Sacheta Metals Ltd have been duly reflected in the accounts of share trading business of the assessee and explained by proper sources. The payments have been made by the assessee by account payee cheques from the sources drawn from the bank statements. The immediate source of credit was also explained by the assessee by way of confirmation from third party. These facts are not disputed by he Revenue before us and the same are staring on us. Hence, we have no hesitation in directing the AO to delete the addition made under section 69 of the Act in respect of purchase of shares in respect of Sacheta Metals Ltd. Assessee had also made purchase of shares of Sundaram Finance Ltd. Since the said purchase of 10,000 shares of Sundaram Finance Ltd was made by the assessee from a broker entity belonging to Shri Mukesh Chokshi group, the AO concluded that the said transaction of purchase is bogus and accordingly made addition u/s 69 in A.Y. 2006-07. Assessee had made purchase by making payment by account payee cheques out of sources drawn from his bank statement. The shares have been duly dematerialised as is evident from the DEMAT statement. These shares were subsequently sold in 2 tranches by the assessee through the registered stock broker, Bonanza Stock Brokers Ltd and gains arising thereon were offered to tax by the assessee as business income. In our considered opinion, both the purchase and sale of shares stood properly explained in the instant case and our observations made in respect of Sacheta Metals Ltd for A.Y. 2006-07 would hold good for this scrip also. No hesitation in directing the AO to delete the addition made on account of purchase of shares for both the assessment years under consideration. Accordingly, ground raised by the assessee for both the years are allowed.

Summary

Issues involved:
- Confirmation of addition under section 69 of the Act for purchase price of shares of Sacheta Metals Ltd for A.Ys. 2005-06 and 2006-07.

Analysis:
1. The primary issue in these appeals is whether the Ld.CIT(A) was justified in confirming the action of the Ld.AO in making an addition under section 69 of the Act for the purchase price of shares of Sacheta Metals Ltd. The assessee contended that the purchase of shares was made in A.Y. 2006-07, not in A.Y. 2005-06. The Ld.AO, however, concluded that the transactions were bogus, leading to the addition under section 69, a decision upheld by the Ld.CIT(A).

2. The assessee provided substantial evidence to support their claim. Documents such as the contract note, DEMAT account, bank statements, and ledger entries were submitted to prove the genuine nature of the transactions. The assessee also explained the source of funds for the purchase through account payee cheques and third-party confirmations.

3. The Tribunal observed that the purchase of shares of Sacheta Metals Ltd was indeed made in A.Y. 2006-07 in accordance with the settlement rules of the Bombay Stock Exchange. The assessee's meticulous documentation and adherence to proper accounting practices further supported their case. The Tribunal found no basis for the Revenue's allegations of the transactions being tainted.

4. Additionally, the Tribunal noted that similar purchase and sale transactions of shares of another company, Sundaram Finance Ltd, were also questioned by the Ld.AO. However, the Tribunal found that these transactions were also genuine, supported by proper documentation, and the gains were appropriately offered as business income.

5. Consequently, the Tribunal directed the Assessing Officer to delete the additions made under section 69 of the Act for both the assessment years, as the transactions were adequately explained, supported by documentary evidence, and conducted in accordance with legal requirements.

6. Ultimately, both appeals filed by the assessee were allowed, emphasizing the importance of proper documentation, adherence to accounting standards, and the genuine nature of the transactions in dispute.