Tribunal rules in favor of assessee, directs AO to grant exemption under Income Tax Act

The Tribunal held that the CIT(A) was not justified in upholding the AO's action of treating the long-term capital gain on the sale of shares as bogus. The AO's reliance on statements lacked evidentiary value, and there was no concrete evidence linking the assessee to price manipulation. The Tribunal emphasized the lack of verification of sale transactions by the AO and ruled in favor of the assessee, directing the AO to grant the exemption claimed under section 10(38) of the Income Tax Act. The decision was based on precedent and resulted in allowing the appeals of the assessee.

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Issues Involved:
1. Whether the CIT(A) was justified in upholding the AO's action of treating the long-term capital gain on the sale of shares of SRK Industries Ltd. as bogus and denying the exemption claimed by the assessee under section 10(38) of the Income Tax Act by taxing it under section 68 of the Act.

Issue-wise Detailed Analysis:

1. Justification of Treating Long-term Capital Gain as Bogus:
- The assessee declared long-term capital gains from the sale of shares of SRK Industries Ltd. and claimed exemption under section 10(38) of the Income Tax Act, 1961.
- The AO made an addition under section 68 of the Act on the grounds of reliance on statements from the Kolkata Investigation Wing, alleging prearranged transactions to launder undisclosed income, and the dubious nature of the financials of the involved companies.
- The AO's grounds included the purchase of shares off-market through an unknown entity, lack of reinvestment in reputed companies, and price movements of the shares.

2. Analysis of AO's Reliance on Statements:
- The Tribunal found that the statements relied upon by the AO did not mention the assessee or the brokers involved in the transactions.
- There was no evidence linking the assessee or the brokers to price rigging or manipulation.
- The Tribunal noted that these statements were not provided to the assessee for verification or cross-examination, thus lacking evidentiary value.

3. Examination of Price Movements and Trading Volume:
- The Tribunal observed that the assessee exited the market during heavy trading of SRK Industries Ltd. shares.
- It was noted that the shares were heavily traded post-January 2014, and the assessee's decision to sell was based on market conditions.
- The Tribunal emphasized that it is not the revenue's role to decide the timing and pricing of the assessee's transactions.

4. Verification of Sale Transactions:
- The Tribunal highlighted that the AO did not summon the assessee’s brokers to verify the authenticity of the sale transactions.
- The Tribunal found that SRK Industries Ltd. was still operational and listed, with no adverse SEBI orders against it.
- The Tribunal concluded that the assessee had duly discharged her onus by providing complete purchase and sale details along with supporting documents, which were not found deficient by the revenue.

5. Examination of Assessee's Investment Decisions:
- The Tribunal noted that the assessee’s investment in shares was based on advice from a friend and not necessarily on financial analysis.
- The Tribunal found that the assessee had dealt in various reputed scrips, contrary to the AO's claim of trading only in SRK Industries Ltd. shares.

6. General Submissions by the Revenue:
- The Tribunal acknowledged the revenue’s general submissions about investigations by the Kolkata Income Tax Department but found no specific evidence against the assessee.
- The Tribunal relied on several judicial precedents where similar additions were deleted due to lack of concrete evidence.

7. Judicial Precedents:
- The Tribunal referred to multiple cases where courts and tribunals have held that suspicion and conjectures cannot replace concrete evidence.
- It was emphasized that cross-examination and confrontation of evidence are essential for upholding additions based on third-party statements.

Conclusion:
- The Tribunal held that the CIT(A) was not justified in upholding the AO's action of treating the long-term capital gain as bogus.
- The Tribunal directed the AO to grant the exemption under section 10(38) of the Act to the assessee.
- The decision in the case of Smt. Geeta Khare was applied to the case of Shri Shashikant B Mhatre (HUF) due to identical facts and circumstances, resulting in the allowance of both appeals.

Order Pronounced:
- The appeals of the assessee were allowed, and the order was pronounced in the open court on 29th May 2019.

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