Tribunal deletes tax additions, finds transactions genuine with strong evidence. Revenue criticized for lack of proof.

The Tribunal allowed the appeal, deleting the additions of Rs. 1,69,12,820/- and Rs. 5,07,385/- under the Income Tax Act. The Tribunal found the transactions genuine, supported by documentary evidence, and criticized the Revenue for lack of concrete evidence or specific defects against the assessee. The decision was pronounced on 02/04/2019.

---

---

Issues Involved:
1. Addition of Rs. 1,69,12,820/- as unexplained cash credit under Section 68 of the Income Tax Act.
2. Onus of proving the source of funds amounting to Rs. 1,69,12,820/-.
3. Genuineness of the transactions and the evidence provided.
4. Adverse inference drawn based on general modus operandi.
5. Addition based on suspicion, surmises, and conjectures.
6. Addition of Rs. 5,07,385/- as unexplained expenditure under Section 69 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,69,12,820/- as unexplained cash credit under Section 68 of the Income Tax Act:
The assessee purchased shares of M/s Dhanleela Investment & Trading Co. Ltd. and received bonus shares, which were later sold through a registered broker in the Bombay Stock Exchange, paying Securities Transaction Tax (STT). The Assessing Officer (AO) observed a significant increase in the company’s share capital without financial backing, suspecting it was a predetermined action to create non-genuine Long Term Capital Gains (LTCG). The AO concluded the transactions were sham and treated the sale proceeds of Rs. 1,69,12,820/- as unexplained cash credits under Section 68, taxed at 30% under Section 115BBE.

2. Onus of proving the source of funds amounting to Rs. 1,69,12,820/-:
The Commissioner of Income Tax (Appeals) upheld the AO’s decision, stating the assessee failed to discharge the onus of proving the source of funds. The documents provided by the assessee were deemed a smoke screen to cover the true nature of transactions, which were considered arranged to create bogus profits under LTCG.

3. Genuineness of the transactions and the evidence provided:
The assessee provided various documents, including ledger accounts, bank statements, demat statements, and annual accounts of M/s Dhanleela Investment & Trading Co. Ltd., indicating the movement and sale of shares. The Tribunal noted that no defects were pointed out in these documents by the AO or CIT(A). The Tribunal emphasized that suspicion alone cannot be the basis to treat LTCG as non-genuine without deeper investigation and concrete evidence.

4. Adverse inference drawn based on general modus operandi:
The AO relied on statements from brokers who admitted the company was used to provide bogus LTCG. However, these statements were not made available to the assessee, nor was the assessee allowed to cross-examine the brokers. The Tribunal cited the Supreme Court decision in Andaman Timber Industries, stating that such statements cannot be used against the assessee without cross-examination.

5. Addition based on suspicion, surmises, and conjectures:
The Tribunal held that transactions supported by documentary evidence cannot be dismissed on suspicion or probabilities. The financial performance of the company improved significantly in the financial year 2012-13, contradicting the AO’s claim that no business activity was conducted. The Tribunal concluded that the AO’s suspicion was insufficient to treat the transactions as sham without proper material or analysis.

6. Addition of Rs. 5,07,385/- as unexplained expenditure under Section 69 of the Income Tax Act:
Since the Tribunal found the LTCG transactions genuine, the related addition of Rs. 5,07,385/- as unexplained expenditure was also deemed unsustainable and was deleted.

Conclusion:
The Tribunal allowed the appeal, deleting the additions of Rs. 1,69,12,820/- and Rs. 5,07,385/-, stating that the transactions were supported by documentary evidence and the Revenue failed to point out any specific defects or provide concrete evidence against the assessee. The decision was pronounced in the open court on 02/04/2019.

---