2019 (3) TMI 156 - AT - Income Tax

Appeal allowed, addition deleted, emphasizing the importance of concrete evidence in tax assessments.

The ITAT allowed the appeal, directing the deletion of the total addition of Rs. 21,93,030/-, including the commission of Rs. 10,911/-. The Tribunal found ... Bogus Long Term Capital Gain (LTCG) - penny stock - addition u/s 68 - unaccounted sale of shares - genuineness of the purchase and sale transactions of shares - AO denying the LTCG claim relying on Investigation Wing’s general report and looking at the fundamental financials of M/s. UIL was of the opinion that the shares of M/s. UIL cannot fetch such high astronomical value per share - HELD THAT:- Assessee after purchasing the share of M/s. BREPL had taken possession of the share certificates which are evident from the bills of the respective parties and payments were made through account payee cheque. After the amalgamation of M/s. BREPL with UIL, the assessee had sold the shares of M/s. UIL through Bombay Stock Exchange. We note that the assessee had made payment of STT of the said scrips. In the light of the aforesaid documents, the assessee had discharged its burden of proving the genuinity of the transactions. We note that the AO/Ld. CIT(A) has not found fault with the aforesaid documents. AO failed to bring on board any material to suggest that the assessee had made cash payment to the purchaser of M/s. UIL from assessee which happened in the electronic platform of BSE under the strict watch of SEBI. Since there is no evidence/material to suggest leave alone substantiate the modus operandi as suggested by the general report of Investigation Wing of the Department against the assessee, the claim of assessee of LTCG on sale of shares of M/s. UIL cannot be disallowed - Decided in favour of assessee.See PRAKASH CHAND BHUTORIA VERSUS ITO, WARD-35 (1) , KOLKATA [2018 (7) TMI 46 - ITAT KOLKATA] - Decided in favour of assessee. Issues Involved:1. Confirmation of addition of Rs. 21,82,119/- claimed as Long Term Capital Gain (LTCG) on sale of shares.2. Addition of Rs. 10,911/- as commission to brokers/entry operators.Detailed Analysis:1. Confirmation of Addition of Rs. 21,82,119/- as LTCG:The main grievance of the assessee revolves around the confirmation of the addition of Rs. 21,82,119/-, which was claimed as LTCG on the sale of shares of M/s. Uno Industries Ltd. (UIL). The assessee contended that the shares were purchased and sold through legitimate transactions, supported by various documents such as broker’s contract notes, share certificates, demat statements, and bank statements evidencing the receipt of sale proceeds through regular banking channels.The Assessing Officer (AO) questioned the genuineness of the LTCG claim, citing a significant increase in the value of shares, which seemed improbable. The AO relied on a general report from the Directorate of Investigation detailing the modus operandi of penny stock companies manipulating share prices for beneficiaries' benefit. Consequently, the AO deemed the LTCG claim as bogus and added Rs. 21,82,119/- to the assessee's income.On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. The assessee then brought the case before the ITAT, arguing that all necessary documents were provided to substantiate the transactions and that the AO had no material evidence to support the adverse inference drawn.The ITAT noted that the assessee had indeed provided comprehensive documentation to prove the genuineness of the transactions, including purchase bills, demat statements, and evidence of payment of Securities Transaction Tax (STT). The ITAT found no fault in the documents provided by the assessee and noted that the AO had not presented any evidence to suggest that the transactions were false or fabricated. The Tribunal emphasized that suspicion, however strong, cannot replace concrete evidence. The ITAT also referenced similar cases where the Tribunal had upheld the genuineness of LTCG claims on share transactions, such as the case of Prakash Ch. Bhutoria.2. Addition of Rs. 10,911/- as Commission to Brokers/Entry Operators:In addition to the LTCG claim, the AO also added Rs. 10,911/- to the assessee's income, assuming it to be a commission paid to brokers or entry operators. This addition was based on the assumption that the assessee might have given a commission to facilitate the alleged bogus transactions.The ITAT, however, found no material evidence to support this assumption. The Tribunal reiterated that the AO's conclusions were based on general suspicion and the modus operandi described in the Directorate of Investigation's report, without any specific evidence linking the assessee to such activities. Consequently, the ITAT directed the AO to delete the addition of Rs. 10,911/-.Conclusion:The ITAT concluded that the assessee had successfully discharged the burden of proving the genuineness of the LTCG transactions through substantial documentary evidence. The Tribunal found no basis for the AO's and CIT(A)'s adverse conclusions, which were primarily based on suspicion rather than concrete evidence. Therefore, the ITAT allowed the appeal, directing the deletion of the total addition of Rs. 21,93,030/-, including the commission of Rs. 10,911/-. The judgment underscores the importance of concrete evidence over suspicion in tax assessments and reinforces the principle that legitimate transactions, supported by proper documentation, cannot be disregarded based on general reports or assumptions.