Tribunal directs AO to accept LTCG exemption claim & delete gift addition.

The Tribunal allowed the appeal, directing the AO to accept the claim of exemption of LTCG and delete the addition made towards the gift received by the assessee.

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Issues Involved:
1. Whether the CIT(A) was justified in upholding the addition of Rs. 6,44,270 treating it as income from undisclosed sources after rejecting the claim of long-term capital gains (LTCG) on the sale of shares of M/s G.K. Consultants Ltd.
2. Whether the CIT(A) was justified in upholding the addition of Rs. 4,34,400 by disbelieving the gift received by the assessee from his co-brother.

Issue 1: Addition of Rs. 6,44,270 as Income from Undisclosed Sources
The primary issue in this appeal was whether the addition of Rs. 6,44,270 as income from undisclosed sources was justified after rejecting the claim of LTCG on the sale of shares of M/s G.K. Consultants Ltd. The assessee, an individual with business income from a partnership firm, claimed LTCG of Rs. 13,13,482 as exempt. The Assessing Officer (AO) observed that the shares of G.K. Consultants Ltd were purchased in an off-market transaction and sold through a recognized stock broker. The AO made several observations, including that the purchase was made in cash, which violated SEBI and Stock Exchange rules, and the shares were dematerialized only in February 2005. The AO also noted discrepancies in the trade details and concluded that the transaction was sham and colorful, treating the LTCG as undisclosed income.

Before the CIT(A), the assessee provided various documents to support the claim, including contract notes, demat account details, and payment proofs. The CIT(A) upheld the AO's decision, reiterating the findings. The Tribunal noted that the AO's conclusion was based on suspicion and not on concrete evidence. The Tribunal found that the transaction was supported by proper documentation, including contract notes, demat account entries, and payment receipts. The Tribunal also noted that the AO did not take necessary steps to verify the transaction further with the Calcutta Stock Exchange or SEBI. Relying on judicial precedents, the Tribunal directed the AO to accept the claim of exemption of LTCG and allowed the ground raised by the assessee.

Issue 2: Addition of Rs. 4,34,400 as Income from Undisclosed Sources
The second issue was whether the addition of Rs. 4,34,400 by disbelieving the gift received by the assessee from his co-brother was justified. The AO observed that the assessee received a gift of USD 10,000 from a relative, which was credited to the assessee's bank account. The AO doubted the veracity of the gift based on discrepancies in the dates on the notarized confirmation letter and concluded that the creditworthiness of the donor was not proved. The CIT(A) upheld the AO's decision, stating that the occasion to give the gift was not proved conclusively.

Before the Tribunal, the assessee provided additional evidence, including IT returns of the donor, property tax assessments, and affidavits confirming the gift. The Tribunal found that the identity of the donor, genuineness of the transaction, and creditworthiness of the donor were proved beyond doubt. The Tribunal also noted that the gift fell under the definition of 'relative' in section 56(2) of the Act. The Tribunal held that dismissing the documents on the ground that there was no occasion to give the gift was unjust. Accordingly, the Tribunal directed the AO to delete the addition made towards the gift received by the assessee and allowed the ground raised by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to accept the claim of exemption of LTCG and to delete the addition made towards the gift received by the assessee. The order was pronounced in the open court on 02.12.2016.

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