2019 (4) TMI 1363 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on capital gains, transactions deemed not genuine.

The Tribunal dismissed both appeals, affirming the CIT(A)'s decision to uphold the additions of Rs. 22,28,172/- and Rs. 14,36,364/- as Long Term Capital ... Genuineness of share transactions - exemption under section 10(38) for long term capital gains - addition under section 68 on account of unexplained credits - reliance on statements recorded during survey and requirement of independent enquiry - colourable device / sham transactions (McDowell principle)Genuineness of share transactions - exemption under section 10(38) for long term capital gains - Whether the claimed long term capital gains (LTCG) on sale of listed shares of M/s CCL International Ltd. were genuine and entitled to exemption under section 10(38). - HELD THAT: - The assessee claimed exempt LTCG arising from sales of shares of a penny stock and relied on exchange trades, bank payments and documentary notes. The AO and the Investigation Wing recorded material indicating organized accommodation entries involving the scrip, and the director of an intermediary (Consortium Capital Pvt. Ltd.) admitted facilitating bogus LTCG/LTCL and manipulative trading in that scrip. The Tribunal examined the assessee's contemporaneous records, the off market nature of purchases, abrupt and unexplained price movements of the company (as per MCA/ public domain financials) and the absence of corroborative evidence to establish genuine investment or a market basis for the gains. Applying the principle that colourable devices cannot be sustained as legitimate tax planning, the Tribunal held that the assessee failed to substantiate the genuineness of the transactions and therefore was not entitled to exemption under section 10(38). [Paras 7]Claimed LTCG not accepted as genuine; exemption under section 10(38) refused and the addition sustained.Addition under section 68 on account of unexplained credits - reliance on statements recorded during survey and requirement of independent enquiry - Whether the addition made under section 68 (treating the LTCG as unexplained/bogus) was correctly sustained having regard to statements recorded by the Investigation Wing and the material on record. - HELD THAT: - The Tribunal considered the Investigation Wing's recorded statement of an intermediary admitting provision of accommodation entries and identifying the scrip used, together with the AO's independent findings based on documentary and public domain information. The assessee's generalized explanation (trade via exchange and payment by cheque) and documents were held insufficient to rebut the combined weight of investigative admissions, off market purchase evidence and the abnormal financial/market behaviour of the penny stock. The Tribunal applied settled law that while statements recorded during survey cannot be the sole basis for additions without independent enquiry, here the AO's independent findings were corroborated by the Investigation Wing's disclosures and public financials, justifying the treatment of the receipts as unexplained/ not genuine and sustaining the addition. [Paras 7]Addition under section 68 upheld; reliance on investigation statements was corroborated by independent AO enquiries and public financial data, so the addition stands.Final Conclusion: Both appeals are dismissed; the Tribunal upheld the rejection of exemption claimed under section 10(38) and sustained the addition treating the alleged LTCG as not genuine for AY 2015-16. Issues Involved:1. Legitimacy of the addition of Rs. 22,28,172/- and Rs. 14,36,364/- as Long Term Capital Gains (LTCG) from the sale of listed equity shares of M/s CCL International Ltd.2. Adequacy of evidence and basis for the addition.3. Reliance on statements recorded during the survey conducted by the Investigation Wing of Income Tax, Kolkata.4. Denial of the opportunity for cross-examination of Sh. Jai Kishan Poddar.5. Applicability of Section 10(38) of the Income Tax Act, 1961.Detailed Analysis:1. Legitimacy of the Addition of Rs. 22,28,172/- and Rs. 14,36,364/- as LTCG:The primary issue in both appeals concerns the addition of Rs. 22,28,172/- and Rs. 14,36,364/- as LTCG from the sale of shares of M/s CCL International Ltd. The assessee claimed these gains as exempt under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that these transactions were not genuine but were bogus entries created to claim tax exemption.2. Adequacy of Evidence and Basis for the Addition:The assessee argued that the addition was based on presumptions, conjecture, and surmises without any corroborative material. The AO's conclusion was primarily based on the statement of Sh. Jai Kishan Poddar and the Investigation Wing's findings, which indicated that the transactions were part of an organized racket to generate bogus LTCG entries. The AO noted that the shares were purchased through off-market transactions, and the financials of M/s CCL International Ltd. did not justify the significant increase in share value.3. Reliance on Statements Recorded During the Survey:The assessee contended that the addition was made solely based on statements recorded during the survey by the Investigation Wing, without independent inquiry by the AO. The Tribunal observed that the AO's findings were corroborated by the Investigation Wing's information, and the assessee failed to substantiate the genuineness of the share transactions.4. Denial of Opportunity for Cross-Examination:The assessee argued that the statement of Sh. Jai Kishan Poddar was recorded at their back, and no opportunity for cross-examination was provided. The Tribunal noted that the assessee did not provide any specific rebuttal to Sh. Jai Kishan Poddar's statement, which admitted involvement in providing bogus LTCG entries through shares of M/s CCL International Ltd.5. Applicability of Section 10(38) of the Income Tax Act, 1961:The Tribunal upheld the AO and CIT(A)'s view that the transactions were not genuine and thus did not qualify for exemption under Section 10(38). The Tribunal referred to the Supreme Court's decision in McDowell and Company Limited, emphasizing that tax planning must be within the law and not involve dubious methods.Conclusion:The Tribunal dismissed both appeals, affirming the CIT(A)'s decision to uphold the additions. The Tribunal found that the assessee failed to substantiate the genuineness of the LTCG claims and that the AO's findings were supported by the Investigation Wing's evidence. The Tribunal also noted that the case laws cited by the assessee were not applicable to the facts of the case. Consequently, the appeals were dismissed, and the additions were confirmed.