2023 (9) TMI 208 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - disallowance of exemption of long-term capital gains claimed u/s 10(38) by treating the share transaction as non-genuine - HELD THAT - Revenue has failed to prove with any cogent evidence on record that the assessee was involved in converting its unaccounted money into long-term capital gains by conniving with any entry operator/exit operator, who was involved in artificial price rigging of shares. Thus this is the case wherein the AO merely on the basis of suspicion rejected the claim of the assessee, without establishing any link between the assessee with the entry operators/exit operators, who were allegedly involved in price rigging of shares. We are unable to persuade ourselves to accept the conclusion reached by the Revenue on the basis of the findings recorded in the order passed by the lower authorities. Accordingly, we direct the AO to delete the impugned addition made u/s 68 and accept the plea of the assessee in respect of long-term capital gains earned during the year. Since the main transaction has not been found to be bogus, the addition on account of commission @ 3% made by the AO and upheld by the learned CIT(A) is also deleted. Decided in favour of assessee. Unexplained investment - addition u/s 69 - purchase of shares of M/s Rutron International Ltd. - HELD THAT - Since the assessee has not sold any shares of M/s.Rutron International Ltd., the question of long-term capital gains/short-term capital loss does not arise. As evident from the record that the assessee in order to substantiate the purchase transaction submitted that the sale consideration was paid through normal banking channel and the shares are held in the Demat account. It is pertinent to note that only when the investment is not recorded in the books of accounts or the explanation by the assessee regarding the nature and source of the investment is found to be not satisfactory, the value of the investment can be treated as an unexplained investment u/s 69 - However, in the present case, no such allegation has been raised by the Revenue. Thus the addition made by treating the purchase consideration as unexplained investment u/s 69 of the Act has no basis and accordingly is directed to be deleted.

Summary

Issues Involved:
1. Addition of income without incriminating material.
2. Treatment of long-term capital gains as non-genuine and bogus.
3. Disallowance of exemption under section 10(38) of the Income Tax Act.
4. Addition under section 68 of the Income Tax Act.
5. Addition of alleged commission on bogus share transactions.
6. Levy of interest under sections 234B and 234C of the Income Tax Act.
7. Initiation of penalty proceedings.

Summary:

Issue 1: Addition of Income Without Incriminating Material
- Ground no.1, raised by the assessee, was not pressed during the hearing and thus dismissed as not pressed.

Issue 2: Treatment of Long-Term Capital Gains as Non-Genuine and Bogus
- The assessee claimed exemptions on long-term capital gains from the sale of shares, which were treated by the AO as non-genuine based on the Directorate of Investigation's findings and the statement of Mr. Anil Agarwal. However, the Tribunal found no direct evidence linking the assessee to any price manipulation or bogus transactions. The AO's reliance on general findings and statements without specific evidence against the assessee led to the conclusion that the addition was made on mere suspicion. Consequently, the Tribunal directed the AO to delete the impugned addition and accept the assessee's plea regarding long-term capital gains.

Issue 3: Disallowance of Exemption under Section 10(38)
- The AO disallowed the exemption claimed under section 10(38) for long-term capital gains, treating the transactions as bogus. The Tribunal, however, found that the AO failed to provide substantial evidence to support this claim. The SEBI's investigation also did not find the assessee involved in price manipulation. Therefore, the Tribunal directed the AO to allow the exemption under section 10(38).

Issue 4: Addition under Section 68
- The AO added the entire sale consideration of shares as unexplained cash credit under section 68. The Tribunal observed that there was no cogent evidence linking the assessee to any bogus transactions or price rigging. Thus, the Tribunal directed the AO to delete the addition made under section 68.

Issue 5: Addition of Alleged Commission on Bogus Share Transactions
- The AO added a commission @ 3% for obtaining pre-arranged bogus long-term capital gains under section 69C. Since the main transaction was not found to be bogus, the Tribunal also deleted the addition on account of commission.

Issue 6: Levy of Interest under Sections 234B and 234C
- The levy of interest under sections 234B and 234C was found to be consequential in nature. Therefore, the Tribunal allowed these grounds for statistical purposes.

Issue 7: Initiation of Penalty Proceedings
- The initiation of penalty proceedings was considered premature and thus dismissed by the Tribunal.

Conclusion:
- All the appeals by the assessee were partly allowed, with directions to delete the impugned additions and accept the assessee's claims regarding long-term capital gains and exemptions under section 10(38). The levy of interest was allowed for statistical purposes, and the initiation of penalty proceedings was dismissed.