2019 (10) TMI 386 - AT - Income Tax

ITAT rules in favor of assessee, deletes addition under Section 68 based on lack of evidence

The ITAT allowed the assessee's appeal, concluding that the transactions were genuine, supported by documentary evidence, and conducted through proper ... Bogus LTCG - issue of shares in pursuant to scheme of arrangement. HELD THAT:- The assessee furnished before us the letter received from Kailash Auto Finance Ltd. intimating about the issue of shares in pursuant to scheme of arrangement. The order passed by the Hon’ble Allahabad High Court approving amalgamation of Kailash Auto Finance Ltd. with Careful Projects Advisory Ltd. and Panchsul Marketing Ltd. The assessee submitted contract note evidencing sale of shares Kailash Auto Finance Ltd.. Evidence of receipts of sale proceeds of shares from the broker by way of bank. The assessee also submitted the broker’s ledger account and demat account statement issued by the broker viz. JRK Stock Broking Pvt. Ltd.. By submitting these plethora documents and evidences, the ld. Counsel for the assessee submitted before us that the assessee has proved the genuineness of the long term capital gain. The ld. Counsel for the assessee has submitted that where the transaction is done within the four corners of the law then it should not be disallowed. The ld. Counsel submitted that the bank statement, brokers note, contract note, demat statement submitted by the assessee before the Assessing Officer were not found by the Assessing Officer as false / untrue. Assessing Officer failed to find any defect in the main documents submitted by the assessee(i.e the bank statement, contract notes, demat account, bills / invoices of the shares) therefore, the transaction done by the assessee is genuine, hence the addition should be deleted. - Decided in favour of assessee. Issues Involved:1. Rejection of exemption claimed under Section 10(38) of the Income Tax Act.2. Addition of Rs. 6,02,041/- under Section 68 of the Income Tax Act for Long Term Capital Gain (LTCG) on the sale of shares.Issue-wise Detailed Analysis:1. Rejection of Exemption Claimed Under Section 10(38):The primary grievance of the assessee was the CIT(A)'s rejection of the exemption claimed under Section 10(38) of the Income Tax Act. The assessee had declared a total income of Rs. 3,73,420/- for the assessment year 2015-16 and claimed an exemption for LTCG arising from the sale of 15,000 shares of Kailash Auto Finance Ltd. The Assessing Officer (AO) treated this LTCG as bogus and made an addition under Section 68 of the Act. The assessee provided various documents such as contract notes, bills, bank statements, and demat account statements to substantiate the claim. However, the AO rejected these documents without finding any defects in them.2. Addition of Rs. 6,02,041/- Under Section 68:The AO's addition of Rs. 6,02,041/- was based on the suspicion that the LTCG claimed by the assessee was bogus. The AO relied on information from the investigation wing and the statement of an alleged entry operator, Sri Sunil Dokania. However, the AO did not provide the assessee with the opportunity to cross-examine Dokania or present any corroborative evidence to substantiate the claim. The CIT(A) upheld the AO's decision, leading the assessee to appeal before the ITAT.Judgment Analysis:Evidence Submitted by the Assessee:The assessee submitted various documents, including income tax returns, balance sheets, profit and loss accounts, purchase bills, bank statements, demat account statements, and contract notes. The assessee argued that these documents proved the genuineness of the LTCG transaction. The AO did not find any defects in these documents but still treated the LTCG as bogus based on suspicion and probability.ITAT's Findings:The ITAT noted that the AO's reliance on the statement of Sri Sunil Dokania without allowing cross-examination was a serious flaw, making the order null and void. The ITAT referenced several judgments, including the Hon'ble Calcutta High Court's decision in Eastern Commercial Enterprises, which emphasized the importance of cross-examination in due process.SEBI's Role:The ITAT highlighted that the Securities Exchange Board of India (SEBI) had revoked its interim order that restrained entities from accessing the securities market, including Kailash Auto Finance Ltd. SEBI's final order did not find any adverse findings against the entities, including the assessee, regarding the manipulation of the scrip.Precedent Cases:The ITAT referred to multiple judgments where similar issues were adjudicated, including cases like Sanjib Kumar Patwari (HUF) and others, where the transactions were found to be genuine. The ITAT emphasized that the AO's conclusions were based on suspicion without any substantive evidence.Conclusion:The ITAT concluded that the transactions were genuine, supported by documentary evidence, and conducted through proper banking channels. The AO's addition based on suspicion and the statement of an alleged entry operator without cross-examination was not sustainable. The ITAT deleted the addition of Rs. 6,02,041/- and allowed the appeal of the assessee.Order:The appeal of the assessee was allowed, and the order was pronounced in court on 02.08.2019.