2018 (11) TMI 261 - AT - Income Tax

Tribunal grants LTCG exemption, stresses importance of concrete evidence in tax disputes

Smt. Madhu Killa Versus Assistant Commissioner of Income-tax, Circle-36, Kolkata.

The Tribunal allowed the appeal of the assessee, holding that the Assessing Officer erred in rejecting the claim of Long Term Capital Gain (LTCG) ... Unexplained cash credit u/s 68 - Bogus LTCG - addition of sale proceeds of the shares as undisclosed income - assessee introduced unaccounted money by way of bogus LTCG - exemption u/s 10(38) denied - addition of commission - Held that:- We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act - Decided in favour of assessee. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We note that though the department was aware that the assessee had purchased the 25000 shares of M/s. NFGL in AY 2013-14, for ₹ 32,21,269/- has not reduced the same from the total sale consideration of ₹ 2.16 cr. It is elementary that income can be computed only after defraying the cost. So the action of AO to add the entire sale consideration of ₹ 2.16 cr. itself is arbitrary exercise of power and cannot be sustained. Therefore, the action of the Ld. CIT(A) in confirming the addition of entire sale consideration of M/s. NFGL is perverse and is directed to be deleted. Consequently, the addition of 5% as commission to the tune of ₹ 10,82,460/- cannot be also sustained and ordered to be deleted. - Decided in favour of assessee. Issues Involved:1. Legitimacy of Long Term Capital Gain (LTCG) claimed by the assessee.2. Assessment of the transaction as bogus by the Assessing Officer (AO).3. Addition of sale consideration as income under Section 68 of the Income-tax Act, 1961.4. Estimation and addition of commission expenses under Section 69C.5. Burden of proof and the role of evidence in supporting the assessee's claim.6. Relevance of SEBI and Investigation Wing reports in the assessment.Detailed Analysis:1. Legitimacy of Long Term Capital Gain (LTCG) Claimed by the Assessee:The assessee claimed LTCG exemption under Section 10(38) of the Income-tax Act, 1961, from the sale of shares of M/s. Nikki Finance Global Ltd. (NFGL). The AO doubted the transaction, considering it bogus based on SEBI and Investigation Wing reports. The assessee provided substantial documentary evidence, including contract notes, demat statements, and bank statements, to establish the genuineness of the transactions.2. Assessment of the Transaction as Bogus by the Assessing Officer (AO):The AO added the entire sale consideration of Rs. 2.16 crore as income, alleging the transaction was off-market and doubting the astronomical gains. The AO also estimated a commission expense of Rs. 10,82,460/- and added it to the income. The AO's findings were based on suspicion and presumption, without concrete evidence. The assessee argued that the shares were purchased through a recognized stock broker on the Bombay Stock Exchange and provided supporting documents.3. Addition of Sale Consideration as Income under Section 68:The AO treated the sale proceeds as unexplained cash credits under Section 68. The assessee contended that the transactions were genuine, supported by documentary evidence, and conducted through recognized stock brokers. The Tribunal found that the AO failed to bring any material evidence to prove the transactions were bogus or that the assessee introduced unaccounted money.4. Estimation and Addition of Commission Expenses under Section 69C:The AO estimated a commission of 5% on the sale value, adding Rs. 10,82,460/- to the income. The Tribunal noted that the AO did not provide any basis or evidence for this estimation. The assessee argued that the commission was presumed without any factual basis or verification.5. Burden of Proof and the Role of Evidence in Supporting the Assessee's Claim:The assessee furnished all necessary documents to prove the genuineness of the transactions. The Tribunal emphasized that once the assessee discharged the onus of proof, the burden shifted to the AO to disprove the evidence. The AO did not find any fault with the documents provided by the assessee and did not bring any adverse material on record.6. Relevance of SEBI and Investigation Wing Reports in the Assessment:The AO relied on SEBI and Investigation Wing reports to doubt the transactions. However, the Tribunal noted that the AO did not provide any specific findings from these reports that directly implicated the assessee. The Tribunal held that suspicion, however strong, cannot replace legal evidence. The AO's conclusions were based on circumstantial evidence and preponderance of probabilities, without concrete proof.Conclusion:The Tribunal found that the AO and CIT(A) erred in rejecting the assessee's claim of LTCG exemption based on suspicion and presumption. The assessee provided substantial evidence supporting the genuineness of the transactions. The Tribunal directed the deletion of the entire sale consideration added as income and the estimated commission expenses. The appeal of the assessee was allowed.