Tribunal rules in favor of assessee, treats share sale gains as LTCG, criticizes authorities' lack of specific evidence.

The Tribunal allowed the assessee's appeal, directing the AO to treat the gains from the sale of shares as Long Term Capital Gain (LTCG) and delete the addition of Rs. 70,07,666/- under Section 69 of the Income-tax Act, 1961. The Tribunal found the assessee's evidence supporting the genuineness of the transactions to be substantial and criticized the lower authorities for relying on general reports and third-party statements without specific evidence against the assessee. The decision was pronounced on 3rd June, 2019.

---

---

Issues Involved:
1. Confirmation of addition of Rs. 70,07,666/- as sale proceeds of equity shares under Section 69 of the Income-tax Act, 1961.
2. Validity of the assessee's claim of Long Term Capital Gain (LTCG) exemption on the sale of shares.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 70,07,666/- as Sale Proceeds of Equity Shares under Section 69 of the Income-tax Act, 1961:

The main grievance of the assessee was against the action of the Ld. CIT(A) in confirming the addition of Rs. 70,07,666/- being the sale proceeds of equity shares of M/s. Global Infratech & Finance Ltd. (GIFL) under Section 69 of the Income-tax Act, 1961. The Assessing Officer (AO) noted that the assessee claimed total exempt income of Rs. 68,96,192/- on the exempt Long Term Capital Gain (LTCG) from transactions on which Securities Transaction Tax (STT) was paid. The AO observed that the assessee earned LTCG from the sale of 107,500 shares of M/s. Asianlak Capital & Finance Ltd. (ACFL), which was later renamed as GIFL. The AO cited a general report from the Investigation Wing of the Income-tax Department and SEBI’s observations on unscrupulous practices by certain share brokers, concluding that the sale consideration claimed by the assessee as exempt was bogus, leading to the addition of Rs. 70,07,666/-. The Ld. CIT(A) confirmed this addition, which led the assessee to appeal.

2. Validity of the Assessee's Claim of Long Term Capital Gain (LTCG) Exemption on the Sale of Shares:

The assessee argued that the AO erred in noting the facts, particularly the claim that ACFL merged with GIFL, whereas it was only a change of name. The assessee provided evidence such as the Certificate of Incorporation, contract notes, demat statements, and bank statements to support the purchase and sale of shares. The AO’s reliance on the general report and SEBI’s observations in other cases, without specific material against the assessee, was challenged. The assessee contended that the AO failed to produce any adverse material specifically against the assessee or the broker/scrips involved.

The Department’s representative argued that the rapid appreciation of the shares from Rs. 4,00,000/- to Rs. 70,00,000/- was against human probability and indicative of a systematic nefarious practice involving brokers and paper companies. The modus operandi described involved rigging/manipulating share prices after a holding period, leading to exempt LTCG claims by beneficiaries like the assessee.

Tribunal's Findings:

The Tribunal noted that the assessee provided substantial evidence supporting the genuineness of the transactions, including contract notes, demat statements, and bank transactions. The AO’s conclusions were based on general observations and third-party statements without specific evidence against the assessee. The Tribunal referenced several judicial precedents, including decisions from the Hon’ble Calcutta High Court and other ITAT benches, which supported the assessee’s position in similar cases. The Tribunal emphasized that the burden of disproving the evidence provided by the assessee rested on the revenue, which was not discharged.

The Tribunal concluded that the lower authorities erred in holding the assessee’s LTCG claim as bogus. The AO’s reliance on general reports and third-party statements, without allowing cross-examination or producing specific evidence against the assessee, was insufficient to deny the LTCG exemption.

Conclusion:

The Tribunal allowed the assessee’s appeal, directing the AO to treat the gains from the sale of shares as LTCG and delete the addition of Rs. 70,07,666/-. The decision was pronounced in the open court on 3rd June, 2019.

---