Tribunal dismisses Revenue's appeals, upholds deletion of Section 68 additions. Share transactions deemed genuine.

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to delete additions made by the Assessing Officer under Section 68 of the Income Tax Act. The Tribunal found the share transactions genuine, supported by evidence such as contract notes and DEMAT statements. Procedural lapses by the Assessing Officer, including not providing the assessee with relevant documents or the opportunity to cross-examine witnesses, led to the dismissal of the Revenue's appeals. The Tribunal affirmed that the additions under Section 68 were unwarranted, and both of the Revenue's appeals were consequently dismissed.

---

---

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, treating Short Term Capital Gains (STCG) as unexplained cash credits.
2. Acceptance of the genuineness of share purchase and sale transactions substantiated by allegedly bogus documents.
3. Whether the order of the Commissioner of Income Tax (Appeals) should be upheld or the Assessing Officer's order should be restored.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 of the IT Act
The Revenue's appeals contested the deletion of additions made under Section 68 of the IT Act, where the Assessing Officer (AO) treated the STCG declared by the assessee as unexplained cash credits. The AO's basis for this treatment was the alleged bogus nature of the share purchase transactions, primarily conducted through M/s. Mahasagar Securities Pvt. Ltd., a company involved in fraudulent billing activities as admitted by its director, Shri Mukesh Choksi. The AO found discrepancies such as the absence of M/s. Mahasagar Securities Pvt. Ltd. in the membership databases of NSE and ISE, and the lack of executed trades in the assessee's name during the relevant financial year.

Issue 2: Genuineness of Share Transactions
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, accepting the assessee's contention that the share transactions were genuine. The CIT(A) noted that the shares were purchased against payment, credited into the DEMAT account, sold through recognized brokers, and payments were received through banking channels. The CIT(A) also referenced Board Circulars Nos. 704 and 768, which state that the "date of purchase" should be taken from the broker's note/contract note, not the "date of dematerialization."

Issue 3: Upholding CIT(A)'s Order vs. Restoring AO's Order
The Tribunal upheld the CIT(A)'s order, emphasizing that the AO's observations were not sufficient to question the genuineness of the transactions. The Tribunal noted that the shares were indeed credited to the DEMAT account and subsequently debited upon sale, with transactions confirmed by the BSE. The Tribunal also highlighted procedural lapses such as the AO not providing the assessee with a copy of Mukesh Choksi's statement or the opportunity to cross-examine him, which is a violation of principles of natural justice.

Conclusion:
The Tribunal concluded that the CIT(A) rightly deleted the addition made by the AO under Section 68, as the transactions were supported by substantial evidence, including contract notes, DEMAT statements, and banking records. The Tribunal dismissed the Revenue's appeals, affirming that the assessee's share transactions were genuine and the additions under Section 68 were unwarranted.

Order:
Both appeals by the Revenue were dismissed, and the order was pronounced in Open Court on 14/12/2016.

---