2025 (4) TMI 407 - AT - Income Tax

Addition u/s 68 - Bogus LTCG on the sale of shares - as alleged that assessee had brought its unaccounted money in the books of account through accommodation entry involving sale and purchase of this alleged penny scrip - HELD THAT - We note that transactions were undertaken through the SEBI registered broker Joindre Capital Services Ltd. on the stock exchange platform on which STT was levied and the consideration was routed through normal banking channel. The entire flow of these transactions is corroborated by relevant documentary evidences placed on record. While making the addition there are no discrepancies pointed out by the Assessing Officer in the documents and the details furnished by the assessee. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. To our mind Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office. Once the assessee has produced documentary evidence to establish the veracity of his claim the burden would shift on the Revenue to establish its case. AO had proceeded on the basis of analysis of the financials of the company. According to him sharp movement in the share prices of the aforesaid scrip is not justified. He has relied upon the search and survey operations conducted by the investigation wing of the Department at various locations in respect of alleged penny stock which sets out the modus operandi adopted in the business of providing entries for bogus capital gains. The conclusion drawn by the ld. Assessing Officer of implicating the assessee is un-supported by any cogent material on record. We delete the addition made u/s 68 towards proceeds of sale of listed shares of Goenka Business and Finance Ltd. which gave rise to Long Term Capital Gain on the said sale claimed exempt by the assessee u/s 10(38). Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment were:

1. Whether the additions made under Section 68 of the Income Tax Act regarding long-term capital gains on the sale of shares of Goenka Business Finance Ltd. were justified.

2. Whether the principles of natural justice were violated by not providing the assessee with a cross-examination of the witness.

3. Whether the reopening of the assessment under Section 148 was valid, given that the search was initiated under Section 132, which typically mandates assessment under Sections 153A or 153C.

4. Whether the assessment order was based on direct evidence or merely on the report of the Investigation Wing, leading to additions based on suspicion.

5. Whether the entire sale consideration was incorrectly added under Section 68 without accounting for the cost of acquisition of the shares.

6. Whether the reasons for reopening the assessment proceedings were valid, given they were based on information from the Investigation Wing without supporting material.

ISSUE-WISE DETAILED ANALYSIS

1. Additions under Section 68:

- Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The assessee must satisfactorily explain the nature and source of the credits.

- Court's interpretation and reasoning: The Tribunal noted that the transactions were conducted through a SEBI-registered broker and were supported by documentary evidence, including contract notes and bank statements. No discrepancies were found in these documents by the Assessing Officer.

- Key evidence and findings: The assessee provided contract notes, ledger accounts, bank statements, and proof of STT payment. The Tribunal found no material evidence from the Revenue to substantiate the claim of bogus transactions.

- Application of law to facts: The Tribunal applied the legal principles established in similar cases, emphasizing the genuineness of documented transactions unless contradicted by substantial evidence.

- Treatment of competing arguments: The Tribunal rejected the Revenue's reliance on the Investigation Wing's report without corroborative evidence.

- Conclusions: The Tribunal concluded that the additions under Section 68 were not justified as the assessee had discharged his burden of proof.

2. Principles of Natural Justice:

- Relevant legal framework and precedents: The principles of natural justice require that parties have the opportunity to cross-examine witnesses whose statements are relied upon.

- Court's interpretation and reasoning: The Tribunal noted the lack of opportunity for cross-examination, which violated the principles of natural justice.

- Conclusions: The Tribunal found the assessment flawed due to this procedural lapse.

3. Jurisdiction for Reopening under Section 148:

- Relevant legal framework and precedents: Sections 153A and 153C are typically invoked for assessments following a search under Section 132.

- Court's interpretation and reasoning: The Tribunal questioned the jurisdictional validity of reopening under Section 148 in the context of a Section 132 search.

- Conclusions: The Tribunal found the reopening under Section 148 to be jurisdictionally inappropriate.

4. Evidence Basis for Assessment:

- Relevant legal framework and precedents: Assessments should be based on concrete evidence rather than suspicion or uncorroborated reports.

- Court's interpretation and reasoning: The Tribunal criticized the reliance on an untested report from the Investigation Wing without direct evidence.

- Conclusions: The Tribunal concluded that the assessment lacked a substantive evidentiary basis.

5. Incorrect Addition of Sale Consideration:

- Relevant legal framework and precedents: Section 68 requires the unexplained credit to be added, not the entire transaction amount.

- Court's interpretation and reasoning: The Tribunal acknowledged the error in adding the entire sale consideration without deducting the cost of acquisition.

- Conclusions: The Tribunal found the addition to be incorrect and unsupported by the facts.

6. Validity of Reopening Reasons:

- Relevant legal framework and precedents: Reasons for reopening must be based on tangible material.

- Court's interpretation and reasoning: The Tribunal found the reasons for reopening to be based on mere information without supporting material.

- Conclusions: The Tribunal deemed the reopening reasons invalid.

SIGNIFICANT HOLDINGS

- The Tribunal emphasized that transactions conducted through registered brokers with proper documentation should not be deemed bogus without substantial evidence.

- The Tribunal underscored the importance of adhering to natural justice principles, particularly the right to cross-examination.

- The Tribunal reiterated that jurisdictional provisions must be correctly applied, especially in cases involving searches under Section 132.

- The Tribunal highlighted that assessments should be evidence-based, not reliant on suspicion or uncorroborated reports.

- The Tribunal ruled that reopening assessments must be grounded in tangible material, not mere information.

- The Tribunal allowed the appeal, deleting the addition made under Section 68 and affirming the assessee's claim of exemption under Section 10(38).