2024 (11) TMI 1298 - AT - Income Tax

Reopening of assessment u/s 147 - denying claim of exemption under section 10(38) of the Act in respect of Long Term Capital Gain (LTCG) on sale of shares of Sunstar Realty Development Ltd. (SRDL) - HELD THAT - Assessee s case does not fall under the modus operandi stated by the learned AO in the aforesaid reasons. As stated earlier, the assessee has bought the shares in IPO by making payments through cheque. The assessee held the shares for more than a year and sold it in open market through a registered share broker by suffering STT. Due reduction of shares have also been made from the Demat statement of the assessee to the extent of sales made by the assessee. Hence, it could be safely concluded that the very basis of formation of belief of the learned AO that income has escaped assessment in the reasons recorded is fallacious. AO also refers to split of the shares of SRDL which had happened in the year 2015 so as to allege malafide motive on the part of the assessee. But it is pertinent to note that assessee herein had actually sold the shares in June, 2014 itself much before the act of splitting of shares. Hence, we have no hesitation to hold that the case of the assessee does not fall under modus operendi mentioned in the reasons recorded by the AO thereby making his entire formation of belief per se fallacious. Accordingly, the reasons recorded does not have live link to the formation of belief of the learned AO vis- -vis the facts of the instant case. Hence, the reopening made under section 147 of the Act is based on incorrect assumption of facts. Decided against revenue. Addition made on account of cash deposits made during the demonetization period - There is absolutely nothing unusual in the act or conduct of the assessee during the demonetization period. Further, the entire cash sales made by the assessee were duly reflected in the VAT returns of the assessee. The assessee had indeed sufficient cash balance in its kitty to make the cash deposits throughout the year and also during the demonetization period. The assessee also submitted the entire sale bills before the learned AO. These facts were duly appreciated by the learned CIT(A) and accordingly the addition made by the learned AO under section 69A of the Act stood deleted by the learned CIT(A). We do not find any infirmity in the said action of the learned CIT(A). Accordingly, the grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Jurisdiction for reopening of assessment under section 147 of the Income-tax Act.
2. Denial of claim of exemption under section 10(38) of the Act in respect of Long Term Capital Gain (LTCG) on sale of shares.
3. Addition made on account of cash deposits during demonetization period.

Analysis:

Issue 1:
The case involved challenges to the assumption of jurisdiction for reopening of assessment under section 147 of the Income-tax Act and denial of exemption under section 10(38) for Long Term Capital Gains (LTCG) on the sale of shares. The assessee had bought shares in an IPO and later sold them in the secondary market after holding them for more than a year. The Assessing Officer (AO) sought to reopen the assessment based on information received regarding alleged bogus capital gains involving the shares of a specific company. However, it was found that the reasons recorded for reopening did not have a live link to the facts of the case. The Tribunal held that the basis of the AO's belief that income had escaped assessment was fallacious, as the assessee's transactions did not align with the alleged modus operandi. Consequently, the reassessment was quashed.

Issue 2:
Regarding the denial of exemption under section 10(38) for LTCG on the sale of shares, it was established that the assessee had purchased the shares legitimately, held them for a significant period, and sold them through a registered share broker in compliance with tax regulations. The Tribunal concluded that the AO's suspicions based on unrelated information did not hold, and the denial of the exemption was unjustified. As a result, the appeal for the assessment year 2015-16 was allowed in favor of the assessee.

Issue 3:
The second part of the judgment addressed the addition made on account of cash deposits during the demonetization period. The assessee, engaged in the trading business, had made substantial cash deposits during the specified period. The AO questioned the source of these deposits, suspecting an attempt to convert unaccounted income into accounted income due to demonetization. However, the assessee provided detailed explanations and evidence to justify the cash deposits, including legitimate business growth and agreements with suppliers. The Tribunal concurred with the CIT(A)'s decision to delete the addition under section 69A of the Act, as the cash deposits were adequately explained and supported by documentation. Consequently, the appeal for the assessment year 2017-18 was dismissed in favor of the assessee.

In conclusion, the Tribunal allowed the appeal for the assessment year 2015-16 and dismissed the appeal for the assessment year 2017-18, resolving the issues related to jurisdiction for reopening assessment, denial of exemption for LTCG, and addition on account of cash deposits during demonetization.