2019 (6) TMI 475 - AT - Income Tax

Tribunal allows exemption for Long Term Capital Gain, assessing transactions as genuine and well-documented.

Mool Chand Jagwayan Versus Income-tax Officer, Wd-22 (4), Kolkata.

The Tribunal overturned the decisions of the Assessing Officer and CIT(A) regarding the addition of Long Term Capital Gain (LTCG) claimed as exempt under ... Bogus LTCG - Exemption u/s. 10(38) denied - Addition u/s 68 - off market transaction for purchase of shares - HELD THAT:- We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO [2016 (12) TMI 1074 - ITAT KOLKATA] and PCIT Vs. BLB Cables & Conductors Pvt. Ltd. [2018 (8) TMI 525 - CALCUTTA HIGH COURT] wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus.- Decided in favour of assessee. Issues Involved:1. Confirmation of addition/disallowance by CIT(A) on account of Long Term Capital Gain (LTCG) claimed as exempt under section 10(38) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Confirmation of Addition/Disallowance by CIT(A) on Account of LTCG Claimed as Exempt under Section 10(38) of the Income-tax Act, 1961:Facts and Background:The assessee filed a return of income for AY 2015-16, declaring total income of Rs. 9,90,050/-. The return included a claim of exemption for LTCG amounting to Rs. 21,96,793/- under section 10(38) of the Income-tax Act, 1961. This gain was derived from the sale of 5000 shares of M/s. CCL International Ltd. The shares were purchased in June 2013 for Rs. 2,60,000/- and sold in FY 2014-15 for Rs. 24,56,793/-. The transaction details, including purchase and sale documents, bank statements, and Demat account statements, were provided to the Assessing Officer (AO).Assessment Proceedings:The AO scrutinized the transaction, referencing an investigation by the Directorate of Investigation Wing, Kolkata, which identified M/s. CCL International Ltd. as a penny stock involved in providing bogus LTCG. The AO noted the bell-shaped trade pattern of the stock and the lack of substantial business credentials of the company. Consequently, the AO treated the LTCG claim as fictitious, adding Rs. 21,96,793/- to the assessee's total income as income from other sources. This decision was upheld by the CIT(A).Arguments by the Assessee:The assessee argued that the transactions were genuine, supported by documentary evidence, and conducted through recognized stock exchanges and brokers. The assessee cited the Delhi Tribunal's decision in Mukta Gupta vs ITO & Mohan Lal Agarwal (HUF) vs ITO, where similar transactions involving M/s. CCL International Ltd. were deemed genuine.Arguments by the Revenue:The Revenue contended that the scrips of M/s. CCL International Ltd. were artificially rigged to provide LTCG and referenced the Hon'ble Bombay High Court's decision in Binod Chand Jain, supporting the AO's and CIT(A)'s orders.Tribunal's Findings:The Tribunal noted that the AO's conclusion was based on a general report and lacked specific evidence linking the assessee to any dubious activities. The Tribunal emphasized that the assessee had provided all necessary documentation to substantiate the transactions, including purchase and sale details, bank statements, and Demat account statements.The Tribunal referenced several judicial decisions, including the Hon'ble Supreme Court's ruling in Andman Timber Industries vs CCE, which underscored the importance of providing an opportunity for cross-examination when statements from third parties are used against an assessee. The Tribunal also highlighted that genuine transactions should not be treated as ingenuine based on suspicion alone, citing cases like CIT vs Carbo Industries Holdings Ltd. and CIT vs Emerald Commercial Ltd.Conclusion:The Tribunal concluded that the AO and CIT(A) had erred in treating the LTCG as bogus without concrete evidence. The Tribunal directed the AO to treat the gains as LTCG and delete the addition of Rs. 21,96,793/-. The appeal of the assessee was allowed.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced in the open court on 7th June 2019.