2024 (9) TMI 1517 - AT - Income Tax

Bogus LTCG - sale proceeds fron from sale of shares treated as unexplained income u/s 68 - disallowance of exemption u/s 10(38) - HELD THAT - We find force in the contention of the counsel on identical set of facts and on identical transactions in identical scrip the coordinate bench had considered the identical issue in the case Sanket Shailendra Modi 2022 (12) TMI 1537 - ITAT MUMBAI thus we direct the AO to delete the impugned addition and allow the claim of the assessee u/s 10(38) of the Act. Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of Rs. 22,35,160/- as unexplained income under Section 68 by disallowing long-term capital gain (LTCG) claimed exempt under Section 10(38).
2. Confirmation of disallowance of LTCG claimed exempt under Section 10(38) amounting to Rs. 21,47,685/- as unexplained income under Section 68.
3. Addition of Rs. 44,703/- under Section 69C on presumptions and assumptions.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 22,35,160/- as Unexplained Income under Section 68:
The assessee appealed against the order dated 10.01.2024 by the NFAC, Delhi, for the Assessment Year 2014-15. The grievance was that the CIT(A) NFAC erred in confirming the addition of Rs. 22,35,160/- made under Section 143(3) by disallowing LTCG income claimed exempt under Section 10(38) and taxing the entire sale proceeds from the sale of shares as unexplained income under Section 68. The assessee argued that the addition was made without any corroborative material found during the assessment proceedings and was based solely on statements recorded during a survey without independent enquiry. The CIT(A) NFAC also erred in confirming the addition based on the statements of Shri Anil Agarwal recorded during search operations without providing an opportunity for cross-examination.

2. Confirmation of Disallowance of LTCG Claimed Exempt under Section 10(38):
The AO treated the LTCG of Rs. 21,47,685/- as bogus based on the report from the Directorate of Income Tax (Investigation), Kolkata, which alleged a scheme to provide accommodation entries for bogus LTCG through stock market manipulation. The AO rejected the claim under Section 10(38) and made an addition of Rs. 22,35,160/-. The CIT(A) NFAC confirmed this disallowance, applying Section 68, which the assessee contended was inapplicable as the assessee did not maintain books of accounts and had income from other sources only.

3. Addition of Rs. 44,703/- under Section 69C:
The CIT(A) NFAC made an addition of Rs. 44,703/- under Section 69C, assuming a 2% commission on the transaction amount of LTCG without establishing how the amount was paid to the broker. The assessee argued that this addition was based on presumptions and assumptions without any basis.

Tribunal's Findings:
The Tribunal considered the orders of the authorities below and found that on identical facts and transactions, a coordinate bench had deleted the impugned addition in the case of the assessee's brother. The Tribunal noted that the documentary evidence submitted by the assessee was found genuine, and no adverse inferences were drawn by the revenue. The transactions were carried out in the secondary market through a registered broker at prevailing market prices, and payments were received by account payee cheques. The revenue did not conduct any enquiries on the broker or with the stock exchange and relied solely on the Kolkata investigation report without linking the assessee to the allegations.

The Tribunal held that the revenue had not proved with cogent evidence that the assessee was involved in converting unaccounted income into exempt LTCG by conniving with entry operators or brokers. The Tribunal emphasized that off-market purchases could not be deemed sham if the assessee proved the shares were dematerialized and held in a Demat account until sold. The Tribunal also noted that SEBI's independent enquiries did not implicate the assessee or the broker in price manipulation.

The Tribunal concluded that the addition was based on mere suspicion and conjecture without independent verification by the AO. The Tribunal directed the AO to delete the impugned addition and allow the assessee's claim under Section 10(38).

Conclusion:
The Tribunal allowed the appeal, directing the deletion of the impugned addition and acceptance of the assessee's claim for exemption under Section 10(38). The order was pronounced on 9th September, 2024, at Mumbai.

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