2024 (11) TMI 146 - AT - Income Tax

Addition u/s 68 - bogus share transactions - HELD THAT - The appellant made purchases and sales of the shares through SEBI registered share broker being member of the recognized stock exchange. The shares are duly reflected in the transaction of the share statement of the assessee and payment receipt of the consideration of the share value are reflected in the bank account of the appellant assessee. It admits of no doubt that SEBI is the sole authority regulating the share trading and, in its order, SEBI has held that M/s. India Infotech and Software Ltd. is not a shell company that the company was not involved in any manipulation in the price of the scrip and consequently no fraud or unfair advantage was done due to any shareholder or investor. We have also gone through the copy of contract note towards sale of the shares which has been field by the assessee in the paper book that goes to show that the average price of the share for this company in January 2022 was around Rs. 10/- per share. It is also made clear that SEBI has itself stated in its order that there is no misappropriation of funds of the company nor there is any manipulation in the price of the scrip. SEBI has further held that no disproportionate gain was caused to anyone nor created any unfair advantage to the appellants nor any specific loss was caused to any investor. There was nothing before the AO to establish any collision with any of the person involved in the manipulation of the price of share of M/s. India Infotech and Software Ltd. How the AO and ld. CIT(A) come to this conclusion that the assessee could not be able to prove the genuineness of the transaction. It is an undisputed fact that assessee has sold 2,85,000 shares of M/s. India Infotech and Software Ltd. at a price ranging from Rs. 19/- to Rs. 22/-. The shares were traded through Demat account of the assessee held with Kotak Securities Ltd., a world-wide renowned company. Copy of the contract note towards sale of the shares has also been brought before us and the same was also brought in the notice of ld. CIT(A). It is also important to mention here that the share of this company has gone as Rs. 48.6/- and as such if the assessee was so inclined and involved in receiving bogus capital gains, then the assessee would have sold the shares at the highest pick point and not in the range between Rs. 19/- to Rs. 22/- per share. Keeping in view the facts of the case, documents filed by the assessee as well as going over the cited decisions, especially the order passed by SEBI in favour of M/s. India Infotech and Software Ltd., we are of this view that additions are erroneous and liable to be deleted. Decided in favour of assessee.

Summary

Issues involved:
Appeals against orders passed under the Income Tax Act for AY 2013-14 & 2014-15; Addition of income by AO; Dismissal of appeal by CIT(A); Challenge to impugned orders; Allegations of bogus transactions; SEBI's findings on the company's legitimacy; Genuine investor defense; Legal precedents cited; Assessment of evidence by ITAT.

Detailed Analysis:
The judgment pertains to two appeals filed by the assessee against orders passed under the Income Tax Act for AY 2013-14 & 2014-15. The appeals challenged the addition of income by the Assessing Officer (AO) based on alleged bogus transactions involving shares of a specific company. The Commissioner of Income-tax (Appeals) dismissed the appeals, leading to the present challenge. The key contention raised by the assessee was that the authorities erred in making the additions without considering relevant documents and facts, asserting the distinction from a cited case. The assessee emphasized the company's legitimacy, supported by SEBI's findings and other evidence, including trading through a recognized broker and compliance with regulations.

The Appellate Tribunal analyzed the submissions, including SEBI's order exonerating the company from malpractices, a news article highlighting the company's market performance, and the contract notes for share transactions. The Tribunal also reviewed legal precedents cited by the assessee, emphasizing the need for genuine evidence and compliance with regulatory norms. Notably, the Tribunal highlighted the absence of direct evidence implicating the assessee in fraudulent activities and the lack of confrontation with relevant statements during the investigation. The Tribunal scrutinized the AO and CIT(A)'s conclusions, questioning the failure to acknowledge the genuineness of transactions and the lack of collusion evidence.

After a detailed assessment of the facts, documents, and legal precedents, particularly SEBI's favorable order, the Tribunal concluded that the additions made by the authorities were erroneous. The Tribunal found in favor of the assessee, directing the deletion of the added amounts for both AYs. The judgment underscored the importance of substantiated evidence, compliance with regulatory requirements, and the need for a thorough evaluation of the case facts. Ultimately, the appeals were allowed, and the additions to the assessee's income were set aside based on the comprehensive analysis and legal principles applied by the Appellate Tribunal.

The judgment showcases the significance of presenting compelling evidence, adherence to regulatory standards, and the critical role of legal precedents in tax dispute resolutions. It highlights the Tribunal's meticulous scrutiny of facts, documents, and authorities' decisions to ensure a just and reasoned outcome in tax assessment matters. The judgment serves as a precedent for cases involving alleged income additions based on questionable transactions, emphasizing the need for a robust defense supported by concrete evidence and compliance with regulatory frameworks.