2018 (1) TMI 1429 - AT - Income Tax

Tribunal upholds CIT(A)'s decision in favor of assessee, emphasizing importance of documentary evidence

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, ruling in favor of the assessee. It emphasized the importance of ... Addition treating Long Term Capital Gain as income from undisclosed sources - exemption u/s.10(38) - Held that:- No specific mistake in the order of CIT(A) could be pointed out by the DR. It is a settled position of law that suspicion alone cannot be the basis for making an addition in an assessment. Suspicion cannot take place of proof. In the instant case, we find no material could be brought on record by the Revenue to impeach the related transactions. In view of the facts of the instant case and the decisions discussed hereinabove, we do not find any infirmity in the order of CIT(A). Therefore, the appeal of the Revenue is dismissed. Issues Involved:1. Whether the CIT(A) erred in deleting the addition made by the AO by treating Long Term Capital Gain (LTCG) as income from undisclosed sources.Issue-Wise Detailed Analysis:1. Treatment of Long Term Capital Gain as Income from Undisclosed Sources:Facts of the Case:The AO observed that the shares sold by the assessee, resulting in LTCG of Rs. 1,95,39,611/-, were held for slightly more than a year. The shares were purchased for Rs. 2,69,400/- and sold for Rs. 1,98,28,636/-. The AO opined that the transactions were dubious, involving penny stocks, and concluded that the assessee converted unaccounted income into white income through LTCG, thus paying a lower tax rate.Assessee's Contentions:The assessee argued that the AO's conclusions were based on general enquiries from unrelated cases involving different shares and brokers. The assessee provided comprehensive documentation, including contract notes, share certificates, Demat account statements, and evidence of Security Transaction Tax paid. The assessee highlighted that the shares were sold after 18 months and the sale proceeds were received through account payee cheques. The assessee also noted that the AO did not provide evidence connecting the assessee to the dubious brokers or allow cross-examination of the brokers whose statements were used against the assessee.CIT(A)'s Findings:The CIT(A) called for a remand report from the AO, who reiterated the findings from the assessment order. The assessee, in response, emphasized the lack of direct evidence against them and the procedural lapses, such as not allowing cross-examination. The CIT(A) observed that the AO's conclusions were based on general enquiries and not specific to the assessee's transactions. The CIT(A) noted that the transactions were conducted through a registered stock exchange and supported by valid documentation. The CIT(A) found that the shares of Multiplus Resources Ltd. were still listed and trading, further supporting the genuineness of the transactions.Tribunal's Analysis:The Tribunal reviewed the submissions and the lower authorities' orders. It noted that the AO's conclusions were based on general patterns observed in other cases without specific evidence against the assessee. The Tribunal cited several judicial precedents where similar transactions were held to be genuine, emphasizing the importance of documentary evidence supporting the transactions. The Tribunal highlighted that the AO did not provide any material evidence to prove the transactions were bogus.Judicial Precedents Cited:- CIT vs. Anupam Kapoor (2008) 299 ITR 179 (P&H): The High Court held that the AO's conclusions based on presumptions without material evidence were not sustainable. The Tribunal's finding that the transactions were genuine was upheld.- ACIT vs. Kamal Kumar S. Agrawal (Indl.) and Ors. (2010) 133 TTJ (Nag) 818: The Tribunal held that in the absence of incriminating material, the transactions supported by documentary evidence should be considered genuine.- ITO Vs. Ravindra Sanghai (HUF), ITA No.698//Kol/2010: The Tribunal upheld the genuineness of transactions supported by contract notes and Demat statements, despite the AO's suspicion of penny stock manipulation.- ITO Vs. Khalil M. Bharwani (2015) 45 CCH 0275 (Mumbai Trib): The Tribunal emphasized the importance of documentary evidence and held that transactions conducted through registered stock exchanges and supported by valid documentation should be considered genuine.- ACIT Vs. Shri Ranjitsingh D Bindra, ITA No.5534/Mum/2010: The Tribunal held that off-market transactions supported by documentary evidence should be considered genuine.- CIT Vs. Kamal Kumar Agrawal, ITA No.67 of 2010: The High Court held that transactions supported by documentary evidence and in conformity with market rates should be considered genuine.Conclusion:The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the addition made by the AO. The Tribunal emphasized that suspicion alone cannot replace proof and that the AO failed to provide material evidence to support the claim that the transactions were bogus. The appeal filed by the Revenue was dismissed.