2019 (11) TMI 402 - AT - Income Tax

Tribunal upholds addition of unexplained cash credit and commission expenses, dismisses appeals.

The Tribunal upheld the AO's addition of Rs. 66,85,928 as unexplained cash credit under section 68 and the 5% addition as commission expenses under ... Bogus LTCG - exemption under section 10(38) denied - HELD THAT:- Contention of the assessee that the transaction leading to longterm capital gains are supported by documents of sale and purchase, bank statement etc., cannot be accepted keeping in view of the facts and circumstances of the case brought on record by the AO after proper examination of the material facts and taking into account the corroborating evidences. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a pre-planned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction and huge profit in all shares traded by the assessee against the human probability, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute, which does not require any interference on our part - Decided against assessee Issues Involved:1. Addition of Rs. 66,85,928 based on suspicion and conjecture.2. Addition without incriminating material and reliance on hearsay.3. Disallowance of exemption on capital gains from STT paid equity shares.4. Arbitrary invocation of discretionary jurisdiction under sections 68 and 69C.5. Denial of cross-examination opportunity.6. Jurisdiction under section 143(2) based on CASS.7. Sustaining of AO's order by CIT(A) based on unrelated precedents.8. Violation of natural justice principles.Detailed Analysis:1. Addition of Rs. 66,85,928 Based on Suspicion and Conjecture:The assessee declared long-term capital gains of Rs. 63,67,551 as exempt under section 10(38) of the Income Tax Act. The AO, suspecting the transactions due to the involvement of 'Penny Stocks' and the modus operandi of share brokers, treated the amount as unexplained cash credit under section 68. The AO relied on the Supreme Court's decision in Sumati Dayal Vs. CIT, emphasizing that the transactions failed the test of human probabilities.2. Addition Without Incriminating Material and Reliance on Hearsay:The AO's addition was based on information from the Investigation Wing, which alleged accommodation entries for exempted LTCG. The assessee argued that the allegations were general and not specific to him. The AO rejected this, citing the improbability of such high profits for a casual investor, and the lack of awareness about the companies' details by the assessee.3. Disallowance of Exemption on Capital Gains from STT Paid Equity Shares:The AO disallowed the exemption, asserting the transactions were beyond human probabilities and were designed to give the shares a long-term asset color. The AO added 5% of the sale consideration as commission expenses for obtaining the accommodation entry.4. Arbitrary Invocation of Discretionary Jurisdiction Under Sections 68 and 69C:The AO invoked sections 68 and 69C arbitrarily, treating the sale proceeds as unexplained cash credits and adding commission expenses. The CIT(A) upheld this, citing the lack of commensurate financial results for the price rise in the shares and the assessee's inability to explain the astronomical gains.5. Denial of Cross-Examination Opportunity:The assessee contended that the AO did not provide the material used against him or the opportunity to cross-examine relevant persons. The CIT(A) and the Tribunal found that the AO's reliance was not solely on the brokers' statements but also on circumstantial evidence, and the assessee failed to justify the transactions' genuineness.6. Jurisdiction Under Section 143(2) Based on CASS:The assessee challenged the AO's jurisdiction under section 143(2) based on CASS without independent evaluation. The Tribunal did not find merit in this argument, as the selection for scrutiny was validly made.7. Sustaining of AO's Order by CIT(A) Based on Unrelated Precedents:The CIT(A) upheld the AO's order, analyzing the unprecedented share price increases and the financials of the companies involved. The Tribunal agreed with the CIT(A)'s findings, noting the suspension of trading in the shares and the involvement of brokers in accommodation entry syndicates.8. Violation of Natural Justice Principles:The assessee argued that the AO's order and its sustenance by the CIT(A) violated natural justice principles. The Tribunal found that the assessee was given ample opportunity to substantiate his claims, and the AO's conclusions were based on thorough examination and corroborating evidence.Conclusion:The Tribunal dismissed both appeals, upholding the AO's addition of Rs. 66,85,928 as unexplained cash credit under section 68 and the 5% addition as commission expenses under section 69C. The Tribunal found that the assessee failed to prove the genuineness of the transactions and the astronomical gains were against human probabilities. The appeals were dismissed on all grounds.