2019 (8) TMI 1429 - AT - Income Tax

Tribunal denies LTCG exemption, upholds addition of commission expenses under Income-tax Act

Shri Sandeep Bhargava Versus ACIT, Circle-60 (1), New Delhi

The Tribunal upheld the Assessing Officer's findings that the Long Term Capital Gain (LTCG) on the sale of shares was not genuine, denying the exemption ... Bogus LTCG - addition u/s 69 - benefit of section 10(38) denied - Sale of shares as not genuine allegedly on the ground that purchase of those shares is a sham transaction - HELD THAT:- Contention of the assessee that the transaction leading to long-term capital gains are supported by documents such as sale and purchase invoices, bank statement etc., cannot be accepted in view of the facts and circumstances of the case brought on record by the AO after proper examination of the material facts and taking into account corroborating evidences gathered by the Directorate of Income-tax (Investigation), Kolkata, involving a network of brokers and operators engaged in manipulation of market price of the shares of the shares of the HBC bioscience controlled and managed by such person with a purpose to provide accommodation entries in the form of long-term capital gains. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the share of ‘HBC bioscience’ despite weak financials of the company. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a pre-planned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute - Decided against assessee. Issues Involved:1. The genuineness of the Long Term Capital Gain (LTCG) on the sale of shares.2. The addition of commission expenses allegedly incurred for arranging accommodation entries.Detailed Analysis:1. Genuineness of Long Term Capital Gain (LTCG) on Sale of Shares:The primary issue revolves around the confirmation by the CIT(A) of the Assessing Officer's (AO) finding that the LTCG of Rs. 58,89,195 on the sale of shares was not genuine. The AO held that the purchase of shares was a sham transaction and added the amount to the income of the appellant under section 69 of the Income-tax Act, 1961, denying the exemption claim under section 10(38).- Facts and Submissions:- The assessee, engaged in running a proprietorship firm, declared a total income of Rs. 16,62,370 for the assessment year 2015-16, claiming LTCG on the sale of shares of 'HPC Bioscience Ltd.' as exempt under section 10(38).- The AO, during scrutiny, found that the sharp rise in the price of shares was not commensurate with the company's financials and suspected manipulation by brokers, directors, and shell companies to generate bogus LTCG.- The AO held the sale proceeds as accommodation entries for converting unaccounted income and estimated unexplained commission expenses, making a total addition of Rs. 60,65,870.- The assessee provided documentary evidence of purchase, dematerialization, and sale of shares, arguing that all conditions for claiming exemption under section 10(38) were met.- Department's Position:- The Department argued that the documents were merely paper trails and circumstantial evidence suggested routing of unaccounted money through accommodation entries.- The AO referred to an investigation by the Directorate of Income-tax (Investigation), Kolkata, revealing organized rackets for generating bogus LTCG.- The AO highlighted the improbability of the transaction, given the company's weak financials and the astronomical rise in share prices.- Tribunal's Findings:- The Tribunal noted that the financials of 'HPC Bioscience Ltd.' did not justify the sharp increase in share prices.- It was found that the assessee's investment pattern in 'HPC Bioscience Ltd.' was an outlier compared to his usual investments in established companies.- The Tribunal upheld the AO's findings, relying on various judicial precedents, including the Supreme Court's decision in Sumati Dayal vs. CIT, which emphasized the importance of human probabilities in assessing the genuineness of transactions.- The Tribunal also referred to SEBI's findings indicating manipulative trading practices in the shares of 'HPC Bioscience Ltd.'2. Addition of Commission Expenses:The second issue pertains to the addition of Rs. 1,76,675 on account of alleged commission expenses for arranging accommodation entries.- Facts and Submissions:- The AO estimated unexplained commission expenses at 3% for arranging accommodation entries and made a corresponding addition.- The assessee argued that the addition was made merely on the basis of suspicion without any material evidence.- Department's Position:- The Department supported the AO's estimation, arguing that the commission expenses were part of the modus operandi for generating bogus LTCG.- Tribunal's Findings:- The Tribunal upheld the AO's estimation of commission expenses, finding it reasonable given the circumstances and the evidence of manipulation in the share transactions.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the additions made by the AO and confirmed by the CIT(A). The Tribunal found that the assessee failed to discharge the burden of proof to establish the genuineness of the LTCG and the related transactions. The Tribunal also confirmed the addition of commission expenses, finding it consistent with the evidence of accommodation entries. The appeal was dismissed in its entirety.