2023 (3) TMI 764 - AT - Income Tax

Addition u/s 68 - onus to prove - HELD THAT - Hon ble Supreme Court decisions in the case of Omar Salav Mohamed Sait . 1959 (3) TMI 2 - SUPREME COURT where it is held that no addition can be made on the basis of surmises suspicion and conjectures. In the case of CIT(Central) Kolkata vs. Daulat Ram Rawatmull 1972 (9) TMI 9 - SUPREME COURT the Hon ble Apex Court held that the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon ble Supreme Court in the case of Umacharan Shah Bros. 1959 (5) TMI 11 - SUPREME COURT .held that suspicion however strong cannot take the place of evidence. Respectfully following the above judgments of the Jurisdictional High Court and that of the Co-ordinate Benches of the Tribunal we have no hesitation in confirming the order passed by ld. CIT(A) and deleting the additions made by the Assessing Officer u/s. 68 and u/s. 69C of the Act. Thus the grounds raised by the Revenue are devoid of merits and the same are liable to be rejected. Unexplained cash credit u/s. 68 - A.Y. 2012-13 - As addition made by the Assessing Officer invoking Section 68 does not hold it good since the assessee has filed the confirmation letter from the lenders Bank statements Income Tax Return and statement of total income of the various lenders. Thus the assessee has discharged its initial onus namely identity of the creditors genuineness of the transactions and creditworthiness of the creditors. Further the Assessing Officer has disbelieved the same but has no occasion about the repayment of loans by the assessee in subsequent assessment years. Thus the creditworthiness of the lender is proved. It is not the case of the Assessing Officer that cash was deposited prior to giving loans to the assessee by the lender companies. It is a fact both the lender companies filed their respective Income Tax Return and assessed to tax just because of the non-compliance of the notice and u/s. 133(6) does not make with the unsecured loans given by the creditors be treated as bogus. In fact both the creditors vide the respective letters dated 15.12.2017 replied to the Assessing Officer with the details namely loan confirmation accounts bank statements Income Tax Returns etc. Therefore the addition made by the Assessing Officer u/s. 68 of the Act is not sustainable in law. Revenue appeal dismissed.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act for unexplained cash credits.
2. Addition under Section 69C of the Income Tax Act for unexplained expenditure.
3. Claim of exemption under Section 10(38) of the Income Tax Act for Long Term Capital Gains (LTCG) from penny stocks.

Summary:

Issue 1: Addition under Section 68 - Unexplained Cash Credits
The Assessing Officer (AO) added Rs. 60,87,74,856/- as unexplained cash credits under Section 68, arguing that the LTCG claimed by the assessee was pre-arranged to evade taxes. The AO relied on statements from the Investigation Wing and Mr. Vipul Vidhur Bhatt. However, the assessee provided detailed explanations, including purchase and sale documentation, dematerialization records, and bank statements. The AO did not provide the assessee an opportunity to cross-examine Mr. Bhatt, whose statements were crucial to the AO's findings. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the AO did not bring any corroborative evidence against the assessee and failed to provide cross-examination. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of direct evidence and the procedural lapses by the AO.

Issue 2: Addition under Section 69C - Unexplained Expenditure
The AO added Rs. 3,04,38,743/- as unexplained expenditure under Section 69C, assuming commission charges paid for obtaining bogus LTCG. The CIT(A) deleted this addition, reasoning that since the primary addition under Section 68 was not justified, the consequential addition for commission could not stand. The Tribunal agreed with the CIT(A), reiterating that without establishing the primary transaction as bogus, the addition for commission charges was baseless.

Issue 3: Exemption under Section 10(38) - LTCG from Penny Stocks
The AO denied the exemption under Section 10(38) for LTCG, labeling the transactions as suspicious due to the involvement of penny stocks. The assessee argued that all transactions were conducted through recognized stock exchanges, paid through banking channels, and subjected to Securities Transaction Tax (STT). The CIT(A) found that the assessee had provided sufficient evidence to prove the genuineness of the transactions and that the AO had not disproved these documents. The Tribunal upheld the CIT(A)'s decision, citing multiple judicial precedents where similar transactions were held as genuine when supported by documentary evidence.

Conclusion:
The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s deletion of additions under Sections 68 and 69C and allowing the exemption under Section 10(38) for LTCG. The Tribunal emphasized the importance of providing cross-examination opportunities and the need for the AO to bring substantial evidence before making additions based on suspicion or third-party statements.