2019 (4) TMI 543 - AT - Income Tax

Tribunal confirms tax addition on disputed share sale, citing non-genuine transactions.

The Tribunal upheld the decision of the Ld. CIT(A) in dismissing the appeal of the assessee, confirming the additions made to the taxable income. The ... Addition u/s 68 - bogus LTCG - off market purchase in physical form by paying cash - assessee has indulged in non-genuine and bogus capital gain obtained from the transactions of purchase and sale of shares - HELD THAT:- It is noticed that the purchase transaction has been done off market in physical form by paying cash. The assessee has purchased the share M/s Kappac Pharma Ltd. in physical form and thereafter, the same have been converted into electronic mode. The purchase payments were made in cash and not through the normal banking channel therefore the same were non-verifiable from the authentic supporting details such as bank account/ documents. Assessee is not a regular investor in shares. The assessee has failed to furnish the proof of source for the purchase transactions. Thus, the entire transactions are against human probability. Also considering the findings of the Investigation Wing, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG claimed exempt u/s. 10(38) by the assessee cannot be allowed and the amount received back as sales proceeds on sale of shares was required to be added back towards his taxable income u/s 68. The above amount was deemed as income of the assessee u/s. 68 over and above, the income already declared in ITR during AY 2014-15. Landmark decision in the case of McDowell and Company Limited [1985 (4) TMI 64 - SUPREME COURT] is squarely applicable in this case wherein it has been held that tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. However, the case laws cited by the Ld. counsel for the assessee are on distinguished facts, hence, not applicable in the instant case. The assessee has not raised any legal ground and argued only on merit for which assessee has failed to substantiate his claim before the lower revenue authorities as well as before this Bench. - decided against assessee. Issues involved:1. Validity of the order passed by the Ld. CIT(A).2. Disallowance of deduction claimed under section 10(38) of the Income Tax Act.3. Non-confrontation of material and statements used against the assessee.4. Assessment of long term capital gain on sale of shares.Issue 1: Validity of the order passed by the Ld. CIT(A):The appeal by the assessee challenged the order of the Ld. Commissioner of Income Tax [Appeals] dated 25.8.2017 for the assessment year 2014-15. The grounds of appeal included contentions that the order was bad in law and on facts, erred in upholding the Assessing Authority's order, and made additions based on presumptions. The appellant argued that the additions were made without proper substantiation and requested the deletion of the additions. The Ld. CIT(A) dismissed the appeal, leading the assessee to appeal before the Tribunal.Issue 2: Disallowance of deduction claimed under section 10(38) of the Income Tax Act:The dispute revolved around the disallowance of deduction claimed by the assessee under section 10(38) of the Income Tax Act for an amount of Rs. 27,20,457. The assessee contended that the shares were held for more than 1 year, sold on a recognized stock exchange, and necessary STT was paid, thus qualifying for exemption under section 10(38). The appellant submitted various legal references and documents to support the claim. However, the authorities held that the transactions were non-genuine and involved bogus capital gain, leading to the addition of the amount to the taxable income under section 68 of the Act.Issue 3: Non-confrontation of material and statements used against the assessee:The appellant raised concerns about not being confronted with the material and statements used against him in the assessment order. It was argued that the assessee was not given an opportunity to cross-examine a key individual, and the assessment was concluded based on statements from a different person. The appellant sought the deletion of the additions made by the Assessing Officer on these grounds.Issue 4: Assessment of long term capital gain on sale of shares:The core issue involved the assessment of long term capital gain on the sale of shares by the assessee. The Assessing Officer deemed the transactions as non-genuine and part of a racket of accommodation entries, resulting in the addition of the capital gains to the taxable income. The authorities found discrepancies in the purchase transactions, lack of verifiable details, and failure to prove the source of funds for the transactions. The Tribunal upheld the decision of the Ld. CIT(A) to confirm the addition of the disputed amount to the taxable income.In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the decision of the Ld. CIT(A) regarding the additions made to the taxable income. The judgment highlighted the importance of substantiating claims, adherence to legal requirements for exemptions, and the consequences of engaging in non-genuine transactions for tax purposes.