2023 (12) TMI 877 - AT - Income Tax

Treatment of LTCG as unexplained cash credit u/s. 68 - AO has made proper enquiries before concluding the transaction as a sham - as per AO the assessee has involved in manipulating the stock prices in penny stocks and has derived LTCG and has claimed exemption u/s. 10(38) by manipulating the share prices - loose sheets found and seized at the residence of the assessee wherein the sale of shares, quantity sold, date, sale price and the computation of the LTCG were found and seized - HELD THAT - In the instant case, since the transactions were through proper banking channels, this case is of no help to the Revenue. Similarly, the decision in the case of Sanjay Bimalchand Jain 2017 (5) TMI 983 - BOMBAY HIGH COURT it is distinguishable on the fact that the details of persons who purchased the shares were not provided. In the instant case, the details of buyers are very much available in the order of the Ld. AO and hence this decision cannot be applied. Further, in the case of Pr. CIT vs. Mehndipur Balaji 2022 (7) TMI 294 - ALLAHABAD HIGH COURT relied on by the Ld. DR, the addition for the bogus LTCG received by the assessee were made on the basis of the incriminating material available on record. However, in the instant case, no such incriminating material along with corroborative evidence has brought on record to say that the assessee has involved in manipulation of the stock prices to earn bogus LTCG. It is also noted that the assessee has sold the shares through recognized Stock Exchange and hence he is not aware of the company of the buyers and therefore the arguments of the Ld. DR are not accepted - thus we find that the assessee has not involved in manipulation of stock prices for the purpose of earning bogus LTCG and hence we are inclined to allow the ground raised by the assessee. Treatment of commission expenditure as unexplained expenditure u/s 69C - Since the LTCG earned by the assessee are bonafide in nature, the commission expenditure shall be allowed as a deduction from the LTCG and hence this ground raised by the assessee is allowed.

Summary

Issues Involved:

1. Validity of assessment under section 153A.
2. Treatment of Long Term Capital Gains (LTCG) as unexplained cash credit under section 68.
3. Treatment of commission expenditure as unexplained expenditure under section 69C.

Summary:

1. Validity of Assessment under Section 153A:
The first ground of objection regarding the notice issued under section 153A was not pressed by the assessee's representative and hence was dismissed as not pressed.

2. Treatment of Long Term Capital Gains (LTCG) as Unexplained Cash Credit under Section 68:
The assessee, Smt. A. Harshitha, filed her return of income for AY 2014-15, claiming exemption under section 10(38) for LTCG from the sale of listed equity shares. The Assessing Officer (AO) considered these transactions as abnormal, suspecting manipulation of share prices by M/s. Global Infratech & Finance Limited. Despite detailed enquiries and statements from entry operators, the AO treated the LTCG as unexplained cash credit under section 68 and denied the exemption. The CIT(A) upheld the AO's order. However, the Tribunal found that the AO did not provide substantial corroborative evidence to prove the assessee's involvement in manipulating stock prices. The transactions were made through recognized stock exchanges, payments were through banking channels, and the assessee paid Securities Transaction Tax (STT). The Securities Appellate Tribunal, Mumbai, exonerated the assessee from allegations of price manipulation. Consequently, the Tribunal allowed the assessee's appeal, ruling that the LTCG was genuine.

3. Treatment of Commission Expenditure as Unexplained Expenditure under Section 69C:
Since the Tribunal found the LTCG to be bonafide, the commission expenditure claimed by the assessee was also allowed as a deduction from the LTCG. The AO had initially treated the commission as unexplained expenditure under section 69C due to perceived manipulation in stock transactions. However, the Tribunal's decision to recognize the LTCG as genuine led to the acceptance of the commission expenditure as well.

Conclusion:
The Tribunal allowed the appeals of both assessees, Smt. A. Harshitha and Smt. A. Ammaji, ruling that the LTCG and related commission expenditures were genuine and should not be treated as unexplained cash credits or expenditures. The decisions were pronounced in the open court on 15th December 2023.