Tribunal orders AO to accept capital gains, delete IT Act additions

The Tribunal directed the Assessing Officer to accept the long-term capital gains as declared by the appellant and ordered the deletion of additions made under Section 68 and Section 69C of the IT Act. The Tribunal found that the appellant had provided credible evidence for the transactions, emphasizing the need for independent inquiry by the AO rather than solely relying on investigation reports. The Tribunal allowed all appeals and pronounced the order on 06.08.2019.

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Issues Involved:
1. Legitimacy of long-term capital gains claimed as exempt under Section 10(38) of the IT Act.
2. Application of Section 68 of the IT Act regarding unexplained cash credits.
3. Addition under Section 69C of the IT Act for unexplained expenditure.

Detailed Analysis:

1. Legitimacy of Long-Term Capital Gains Claimed as Exempt Under Section 10(38) of the IT Act:

The appellant purchased shares of M/s. Esteem Bio Organic Food Processing Ltd. and M/s. Rander Corporation Ltd. through brokers ISF Securities and SMC Global Securities. These shares were sold online, and the appellant claimed long-term capital gains as exempt under Section 10(38) of the IT Act. The Assessing Officer (AO) relied heavily on an investigation report from the Pr. DIT (Investigation) Calcutta unit, which suggested that the appellant was involved in bogus long-term capital gain entries through penny stock trading. The AO concluded that the transactions were sham and aimed at introducing unaccounted money as long-term capital gains.

The Tribunal noted that the AO's assessment was predominantly based on the investigation report without conducting independent inquiries or corroborating the statements recorded by the Investigation Wing. The Tribunal emphasized that the AO must conduct a separate and independent inquiry and cannot solely rely on pre-existing statements. The Tribunal found that the AO did not make any independent verification and thus, the assessment was devoid of proper inquiry.

2. Application of Section 68 of the IT Act Regarding Unexplained Cash Credits:

The AO applied Section 68, treating the long-term capital gains as unexplained cash credits. The Tribunal observed that the appellant had provided all necessary documentation, including bank statements, share broker notes, and de-mat account statements, demonstrating that the transactions were conducted through banking channels. The Tribunal cited the Delhi High Court's decision in Fair Invest Limited, which underscored that the AO must conduct an inquiry and cannot base conclusions solely on investigation reports.

The Tribunal concluded that the appellant had successfully discharged the initial onus under Section 68 by providing credible evidence of the transactions. The AO's failure to conduct an independent inquiry meant that the addition under Section 68 was not justified.

3. Addition Under Section 69C of the IT Act for Unexplained Expenditure:

The AO also made an addition under Section 69C, alleging that the appellant paid a 7% commission to brokers for arranging the capital gains. This was based on statements from the Investigation Wing. The Tribunal found no evidence that the brokers were involved in any scam or that they were suspended by SEBI. The Tribunal noted that the AO did not examine the brokers or corroborate the statements during the assessment proceedings.

Given the lack of evidence and the appellant's successful discharge of onus under Section 68, the Tribunal directed the deletion of the addition under Section 69C.

Decision:

The Tribunal directed the AO to accept the long-term capital gains as declared by the appellant. It also ordered the deletion of additions made under Section 68 and Section 69C, concluding that the appellant had provided sufficient evidence to substantiate the transactions. The Tribunal allowed all the appeals filed by the different appellants and pronounced the order in the open court on 06.08.2019.

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