2019 (8) TMI 769 - AT - Income Tax

Tax Tribunal overturns LTCG assessment, emphasizes burden of proof on genuineness of transactions

The Tribunal allowed the appeal of the assessee, ruling that the Assessing Officer and Commissioner of Income Tax (Appeals) were unjustified in treating ... Bogus LTCG - addition u/s 68 - denial of exempt u/s 10(38) on sale of share of M/s KPL - accommodation entry - HELD THAT:- It is noted that the A.O has nowhere in the assessment order referred to any material which can prove the complicity of assessee in the alleged accommodation entry operation. In the light of the documents furnished by the assessee, the authorities below were not justified in invoking the provisions of section 68 in regard to the sale proceeds of shares. There is no evidence on record to disbelieve that the shares sold through registered share and stock broker. The assessee had produced all evidences to explain the source of the amounts received by the assessee from the brokers. Thus the A.O/CIT(A) was not justified in assessing the sale proceeds of shares as undisclosed income. In the light of the aforesaid documents filed before us and A.O/Ld. CIT(A) and it is noted that similar issue was before the Tribunal in the case of M/s Usha Singhania [2019 (2) TMI 1680 - ITAT KOLKATA] wherein long term capital gain on sale of M/s KPL was allowed by this Tribunal. Respectfully following the order of the Tribunal of this bench in the case of Usha Singhania (supra), and taking note of the documents filed by assessee to prove the veracity of the transaction and I am inclined to allow the claim of the assessee and direct deletion of the addition of ₹ 11,78,596/-. Before I part I would like to deal with the case laws cited by the Ld. DR who had submitted 23 judicial pronouncements in his support. I note that the said judicial pronouncements are all distinguishable on facts as well as on law. Issues Involved:1. Treatment of Long Term Capital Gain (LTCG) on sale of shares as bogus and addition under Section 68 of the Income Tax Act, 1961.2. Validity of the evidence provided by the assessee to substantiate the genuineness of the share transactions.3. Reliance on investigation reports and statements not provided to the assessee for cross-examination.4. Application of legal precedents and judicial pronouncements in similar cases.Issue-wise Detailed Analysis:1. Treatment of LTCG on Sale of Shares as Bogus and Addition under Section 68:The primary grievance of the assessee was against the confirmation of the Assessing Officer's (AO) action by the Commissioner of Income Tax (Appeals) [CIT(A)], treating Rs. 11,78,596/- claimed as LTCG on the sale of shares of M/s. Kappac Pharma Ltd. (KPL) as bogus and adding it under Section 68 of the Income Tax Act, 1961. The AO alleged that the transaction was part of a scheme involving penny stock companies and share brokers to convert black money into white, based on an investigation report. The AO did not provide the investigation report to the assessee and made the addition based on suspicion and conjectures.2. Validity of Evidence Provided by the Assessee:The assessee provided several documents to substantiate the genuineness of the share transactions, including purchase bills, bank statements, contract notes, and Demat statements. The Tribunal noted that the transactions occurred electronically through a registered broker on the stock exchange, and the payments were made through account payee cheques. The AO did not find any fault with these documents but still made the addition based on general allegations.3. Reliance on Investigation Reports and Statements:The AO relied on statements from various alleged operators without providing the assessee an opportunity to cross-examine them. The Tribunal emphasized that no addition can be made based on surmises, suspicion, and conjectures without providing the assessee an opportunity to rebut the evidence. This principle is supported by several judicial precedents, including the Supreme Court judgments in Lalchand Bhagat Ambica Ram vs. CIT and CIT(Central) Calcutta vs. Daulat Ram Rawatmull.4. Application of Legal Precedents:The Tribunal referred to multiple judicial pronouncements where similar issues were decided in favor of the assessee. In the case of Usha Singhania, the Tribunal allowed the LTCG claim on the sale of shares of KPL, emphasizing that decisions should be based on evidence and not on generalizations or suspicions. The Tribunal also distinguished the case from other judgments cited by the Departmental Representative, noting that those cases had different factual contexts or lacked sufficient evidence to prove the transactions were genuine.Conclusion:The Tribunal concluded that the AO and CIT(A) were not justified in invoking Section 68 of the Act, as the assessee had provided sufficient evidence to substantiate the genuineness of the transactions. The addition of Rs. 11,78,596/- was directed to be deleted, and the appeal of the assessee was allowed. The Tribunal's decision was based on the principle that genuine transactions should not be treated as ingenuine merely on suspicion, and the burden of proving a transaction as bogus lies with the party making such a claim.