2023 (2) TMI 805 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - difference between transactions - New objection raised by assessee under Rule 27 of the Rules - AO alleged that the assessee has indulged in a dubious share transactions with intent to account for the undisclosed income in the garb of Long Term Capital Gains - As per assessee AO could not have invoked Section 68 in the absence of books of account - CIT-A deleted addition - HELD THAT - It is wholly inconceivable to preordain a transaction of purchase and sale involving a gap of 15-25 years to record some unaccounted income. It defies one s imagination to think so. AO appears to have mechanically applied the findings of investigation report and imputed motive of price abuse in EFTL stock on the assessee in a hawkish manner without taking note of the peculiar fact of acquisition of shares decades ago and continually held thereafter. CIT(A) on the other hand has recognized such overwhelming fact of long holding period and rightly cancelled the untenable additions. It is a classic case of assessment framed on impressions and perceptions rather than on glaring facts. Needless to say the peculiarities and nuances of each case need to be seen in perspective. The overwhelming factor of extra-ordinary period of holding of shares prior to sale transcends all other considerations and exonerates the Assessee from any kind of impropriety. CIT(A) to our mind has correctly approached the issue and recognized the difference between transactions which are pretense and the transactions which are real and rightly reversed the unsubstantiated additions. We thus see no reason to interfere with the conclusion drawn by the CIT(A). Objections raised by the assessee in terms of application filed under the shelter of Rule 27 of the Income Tax (Appellate Tribunal) Rules 1963 - In the instant case the assessee has neither filed any cross-appeal nor cross-objection before ITAT in the Revenue appeal. The Assessee had not taken such ground earlier before CIT(A) either to enable him to render its decision such point. In the absence of any ground on the point the CIT(A) had thus no occasion to adjudicate the issue now raised before ITAT under Rule 27. The objections have been newly raised for the first time before ITAT taking shelter of Rule 27 of ITAT Rules. The language of Rule 27 is absolute and measured. Patently the prerequisites of Rule 27 are not fulfilled in the instant case. There must exist a ground decided against the assessee by the CITA) to invoke Rule 27 as an adjunct to Revenue appeal. Such vital condition is not found to be met. In the factual matrix the legislative fiat of Rule 27 does not permit the ITAT to entertain the impugned application moved by respondent assessee to exercise right under Rule 27 to defend the order of CITA). The judgment rendered in Sanjay Sawhney 2020 (5) TMI 441 - DELHI HIGH COURT is premised upon altogether different facts. Hence we decline to entertain the altogether new objection raised by the respondent assessee under Rule 27 of the Rules. Consequently the plea raised on merits by the Assessee fades into insignificance. The impugned application filed under Rule 27 is thus rejected. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs.3,52,07,470/- by CIT(A) despite alleged artificial inflation and deflation of share prices.
2. Non-appreciation of Kolkata Investigation Directorate's findings on bogus LTCG/STCL entries.
3. Non-consideration of SEBI's suspension of trading in Effingo Textile & Trading Ltd.
4. Alleged collusion between assessee and market operators in share transactions.
5. Alleged preconceived scheme by the assessee to procure LTCG.
6. Jurisdictional error in invoking Section 68 of IT Act.

Detailed Analysis:

1. Deletion of addition of Rs.3,52,07,470/- by CIT(A):
The Revenue argued that the CIT(A) erred in deleting the addition of Rs.3,52,07,470/-, claiming that the prices of the scripts were artificially manipulated to adjust LTCG for the assessee. The Assessing Officer (AO) had added the amount under Section 68 of the Act, alleging dubious share transactions intended to convert undisclosed income into LTCG. The AO noted that the assessee did not provide cogent evidence to explain the significant gains from a minimal investment. The CIT(A), however, found that the shares were held for a long period (15-25 years), which did not align with the modus operandi of bogus LTCG schemes typically involving shorter holding periods. The CIT(A) concluded that the transactions were genuine and not part of any dubious scheme.

2. Non-appreciation of Kolkata Investigation Directorate's findings:
The Revenue contended that the CIT(A) failed to consider the detailed findings of the Kolkata Investigation Directorate, which indicated bogus LTCG/STCL entries involving 84 penny stocks, including Effingo Textile & Trading Ltd. The AO had relied on this investigation and statements from various individuals associated with the alleged scheme. However, the CIT(A) noted that the assessee and her son had held the shares for an extended period, significantly longer than the typical holding period in such schemes. The CIT(A) found no direct link between the assessee and the alleged operators or intermediaries mentioned in the investigation report.

3. Non-consideration of SEBI's suspension of trading:
The Revenue argued that the CIT(A) did not consider SEBI's suspension of trading in Effingo Textile & Trading Ltd., which indicated manipulation. The AO had referenced SEBI's actions as part of the basis for denying the LTCG exemption. The CIT(A), however, focused on the long holding period and the lack of direct evidence implicating the assessee in any wrongdoing. The CIT(A) concluded that the transactions were carried out in good faith through a registered broker and were not part of any preconceived scheme.

4. Alleged collusion between assessee and market operators:
The Revenue asserted that the CIT(A) failed to appreciate that the share transactions were a product of design and mutual connivance between the assessee and market operators. The AO had alleged that the transactions were not governed by market factors but were artificially structured. The CIT(A), however, found no evidence of such collusion and noted that the shares were sold through a registered broker not implicated in the investigation report. The CIT(A) emphasized the long holding period and the lack of any direct link between the assessee and the alleged operators.

5. Alleged preconceived scheme by the assessee to procure LTCG:
The Revenue contended that the CIT(A) did not recognize the alleged preconceived scheme by the assessee to procure LTCG through manipulated share transactions. The AO had argued that the transactions lacked commercial justification and were intended to evade taxes. The CIT(A), however, found the transactions genuine, given the long holding period and the absence of any direct evidence of manipulation or collusion. The CIT(A) concluded that the assessee's case did not fit the typical modus operandi of bogus LTCG schemes.

6. Jurisdictional error in invoking Section 68 of IT Act:
The assessee argued that the AO's addition under Section 68 was unsustainable as it involved unexplained credits outside the ambit of Section 68, given that the assessee was not required to maintain books of account. The Tribunal noted that this ground was raised for the first time before it and was not adjudicated by the CIT(A). Consequently, the Tribunal declined to entertain this new objection under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963, as it was not raised earlier.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs.3,52,07,470/-, finding that the long holding period of the shares and the lack of direct evidence of manipulation or collusion supported the genuineness of the transactions. The Tribunal dismissed the Revenue's appeal and rejected the assessee's new objection under Rule 27.