2024 (10) TMI 852 - AT - Income Tax

Denial of exemption under section 10(38) - Addition u/s 68 - Bogus LTCG - long-term capital gains and short term capital gains accruing to the appellant as non-genuine only on the basis of general finding of Directorate of Investigation and various statements recorded by it - HELD THAT - We find that the assessee, herself never involved in price rigging of the scrips. AO has not conducted independent investigation and fully relied on the observation of the investigating authority of Kolkata. But no separate verification was conducted. The assessee has discharged her onus by submitting documents before the revenue authorities. There is no information of entry/exit provider in appeal and assessment stage. The share was duly opened by the SEBI but later on the same was revoked. The co-ordinate bench in the case of assessee s husband Shri Abhishek Tejraj Doshi 2023 (6) TMI 87 - ITAT MUMBAI Shri Abhishek Doshi 2023 (6) TMI 87 - ITAT MUMBAI has taken a view in favour of the assessee and against the revenue. There was no specific mention of the assessee in any of the recorded statements which would establish her nexus with the whole arrangement of providing and accepting accommodation entries. The assessee had carried out the transaction through recognised stock exchange and thus operated in a regulatory environment and hence the allegation that he was hand in glove with some people who operated the scheme has no evidence. The documents submitted are contract notes, demat accounts and bank accounts before the revenue authorities which are issued by unrelated third parties, cannot be treated as sham self-serving. Decided in favour of assessee.

Issues Involved:

1. Treatment of long-term and short-term capital gains as non-genuine.
2. Consideration of documentary evidence provided by the assessee.
3. Misinterpretation of SEBI order against brokers.
4. Denial of exemption under section 10(38) of the Income Tax Act.
5. Reliance on circumstantial evidence for treating transactions as non-genuine.
6. Reliance on judicial pronouncements with distinct facts.
7. Alternative claim for restricting addition if transactions are non-genuine.
8. Denial of set-off for carried forward short-term capital loss.

Issue-wise Detailed Analysis:

1. Treatment of Long-term and Short-term Capital Gains as Non-genuine:
The assessee contended that the CIT(A) erred in upholding the AO's decision to treat the capital gains as non-genuine based on general findings and statements without concrete evidence linking the assessee to the alleged bogus transactions. The tribunal found that the AO failed to provide evidence connecting the assessee to any modus operandi of price rigging or collusion with entry providers. The tribunal concluded that the mere fact of benefiting from price movements does not render the transactions non-genuine without evidence of the assessee's involvement.

2. Consideration of Documentary Evidence Provided by the Assessee:
The assessee argued that the CIT(A) disregarded documentary evidence such as bank statements, contract notes, and demat accounts, which substantiated the transactions. The tribunal noted that the AO did not dispute the authenticity of these documents. The tribunal emphasized that the documentary evidence provided was sufficient to substantiate the genuineness of the transactions, and the addition under section 68 based on presumptions was unwarranted.

3. Misinterpretation of SEBI Order Against Brokers:
The CIT(A) was criticized for misinterpreting the SEBI order against certain brokers and attributing their fraudulent activities to the assessee. The tribunal observed that the SEBI order did not implicate the assessee or establish any connection with the brokers' misconduct. The tribunal found no basis to penalize the assessee for the wrongdoings of unrelated parties.

4. Denial of Exemption Under Section 10(38) of the Income Tax Act:
The assessee claimed exemption for long-term capital gains under section 10(38), which was denied by the CIT(A). The tribunal held that all conditions for claiming the exemption were satisfied by the assessee. The tribunal directed the AO to allow the exemption, as there was no evidence to suggest that the transactions were non-genuine.

5. Reliance on Circumstantial Evidence for Treating Transactions as Non-genuine:
The CIT(A) relied on circumstantial evidence, such as price movements, to treat the transactions as non-genuine. The tribunal emphasized that circumstantial evidence alone, without direct evidence of the assessee's involvement in price manipulation, was insufficient to deem the transactions bogus.

6. Reliance on Judicial Pronouncements with Distinct Facts:
The assessee argued that the CIT(A) relied on judicial pronouncements with distinct facts, ignoring relevant decisions, including those of the jurisdictional High Court. The tribunal agreed with the assessee, noting that the facts of the cited cases were distinguishable from the present case, and the CIT(A) should have considered the jurisdictional High Court's decisions.

7. Alternative Claim for Restricting Addition if Transactions are Non-genuine:
The assessee, in the alternative, argued that if the transactions were to be treated as non-genuine, the addition should be restricted to the actual gain made. The tribunal did not find it necessary to address this issue separately, as it had already concluded that the transactions were genuine.

8. Denial of Set-off for Carried Forward Short-term Capital Loss:
The assessee claimed that the CIT(A) erred in not allowing the set-off of carried forward short-term capital loss. The tribunal, having upheld the genuineness of the transactions, directed the AO to allow the set-off as claimed by the assessee.

Conclusion:

The tribunal allowed the appeal, quashing the addition of Rs. 2,67,83,731/- and upheld the genuineness of the capital gains transactions. The tribunal emphasized the lack of evidence linking the assessee to any fraudulent activities and relied on documentary evidence and relevant judicial precedents to support its decision.

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