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2024 (3) TMI 710 - AT - Income TaxAddition u/s 68 - Genuineness of LTCG and claim of exemption u/s 10(38) - sale of penny stock script - HELD THAT - Assessing Officer and Ld.CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider. Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. - Accordingly the Ground No.1 raised by the assessee is allowed. Addition u/s 68 - bogus loan transaction - as alleged assessee failed to prove the capacity and genuineness of the transactions - HELD THAT - AO has observed from the financial statements of the lender companies and he formed opinion on the basis of earning capacity and not on the basis of funds available to make to loan to others. In our view what is needed to be seen is the funds available with the lenders to make the loan to form an opinion on the capacity of the lenders not the earning capacity. These are financial entities, has to be judged on the basis of funds available in the business. With regard to genuineness of the transaction, we observe that assessee has taken unsecured loans from Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., and submitted the confirmations letters from them which are placed on record. At the same time, assessee also submitted bank statements and financial statements of Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., in the Paper Book and it is brought to our notice that assessee has repaid the unsecured loans taken by it along with interest. As brought to our notice that the assessee has repaid to JMD Sounds Ltd current financial year itself, the same is placed on record at Page No. 128 and 129 of the paper book. Similarly, the payment of JMD Telefilms Ltd in the same financial year, the same is place on record at Page 123 and 124 of the paper book. The payment of Blue Circle Service Ltd are paid in the subsequent assessment year along with interest. Therefore, assessee has demonstrated that assessee has taken unsecured loans and repaid the same along with interest. Normally accommodation entries are taken and the unsecured loans remain unsettled for a long period of time. However, in this case, the assessee has taken the loan and repaid the same along with interest, it clearly indicate that the loan transaction is genuine. Also brought to our notice that the assessment was reopened mainly on the basis of statement of Shri Jagdish Purohit and Shri Jagdish has subsequently retracted the statement given. Therefore, the genuineness has to be seen independently. Accordingly, Ground No.2 raised by the assessee is allowed. Disallowance made on account of interest expenses - deduction u/s 57 or u/s 37(1) - As we have adjudicated Ground No.2 in favour of the assessee and the issue involved is disallowance of interest on the same loan. This ground being interest paid i.e., consequential to Ground No. 2, is also allowed in favour of the assessee.
Issues Involved:
1. Treatment of sale consideration from shares as bogus accommodation entry. 2. Addition of unsecured loan as unexplained cash credit. 3. Disallowance of interest expenditure under section 57. Summary: Issue 1: Treatment of Sale Consideration from Shares as Bogus Accommodation Entry The assessee's sale consideration of Rs. 4,59,10,500 from shares of Greencrest Financial Services Ltd. was treated as a bogus accommodation entry by the Assessing Officer (AO). The AO alleged that the Long Term Capital Gain (LTCG) was non-genuine and added it as unexplained credits under section 68 read with section 115BBE of the Income Tax Act. The AO's conclusion was based on various parameters such as offline purchase of non-listed shares, unrealistic purchase price, and findings from the SEBI report. The AO issued a show cause notice to the assessee, who failed to substantiate the genuineness of the transactions. The AO relied on judicial precedents to support the addition. The CIT(A) upheld the AO's decision, applying the theory of human probabilities and preponderance of probabilities, concluding that the transactions were sham and aimed at evading taxes. Issue 2: Addition of Unsecured Loan as Unexplained Cash Credit The AO added Rs. 1,25,00,000 as unexplained cash credit under section 68, considering loans from entities linked to Jagdish Purohit Group as non-genuine. The AO based this on the investigation report and statements from Jagdish Purohit, who admitted to providing accommodation entries through shell companies. The assessee provided confirmations, bank statements, and other documents to prove the genuineness of the loans. However, the AO and CIT(A) held that the assessee failed to prove the creditworthiness and genuineness of the transactions, relying on the theory of human probabilities and judicial precedents. Issue 3: Disallowance of Interest Expenditure under Section 57 The AO disallowed Rs. 62,81,903 of interest expenditure claimed by the assessee, stating that the loans themselves were non-genuine. The AO argued that since the loans were treated as bogus, the interest on such loans could not be allowed as a deduction under section 57 or section 37(1) of the Act. The CIT(A) upheld the disallowance, noting that the assessee failed to prove the nexus between the interest income and expenses and the genuineness of the loans. Tribunal's Decision: The Tribunal allowed the appeal filed by the assessee, holding that: 1. The AO and CIT(A) failed to bring on record any material linking the assessee to dubious transactions or entry operators. The Tribunal found no discrepancies in the documents submitted by the assessee and relied on judicial precedents to conclude that the LTCG was genuine. 2. The Tribunal observed that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the unsecured loans. The repayment of loans along with interest further supported the genuineness of the transactions. 3. Since the addition of unsecured loans was deleted, the disallowance of interest expenditure was also consequentially deleted. Conclusion: The Tribunal allowed the appeal, deleting the additions made under sections 68 and 57, and upheld the genuineness of the LTCG and unsecured loans.
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