2019 (8) TMI 696 - AT - Income Tax

Tribunal upholds AO's findings on bogus LTCG, deems section 68 justified. Third-party evidence key.

Shri Sanat Kumar Versus ACIT, Circle 36 (1), New Delhi

The Tribunal dismissed the appeal, upholding the AO's findings that the Long Term Capital Gains (LTCG) claimed were part of a bogus transaction to evade ... Bogus LTCG - assessee has adopted a colourable device to evade the tax and found the transaction bogus, sham and nothing but a racket of accommodation entry - HELD THAT:- No doubt assessee has meticulously completed the paper work by routing his entire investment through banking channel but the results thereof are altogether beyond human probabilities. Because neither in the past nor in the subsequent years, assessee has indulged into any such investment having huge windfall. Had the assessee been so intelligent qua the intricacies of the share market, he would have definitely undertaken such risk taking activities in the past or future by making such investment in the unknown stock. So, we are of the considered view that what appears to be apparent in making investment by the assessee in unknown stock is not real when examined the whole transaction of sale and purchase of the stock with huge windfall to the assessee. So, the irresistible conclusion in this case is meticulous paper work by the assessee in making investment in unknown stock by the assessee and then selling the same as per convenience of the broker and entry operator by rigging prices at astronomical rate shows that the tax authorities have been compelled to examine the entire transactions in the light of the surrounding circumstances and has unearthed the bogus transaction of purchase and sale of shares which was not real and assessee has failed to dispel all the quarries raised by the AO to establish that the transaction in question was real and not beyond human probabilities. Rendered by the coordinate Bench of the Tribunal in cases cited as Pooja Ajmani vs. ITO [2019 (4) TMI 1665 - ITAT DELHI] and Udit Kalra [2019 (4) TMI 834 - DELHI HIGH COURT] subsequently affirmed by the Hon’ble jurisdictional High Court, we are of the considered view that purchase and sale of shares of unknown company, Cressanda Solution Ltd., having no profile, financial growth, risk factor etc. available with the assessee, whose shares were purchased @ ₹ 10 per share by the assessee and sold @ ₹ 476 to ₹ 503.90 per share, is merely a sham transaction credited to get the bogus profit at astronomical rate under the garb of LTCG in connivance with the entry providers to make undisclosed income as disclosed one by evading the tax. CIT (A) has passed a valid and reasoned order on the basis of law applicable to the facts and circumstances of the case. Case laws relied upon by the ld. AR for the assessee are not applicable to the facts and circumstances of the case. Consequently, the question framed is answered in the negative, hence the appeal filed by the assessee is hereby dismissed. Issues Involved:1. Whether the Long Term Capital Gains (LTCG) claimed by the assessee under section 10(38) of the Income-tax Act, 1961, were genuine or bogus.2. Whether the addition made under section 68 read with section 115BBE(1) of the Income-tax Act, 1961, was justified.3. Whether the assessee was denied the opportunity to cross-examine witnesses whose statements were relied upon by the Assessing Officer (AO).4. Whether the AO's reliance on third-party statements without individual verification was appropriate.5. Whether the AO's determination of the transaction as a sham was based on substantial evidence.6. Whether section 68 of the Income-tax Act, 1961, was applicable in this case.Issue-wise Detailed Analysis:1. Whether the Long Term Capital Gains (LTCG) claimed by the assessee under section 10(38) of the Income-tax Act, 1961, were genuine or bogus:The assessee declared LTCG of Rs. 1,21,69,408/- from the sale of shares of M/s. Cressanda Solution Ltd. and claimed it as exempt under section 10(38) of the Act. The AO, after thorough investigation, concluded that the transaction was a sham, noting that the shares were purchased at a nominal price and sold at an astronomical price, which was improbable in the ordinary course of business. The AO found that the transaction was part of a racket to generate bogus LTCG entries to evade taxes. The Tribunal upheld the AO's findings, noting that the company's trading was suspended and later revoked, indicating irregularities.2. Whether the addition made under section 68 read with section 115BBE(1) of the Income-tax Act, 1961, was justified:The AO made an addition of Rs. 1,21,69,408/- under section 68, treating the LTCG as unexplained cash credits. The Tribunal agreed with the AO, stating that the entire transaction was bogus and that section 68 was applicable since the amount was credited in the assessee's books without a genuine transaction backing it.3. Whether the assessee was denied the opportunity to cross-examine witnesses whose statements were relied upon by the Assessing Officer (AO):The assessee argued that he was not given an opportunity to cross-examine the individuals whose statements were used against him. However, the Tribunal found this contention untenable, stating that the AO had conducted further investigations and confronted the assessee with all the evidence collected. The Tribunal noted that the DRI had thoroughly investigated and shared findings with SEBI, which confirmed the bogus nature of the transactions.4. Whether the AO's reliance on third-party statements without individual verification was appropriate:The Tribunal held that the AO's reliance on the statements of third parties, including brokers and directors of the companies involved in the racket, was justified. The AO had corroborated these statements with independent investigations and evidence, making the reliance appropriate.5. Whether the AO's determination of the transaction as a sham was based on substantial evidence:The AO's determination was based on a detailed investigation, including information from the Bombay Stock Exchange and the DRI. The Tribunal found that the AO had substantial evidence to conclude that the transactions were sham and part of a scheme to evade taxes. The Tribunal emphasized the improbability of the share price appreciation and the lack of genuine business activity by Cressanda Solution Ltd.6. Whether section 68 of the Income-tax Act, 1961, was applicable in this case:The Tribunal upheld the applicability of section 68, stating that the assessee failed to prove the genuineness of the transactions. The Tribunal noted that the assessee could not provide any substantial evidence to discredit the findings of the AO and the DRI, thereby justifying the addition under section 68.Conclusion:The Tribunal dismissed the appeal filed by the assessee, upholding the findings of the AO and the CIT(A). The Tribunal concluded that the LTCG claimed by the assessee was part of a bogus transaction to evade taxes, and the addition made under section 68 was justified. The Tribunal also dismissed the stay application as infructuous. The order was pronounced in open court on June 14, 2019.