2024 (9) TMI 1275 - AT - Income Tax

Bogus LTCG - unexplained credit u/s 68 - onus to prove - transaction as penny stock transaction/mere accommodation entry taken by the assessee to infuse its own unaccounted income - Assessee argued that it was a genuine transaction of sale of shares resulting in long term capital gains returned as exempt from tax in terms of provisions of section 10(38) - HELD THAT - We find merit in the contention of the ld.counsel of the assessee that the assessee had discharged its onus of proving genuineness of the transaction and the Department has failed to make out a case of the transaction being bogus. We are not in agreement with the contentions of the DR, because the assessee having demonstrated to have carried out the transaction as admitted by the DR, the Revenue in its part has failed to point out why the transaction was not genuine. As is evident from the order of the authorities below, the entire case of the Revenue rests on merely the report of the investigation carried out by the Department on Naresh Jain and his associates. Neither the details of the report are part of the orders, nor appear to have been shared with the assessee. There is no mention of the manner in which Naresh Jain and his associates carried out/provided accommodation entries to the beneficiaries in the impugned orders, nor there is any finding as to how the assessee s case, therefore, fitted the bill of the modus operandi of Shri Naresh Jain. The assessee had demonstrated the transactions to have been taken place, which even the ld.DR agreed to. The assessee also demonstrated a gap of five to six years in the purchase and sale of shares with the shares being sold at varying rates. We agree with the ld.dcounsel for the assessee that there could not be any premediated transaction presumed to have taken place in such a long time gap of five to six years, that too at varying prices. It was the duty and onus of the Revenue to prove how the impugned transaction was pre-mediated. Merely stating and reiterating that it was a premediated transaction is not sufficient. The said fact has to be demonstrated with evidences, which the Revenue has miserably failed in the present case, relying only on the investigation report, the contents of which have also not been brought on record. Not to be missed is also the fact, demonstrated by the assessee, that the scrips so dealt with was de-mated and dealt through a prominent broker, Sharekhan Ltd. and was not the only scrip the assessee has traded in, but there were numerous other scrips in which the assessee traded during the year. Decided in favour of assessee.

Issues Involved:

1. Whether the capital gain on the sale of shares of Monotype India Ltd. was genuine.
2. Whether the addition of Rs. 59,93,278/- as unexplained credit under Section 68 of the Income Tax Act, 1961, was justified.

Issue-wise Detailed Analysis:

1. Whether the capital gain on the sale of shares of Monotype India Ltd. was genuine:

The primary issue in this case was whether the capital gain on the sale of shares of Monotype India Ltd. was genuine. The assessee claimed that the transaction was legitimate and resulted in a long-term capital gain exempt from tax under Section 10(38) of the Income Tax Act, 1961. The Revenue, however, treated the transaction as a penny stock transaction and a mere accommodation entry used to infuse unaccounted income.

The assessee provided several pieces of evidence to prove the genuineness of the transaction:
- Documentary evidence of purchase and sale of shares.
- Transactions undertaken through banking channels.
- Shares purchased in 2011 and sold in 2016-2017.
- Shares were DEMATED and transactions were carried out through a renowned broker, M/s. Sharekhan Ltd.
- Shares were sold in various lots at fluctuating prices.

The Revenue argued that the transaction was bogus, based on an investigation report revealing that the assessee was a beneficiary of accommodation entries provided by Shri Naresh Jain and his associates. However, the details of this report were not shared with the assessee.

The Tribunal found merit in the assessee's contention, noting that the assessee had demonstrated the transactions with sufficient documentary evidence. The Revenue failed to provide concrete evidence to support its claim that the transaction was not genuine. The Tribunal held that the finding of the authorities below was based on mere presumptions and not backed by any hard-core evidence.

2. Whether the addition of Rs. 59,93,278/- as unexplained credit under Section 68 of the Income Tax Act, 1961, was justified:

The second issue was whether the addition of Rs. 59,93,278/- as unexplained credit under Section 68 was justified. The Revenue's case was based on the assumption that the transaction was a pre-mediated bogus transaction. The CIT(A) upheld the AO's order, citing several reasons, including the unusual profit made by the assessee, the negligible net worth of Monotype India Ltd., and the alleged premeditated arrangement by Naresh Jain and associates.

The Tribunal, however, found that the Revenue's case lacked concrete evidence. The assessee had sufficiently discharged its onus of proving the genuineness of the transaction. The Tribunal noted that the Revenue authorities had not provided any factual basis to support their claim that the transaction was bogus. The Tribunal also pointed out that the assessee had demonstrated a gap of five to six years between the purchase and sale of shares, with sales made at varying prices, ruling out any premeditated transaction.

The Tribunal concluded that the addition made by the Revenue was unjustified and not sustainable. The assessee had sufficiently discharged its onus of proving the genuineness of the transaction, and the finding of the CIT(A) was based on mere presumptions.

Conclusion:

The Tribunal held that the assessee had sufficiently discharged its onus of proving the genuineness of the transaction of sale of shares of Monotype India Ltd. The addition of Rs. 59,93,278/- as unexplained credit under Section 68 was directed to be deleted. The appeal of the assessee was allowed.

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