2015 (10) TMI 2299 - AT - Income Tax

Tribunal rules in favor of assessee, rejects undisclosed income addition

The Tribunal allowed the appeal in favor of the assessee, holding that the assessee had proven the genuineness of the purchase and sale of shares. The ... Genuineness of the transaction - Sale proceeds of shares in Bolton Properties Ltd. received by the appellant as income from undisclosed sources - assessee claimed the same as exempt under section 10(38) - Held that:- Considering the fact that some of the transactions were off marked transaction cannot be a ground to treat the transaction as a sham transaction. We are of the considered opinion that the assessee has discharged its onus of proving the fact that shares were purchased by the assessee in the year 2002 which were dematerialized in the Demat account of the assessee on 23/5/2003 and therefore these shares were held by the assessee up till the same were sold from the Demat account of the assessee. The transaction of holding shares are reflected in the Demat account and the sale of shares are also through Demat account and consequently the transaction cannot be doubted as sham or bogus transaction. Hence, we delete the addition made by the AO on this account. The orders of the authorities below qua this issue are set aside. - Decided in favour of assessee. Issues Involved:1. Addition of Rs. 48,59,131/- as income from undisclosed sources.2. Documentary evidence and suspicion of the transaction.3. Rebuttal opportunity for the material relied upon by the Assessing Officer (AO).Detailed Analysis:1. Addition of Rs. 48,59,131/- as Income from Undisclosed Sources:The primary issue in this appeal is the addition of Rs. 48,59,131/- made by the AO, which was confirmed by the CIT(A), treating the sale proceeds of shares in Bolton Properties Ltd. (BPL) as income from undisclosed sources. The assessee claimed this amount as long-term capital gains (LTCG) exempt under section 10(38) of the Income-tax Act, 1961. The AO based this addition on information from the DDI, Calcutta, suggesting that the capital gain from the sale of BPL shares was an arranged and colorful transaction, commonly known as a 'Penny Stock transaction'. The AO further sought information from the Calcutta Stock Exchange, which indicated no transaction on the specified date by the broker involved. Consequently, the AO treated the transaction as a sham and denied the claim of LTCG, assessing the sale consideration as unexplained income.2. Documentary Evidence and Suspicion of the Transaction:The assessee contended that the shares were purchased on 11/4/2002 and held in a Demat account since 2003. The assessee provided various documents, including the purchase bill, contract note, Demat account statement, and bank statement showing the receipt of sale proceeds. The AO, however, relied on the DDI report and information from the Calcutta Stock Exchange to dispute the genuineness of the purchase transaction. The Tribunal noted that the shares were dematerialized and recorded in the Demat account of the assessee since 23/5/2003, and held till their sale in 2007 and 2008. The Tribunal emphasized that the AO did not dispute the sale transaction but only the purchase transaction, which was not justified given the evidence provided by the assessee.3. Rebuttal Opportunity for the Material Relied Upon by the AO:The assessee argued that the material relied upon by the AO was not provided for rebuttal. The Tribunal observed that the AO's reliance on the DDI report in the case of Shri Amrutal H. Chithalia was misplaced, as this Tribunal had already decided in favor of the assessee in that case, holding the transactions to be genuine. The Tribunal further noted that the Calcutta Stock Exchange's report did not conclusively prove the transaction as bogus, especially since the transactions could have been off-market. The Tribunal cited various judgments, including those from the Hon'ble jurisdictional High Court, supporting the genuineness of transactions reflected in the Demat account and not necessarily executed on the stock exchange.Conclusion:The Tribunal concluded that the assessee had discharged its onus of proving the genuineness of the purchase and sale of shares. The shares were held in the Demat account since 2003, and the transactions were reflected in the balance sheet. The Tribunal found no basis to doubt the transactions as sham or bogus and thus deleted the addition made by the AO. The appeal was allowed in favor of the assessee.