2018 (5) TMI 1915 - AT - Income Tax

Tribunal Upholds AO's Decision on Tax Evasion Scheme, Denies Exemption

The Tribunal upheld the Assessing Officer's decision to deny exemption under Section 10(38) of the Income Tax Act and treat the entire sale consideration ... Bogus LTCG - Addition u/s 68 - exemption u/s 10 (38) denied pattern detected by the Investigation Wing, the SIT report on misuse of exemption on LTCG tax for money laundering - HELD THAT:- In view of the information provided by the Investigation Wing, Kolkatta, the recommendations of SIT on Black money etc, the AO required the assessee to prove her claim of exemption. After considering her reply etc held, inter alia, that it is clear that the assessee has manipulated the sale of shares within a short span of time in collusion with the brokers in order to earn tax free exempt long term capital gains on sale of shares u/s. 10(38) etc. It is clear from the orders of the Lower authorities that the assessee has not placed any material to prove that her transactions are genuine. She has also not placed any material to prove that her claim of exemption u/s 10 (38) is genuine and valid. Since, the right to exemption must be established by those who seek it, the onus therefore, lies on them. Assessee has not established her case. Though it did cross in our minds, that the assessee could be granted another opportunity to produce evidences in the form of producing the books involved in the transactions, their contemporary records, share transfer forms, the records of the company whose shares has been dealt with etc., for examination before the A.O, we are not inclined to restore this issue to the A.O as the assessee has not produced any convincing evidence to justify such re-adjudication by the A.O. - Decided against assessee. Issues Involved:1. Denial of exemption under Section 10(38) of the Income Tax Act.2. Treatment of entire sale consideration as unexplained cash credit under Section 68.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 10(38):The assessee, an individual settled in the USA, declared Long Term Capital Gains (LTCG) of Rs. 45,79,550 from the sale of 6000 shares of M/s Surabhi Chemicals and Investment P. Ltd., claiming it as exempt income under Section 10(38). The Assessing Officer (AO) questioned the genuineness of the transaction based on findings from a country-wide investigation by the Investigation Wing of Kolkata, which uncovered a racket generating bogus LTCG entries. The modus operandi involved artificially inflating share prices through circular trading and then selling these shares to dummy companies to claim tax exemptions. The AO, relying on the Special Investigation Team (SIT) report and the Delhi ITAT judgment in Harsh Win Chadha Vs. DCIT, disallowed the exemption, treating the transaction as manipulated and not genuine.2. Treatment of Entire Sale Consideration as Unexplained Cash Credit under Section 68:The AO treated the entire sale consideration as an unexplained credit under Section 68, citing the assessee's inability to substantiate the genuineness of the transactions. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, referencing the Calcutta High Court's judgment in Mriganka Mohan Sur Vs. CIT, which emphasized the need for the assessee to prove the genuineness of share transactions, especially in penny stocks. The CIT(A) found no evidence to support the assessee's claim that the transactions were bona fide, noting the lack of financial growth in the company and the artificial inflation of share prices.Arguments and Findings:The assessee argued that the investment was bona fide, made on the advice of her grandfather, and that the authorities failed to appreciate the evidence provided. However, the Departmental Representative (DR) highlighted the findings of the lower authorities, including the modus operandi of rigging share prices and the SIT report on tax evasion through penny stocks. The DR also cited the Bombay High Court's decision in Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. The PR. CIT-1, supporting the AO's conclusions.Tribunal's Decision:The Tribunal reviewed the facts and found that the assessee purchased shares offline at a price significantly higher than their market value, with no financial indicators justifying such a price increase. The trading patterns suggested collusion and manipulation, with synchronized orders and static trade prices. The Tribunal concurred with the lower authorities that the transactions were premeditated and aimed at tax evasion. The assessee failed to provide any material evidence to disprove the findings or substantiate the claim of exemption under Section 10(38).Legal Precedents:The Tribunal referenced the Supreme Court's judgments in Sumati Dayal Vs. Commissioner Of Income-Tax and Kale Khan Mohammad Hanif Vs. Commissioner of Income-Tax, emphasizing that the onus of proving the genuineness of transactions and the right to exemption lies with the assessee. The apparent must be considered real unless proven otherwise, and taxing authorities are entitled to examine the surrounding circumstances.Conclusion:The Tribunal dismissed the appeal, affirming the AO's decision to deny the exemption under Section 10(38) and treat the sale consideration as unexplained cash credit under Section 68. The assessment was upheld as per the Supreme Court's legal principles, and no further opportunity was granted to the assessee to produce additional evidence.Order Pronounced:The order was pronounced in the Open Court on May 15, 2018, at Chennai.