2018 (6) TMI 1451 - AT - Income Tax

Appeal dismissed, unexplained credit added, exemption denied under tax laws. (38)

Smt. Shikha Dhawan Versus ITO, Ward-4 (2), Gurgaon

Smt. Shikha Dhawan Versus ITO, Ward-4 (2), Gurgaon - TMI Issues Involved:1. Denial of exemption of long-term capital gain under section 10(38) of the Income Tax Act.2. Addition of sale consideration as unexplained credit under section 68 of the Income Tax Act.3. Non-confrontation of investigation materials and denial of cross-examination.4. Allegations of the transaction being part of a larger scheme of bogus entries.5. Non-allowance of depreciation of cost incurred on purchase of shares.Issue-wise Detailed Analysis:1. Denial of Exemption of Long-Term Capital Gain under Section 10(38):The appellant claimed an exemption of Rs. 19,39,357/- on the sale of shares under section 10(38). The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this exemption, treating the amount as unexplained credit under section 68. The AO referred to investigations by the Directorate of Investigation, Kolkata, which identified the appellant as a beneficiary of accommodation entries in a scheme involving bogus long-term capital gains. The shares were bought off-market and dematerialized shortly before sale, raising doubts about the genuineness of the transactions.2. Addition of Sale Consideration as Unexplained Credit under Section 68:The AO added Rs. 19,51,357/- to the appellant's income as unexplained credit under section 68, citing that the actual source of the credit was unaccounted cash. The AO argued that the appellant's explanation was unsatisfactory, and the transactions were part of a larger scheme to convert black money into white. The CIT(A) upheld this addition and enhanced it, noting that the entire sale proceeds should be added to the total income since the transaction was an accommodation entry.3. Non-Confrontation of Investigation Materials and Denial of Cross-Examination:The appellant contended that the AO did not confront the statements of individuals involved in the investigation or provide an opportunity for cross-examination. The appellant argued that these statements were not directly related to her and should not be used as evidence against her. The CIT(A) dismissed this argument, stating that the modus operandi of converting unaccounted funds through dubious entities was well-established and applicable to the appellant's case.4. Allegations of the Transaction Being Part of a Larger Scheme of Bogus Entries:The CIT(A) detailed the modus operandi of converting unaccounted cash into accounted form through capital gains. The appellant's transactions were found to fit this pattern, with shares purchased off-market, dematerialized shortly before sale, and sold at significantly inflated prices. The CIT(A) referred to statements from brokers and directors admitting to providing accommodation entries and concluded that the appellant's transactions were not genuine.5. Non-Allowance of Depreciation of Cost Incurred on Purchase of Shares:The appellant claimed depreciation on the cost incurred for purchasing shares, which was denied by the CIT(A). The CIT(A) argued that since the transaction was an accommodation entry, any expenditure claimed for purchasing shares was not genuine and could not be allowed as a deduction.Conclusion:The appeal was dismissed with enhancement by the CIT(A), confirming the addition of Rs. 19,51,357/- as unexplained credit under section 68 and denying the exemption under section 10(38). The appellant's arguments regarding the genuineness of transactions, non-confrontation of evidence, and denial of cross-examination were rejected. The CIT(A) concluded that the transactions were part of a larger scheme to convert unaccounted funds into accounted form through bogus long-term capital gains.