2025 (1) TMI 1174 - AT - Income Tax

Bogus LTCG/STCG - Addition u/s 68 - assumption made by AO about jacking of prices and booking of capital gains - HELD THAT -We find that on similar set of facts in assessees group case the SMC bench of this Tribunal in Neelu Mahansaria 2023 (8) TMI 1611 - ITAT SURAT held that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore no justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. Addition of undisclosed income under section 68 is deleted. Ground of assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues presented and considered in this judgment are as follows:

Whether the assessment order passed under section 143(3) of the Income Tax Act, 1961, is invalid and bad in law due to jurisdictional errors, specifically the issuance of notice under section 143(2) by an officer who did not pass the assessment order.
Whether the addition of Rs. 43,69,967/- under section 68 of the Income Tax Act, relating to the alleged non-genuine long-term capital gains (LTCG) from the sale of shares, is justified.
Whether the addition of Rs. 2,18,498/- under section 69C of the Income Tax Act, on account of unexplained expenditure presumed to be incurred for arranging the LTCG, is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Assessment Order

Relevant legal framework and precedents: The legal framework involves sections 143(2) and 143(3) of the Income Tax Act, 1961, concerning the issuance of notices and the jurisdiction of assessing officers. The precedent cited is the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which allows for the admission of additional grounds involving legal issues based on facts already on record.
Court's interpretation and reasoning: The Tribunal considered the jurisdictional issue raised by the appellant, noting that the notice under section 143(2) was issued by a different officer than the one who passed the assessment order. The Tribunal found merit in the appellant's argument that the assessment order was passed without proper jurisdiction.
Key evidence and findings: The Tribunal noted the absence of an order under section 127 of the Act for the transfer of jurisdiction, which supported the appellant's claim of jurisdictional error.
Application of law to facts: The Tribunal applied the principle that jurisdictional requirements must be strictly followed, and any deviation renders the assessment order invalid.
Treatment of competing arguments: The Tribunal acknowledged the Revenue's argument that the appellant did not object during the assessment proceedings. However, it emphasized the importance of legal compliance over procedural participation.
Conclusions: The Tribunal concluded that the assessment order was invalid due to jurisdictional errors.

Issue 2: Addition under Section 68 for LTCG

Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The Tribunal referenced its own precedents and decisions from higher courts that require substantive evidence to treat LTCG as non-genuine.
Court's interpretation and reasoning: The Tribunal found that the Assessing Officer's reliance on the modus operandi of penny stocks and the report from the Investigation Wing was insufficient without concrete evidence against the appellant.
Key evidence and findings: The appellant provided documentary evidence, including contract notes, demat account details, and bank statements, to support the genuineness of the transactions.
Application of law to facts: The Tribunal applied the principle that genuine transactions supported by evidence should not be disallowed based on mere suspicion or external investigations.
Treatment of competing arguments: The Tribunal considered the Revenue's argument about the improbability of such high gains but emphasized the lack of direct evidence against the appellant.
Conclusions: The Tribunal allowed the appeal on this ground, deleting the addition under section 68.

Issue 3: Addition under Section 69C for Unexplained Expenditure

Relevant legal framework and precedents: Section 69C pertains to unexplained expenditure. The Tribunal referenced its decision in a similar case involving the appellant's family member, where such additions were deleted.
Court's interpretation and reasoning: The Tribunal found no evidence of actual expenditure incurred by the appellant to arrange the LTCG.
Key evidence and findings: The Tribunal noted the absence of any findings or evidence of expenditure by the appellant.
Application of law to facts: The Tribunal applied the principle that additions under section 69C require evidence of actual expenditure, which was lacking in this case.
Treatment of competing arguments: The Tribunal dismissed the Revenue's reliance on assumptions and hypothetical calculations.
Conclusions: The Tribunal deleted the addition under section 69C.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Merely because there was an allegation and investigation was done by SEBI against the company, the assessee cannot be said to have entered into ingenuine transactions."
Core principles established: The Tribunal reinforced the principles of jurisdictional compliance, the requirement of substantive evidence for disallowing LTCG, and the necessity of evidence for additions under section 69C.
Final determinations on each issue: The Tribunal declared the assessment order invalid due to jurisdictional errors, deleted the addition under section 68 for LTCG, and deleted the addition under section 69C for unexplained expenditure.

The judgment highlights the importance of adhering to jurisdictional requirements and the necessity of concrete evidence when making additions under sections 68 and 69C of the Income Tax Act. The Tribunal's decisions were consistent with established legal principles and prior rulings in similar cases.

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