Tribunal rules in favor of assessee in LTCG appeal, directing acceptance of declared gains and deletion of addition.

The tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to accept the Long Term Capital Gain (LTCG) declared by the assessee and deleted the consequential addition. The tribunal found that the Assessing Officer and CIT(A) lacked concrete evidence to disprove the genuineness of the transactions, emphasizing the need for an independent investigation. The order was pronounced in open court on 12.06.2019.

---

---

Issues Involved:
1. Disallowance of exemption of Long Term Capital Gain (LTCG) under Section 10(38) of the Income-tax Act, 1961.
2. Assessment based on information from the Directorate of Income Tax (Investigation), Kolkata.
3. Examination of evidence and enquiry by the Assessing Officer.
4. Validity of the addition under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption of LTCG under Section 10(38):
The assessee challenged the correctness of the CIT(A)'s order confirming the disallowance of LTCG exemption amounting to Rs. 11,93,55,564. The assessee had declared this gain from transactions on which Securities Transaction Tax (STT) was paid, claiming exemption under Section 10(38) of the Income-tax Act, 1961. The assessee provided extensive documentation, including proof of payment for shares, board resolutions, SEBI/BSE approvals, share certificates, demat account statements, and proof of receipt of sale consideration.

2. Assessment Based on Information from DIT (Investigation), Kolkata:
The Assessing Officer (AO) relied heavily on a report from the Directorate of Income Tax (Investigation), Kolkata, which indicated large-scale manipulations in the capital market involving penny stocks, including Effingo Textiles & Trading Ltd (ETTL). The AO concluded that the LTCG claimed by the assessee was bogus and treated it as unexplained credits under Section 68, adding the amount back to the total income.

3. Examination of Evidence and Enquiry by the Assessing Officer:
The AO did not conduct any independent enquiry or investigation into the assessee's transactions. Instead, the AO based the assessment solely on the report from the DIT (Investigation), Kolkata, without verifying the evidence provided by the assessee. The CIT(A) also dismissed the appeal without considering the specific facts and evidence presented by the assessee, relying instead on the general findings of the investigation report.

4. Validity of the Addition under Section 68:
The tribunal noted that the AO and CIT(A) failed to substantiate their claims with concrete evidence or conduct a proper enquiry. The tribunal emphasized that the AO should have conducted an independent investigation and corroborated the information received from the investigation wing. The tribunal found that the assessee had successfully discharged the onus of proving the genuineness of the transactions through substantial documentary evidence.

Conclusion:
The tribunal concluded that the AO and CIT(A) acted on mere suspicion and failed to provide any concrete evidence to disprove the assessee's claims. The tribunal directed the AO to accept the LTCG declared by the assessee and deleted the consequential addition. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 12.06.2019.

---