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2023 (1) TMI 925 - AT - Income TaxAddition u/s 68 - Bogus LTCG claimed by the assessee - CIT-A Allowed the appeal of the assessee - HELD THAT - AO has not doubted the purchase of shares were through banking channels. The assessee has placed on record copies of contract memos in connection with purchase and sale of shares. Appellant has held the shares for over 3 years and it would be incorrect to treat sale of shares as bogus merely on the basis of suspicion and on account of fact that a substantial quantum of capital gains has been made by the assessee or that the trading in respect fo the said share was suspended for some time on the stock exchange. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. AO has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, despite the assessee s specific request, no opportunity of cross examination was provided to the assessee on the basis of whose statements reliance has been placed to hold that the sale of shares was sham / bogus -CIT(A) has not erred in law and in facts in allowing the assessee s appeal.
Issues Involved:
1. Deletion of addition under Section 68 by the CIT(A) treating the Long-Term Capital Gains (LTCG) claimed by the assessee as bogus. 2. The Department's appeal against the order passed by the CIT(A). Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 68: The Assessing Officer (AO) made an addition of Rs. 2,88,72,634/- under Section 68 of the Income Tax Act, 1961, treating the LTCG from the sale of shares of M/s. Naisargik Agritech (India) Ltd. as bogus. The AO argued that the purchase and sale of shares were not genuine, suspecting a carefully executed plan to generate bogus LTCG. The AO cited the case of Sanjay Bimalchand Jain from the Mumbai High Court to support the disallowance, suggesting that the shares were used to accommodate LTCG beneficiaries. Assessee's Argument: The assessee contended that the shares were purchased directly from the company by cheque, held in a Demat account for over three years, and sold on the Bombay Stock Exchange (BSE) at prevailing market prices. The assessee provided documentation including share application forms, allotment letters, share certificates, and bank statements to substantiate the transactions. The assessee distinguished the case from Sanjay Bimalchand Jain by highlighting that the shares were purchased at face value and held for a significant period, unlike the modus operandi in the cited case. CIT(A)'s Observations: The CIT(A) agreed with the assessee, noting that the purchase and sale of shares were well-documented and genuine. The CIT(A) emphasized that the AO's reliance on suspicion and high capital gains was insufficient for making additions under Section 68. The CIT(A) referenced several cases, including those from the Gujarat High Court, which supported the view that genuine transactions documented by contract notes, bank statements, and Demat accounts cannot be treated as unexplained cash credits. 2. Department's Appeal: The Department appealed against the CIT(A)'s order, arguing that the capital gains were bogus and should be disallowed. The Department relied on the AO's observations and maintained that the transactions were suspicious. Tribunal's Analysis: The Tribunal reviewed the rival contentions and the material on record. It cited several judgments, including those from the Supreme Court and various High Courts, which supported the assessee's position. The Tribunal noted that the AO did not bring any material evidence to suggest collusion or connivance between the broker and the assessee. The Tribunal emphasized that transactions supported by documentary evidence such as contract notes, Demat statements, and banking channels cannot be treated as bogus merely based on suspicion or high capital gains. Conclusion: The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal. It concluded that the assessee had discharged the onus of proving the genuineness of the transactions and that the AO's addition under Section 68 was not justified. The Tribunal reiterated that suspicion alone cannot be the basis for treating genuine transactions as bogus. Order: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that allowed the assessee's claim of LTCG as genuine and exempt from tax under Section 10(38) of the Income Tax Act, 1961. The order was pronounced in the open court on 20-01-2023.
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