2024 (2) TMI 531 - AT - Income Tax

Bogus LTCG - exemption u/s. 10 (38) denied - addition u/s 68 as relying upon the interim order of the SEBI - Based upon the investigation report of Pr. DIT, Investigation Wing Kolkata unit the AO formed a belief that the said company is a penny stock company and heavily drawing support from the investigation report - HELD THAT - We find that the very same AO has framed the assessment of the brother of the assessee Sh. Mukesh Mittal who claimed LTCG on sale of shares of the very same company Radford Global Limited. In the case of the brother the quarrel travelled upto the Tribunal and this Tribunal in Sh. Mukesh Mittal Versus Income tax Officer, Ward-41 (1) , New Delhi 2021 (3) TMI 1169 - ITAT DELHI held that assessee submitted sufficient documentary evidences before A.O. to prove genuineness of the transaction. The assessee purchased the shares through banking channel and actually got the shares transferred in his name. The purchases are supported by bank statements. The transaction of the sale have been made through Demat Account which is corroborated by contract note and other details and transaction is carried out through banking channel through stock exchange through Demat Account on which Security Transaction Tax have also been paid. The A.O. merely relied upon interim order of the SEBI to make addition against the assessee, otherwise, there were no evidence or material on record to disprove the claim of assessee. Since the interim order of the SEBI have been revoked against the assessee and M/s EBFL, therefore, nothing survives in favour of the A.O. The A.O. did not make any further investigation or enquiry into the matter and merely relied upon the interim order of the SEBI and investigation carried out by the Kolkata Wing. It is not clear from the assessment order whether Investigation Wing report have been confronted to the assessee or any right of cross-examination have been allowed to any statement recorded at the back of the assessee. The assessee asked for the cross-examination of any statement which is used against the assessee for making the addition. But, the assessment order is silent on this aspect. Therefore, the above facts clearly show that assessee entered into the genuine transaction and as such the profit on sale of scrip was exempt from tax. Assessee has successfully discharged the onus cast upon him by the provisions of section 68 of the Act and such discharge is purely a question of fact. We, accordingly, direct the AO to accept the long term capital gain declared as such and allow exemption u/s. 10 (38) of the Act -we delete the impugned addition made on account of unexplained cash credits u/s. 68 - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition based on SEBI rules and regulations.
2. Applicability of ITAT Mumbai's decision on the present case.
3. Addition based on suspicion and the role of brokers.
4. Appraisal of share price increase and financial analysis.

Summary:

Issue 1: Deletion of Addition Based on SEBI Rules and Regulations
The revenue argued that the CIT(A)-14, New Delhi erred in deleting the addition of Rs. 5,93,06,611/- by not applying the SEBI rules and penal provisions appropriately. The AO had relied on the SEBI report and data to substantiate his claim. The Tribunal found that the AO's reliance on the SEBI interim orders was misplaced as these orders were later revoked by SEBI. The SEBI's final order dated 20.09.2017 did not find any adverse evidence against the assessee, thereby exonerating them from any wrongdoing.

Issue 2: Applicability of ITAT Mumbai's Decision
The revenue contended that the CIT(A)-14, New Delhi wrongly relied on a decision by the ITAT Mumbai, which was not applicable to the present case involving the scrip M/s Radford. The Tribunal noted that the same AO had assessed the brother of the assessee, who also claimed LTCG on the sale of Radford shares. The Tribunal had previously ruled in favor of the brother, citing the revocation of SEBI's interim orders and lack of adverse findings.

Issue 3: Addition Based on Suspicion and Role of Brokers
The revenue claimed that the addition was made on mere suspicion and that the AO had given sufficient opportunities for natural justice to the assessee. The Tribunal observed that the AO had heavily relied on the modus operandi of some brokers as described in the SEBI interim orders. However, these orders were later revoked, and no specific statements or evidence were presented to the assessee during the assessment proceedings. The Tribunal emphasized that the AO did not conduct independent inquiries or verifications, which is contrary to section 142(1) of the Act.

Issue 4: Appraisal of Share Price Increase and Financial Analysis
The revenue argued that the CIT(A)-14, New Delhi failed to consider the significant increase in the share price and the detailed financial analysis done by the AO. The Tribunal noted that the mere increase in share prices, without evidence of the assessee's involvement in any wrongdoing, cannot be the basis for denying the claim. The SEBI had exonerated the assessee, and the revenue did not provide any material evidence to prove otherwise. The Tribunal concluded that the addition was made on surmises and conjectures.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 5,93,06,611/-, finding that the AO's reliance on interim SEBI orders, which were later revoked, was misplaced. The Tribunal also noted the lack of independent inquiry and material evidence against the assessee. Consequently, the appeal of the revenue was dismissed.

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