2019 (2) TMI 1940 - AT - Income Tax

ITAT Kolkata rules in favor of assessee in Long Term Capital Gains case

The ITAT Kolkata allowed the appeal of the assessee by deleting the addition under section 68 of the Income Tax Act for Long Term Capital Gains on shares ... Bogus LTCG - Addition u/s 68 - rejection of claim of exemption made u/s 10(38) - HELD THAT:- As assessee has filed all necessary evidences in support of the transactions. Some of these evidences are (a) evidence of purchase of shares, (b) evidence of payment for purchase of shares made by way of account payee cheque, copy of bank statements, (c) copy of balance sheet disclosing investments, (d) copy of demat statement reflecting purchase, (e) evidence of sale of shares through the stock exchange, (f) copy of demat statement showing the sale of shares, (g) copy of bank statement reflecting sale receipts, (h) copy of brokers ledger, (i) copy of Contract Notes etc. The proposition of law laid down in various cited case laws by the Jurisdictional High Court as well as by the ITAT Kolkata on these issues are in favour of the assessee. Issues Involved:Sole issue: Rejection of claim of Long Term Capital Gains on shares of M/s Kappac Pharma Limited.Detailed Analysis:Issue 1: Rejection of Long Term Capital Gains ClaimThe Assessing Officer (AO) rejected the claim of the assessee regarding Long Term Capital Gains on shares of M/s Kappac Pharma Limited, deeming it as bogus. The AO based this decision on a general report and modus operandi, leading to the addition of the entire sale proceeds as income and denial of exemption under section 10(38) of the Income Tax Act, 1961. The evidence presented by the assessee supporting the transaction's genuineness was dismissed by the AO.Issue 2: Upholding of Addition by CIT(A)Upon appeal, the ld. Commissioner of Income Tax (Appeals) - 10, Kolkata (CIT(A)) upheld the addition, relying on circumstantial evidence, human probabilities, and rules of suspicious transactions. Despite the lack of direct material contradicting the assessee's evidence, the CIT(A) supported the AO's findings based on a general report from the Director of Investigation, Kolkata, not specific to the assessee.Issue 3: Arguments and PrecedentsThe Departmental Representative argued against the transaction's genuineness, citing the involvement of operators and investors in stage-managing the capital gain. Reference was made to various judgments, including those from the Tribunal and High Courts, emphasizing the taxability of such gains. However, the ITAT Kolkata and Jurisdictional Calcutta High Court consistently ruled that decisions should rely on evidence, not generalizations or suspicions, leading to the deletion of additions in similar cases.Issue 4: Decision and RationaleAfter considering the arguments and precedents, the ITAT Kolkata found that the assessee had provided substantial evidence supporting the transactions, such as purchase details, payment evidence, bank statements, demat statements, and more. Given the favorable judgments from the High Court and ITAT Kolkata, the addition under section 68 of the Act for Long Term Capital Gains was deleted, and the appeal of the assessee was allowed.This comprehensive analysis highlights the key aspects of the judgment, focusing on the rejection of the Long Term Capital Gains claim, the role of circumstantial evidence, the importance of substantial evidence, and the decisive impact of legal precedents on the final decision.