2019 (12) TMI 403 - AT - Income Tax

Assessee's Long Term Capital Gains appeal dismissed for tax evasion scheme; AO's findings upheld.

Ms Manvi Khandelwal Versus Income-tax Officer, New Delhi

The Tribunal dismissed the appeal of the assessee concerning the legitimacy of Long Term Capital Gains claimed, determining the share transactions were ... Bogus LTCG - Suspicious Long Term Capital Gain (LTCG) on sale of shares (inputs from investigation wing) - assessee had earned a return of approximately 6300% over a very short period of just over 12 months - HELD THAT:- In the case of Sanat Kumar [2019 (8) TMI 696 - ITAT DELHI] dealt with a similar situation, and made an observation that though the assessee meticulously completed the paperwork by routing his entire investments through banking channel, when the result of an altogether beyond human properties, what is apparent in making investment is not really and the examination of the entire transaction falsifies the same. The conduct of the assessee who is a novice, in investing in the stocks of a company whose financial results are not brilliant and where there is no apparent chance of lucrative gains at the time when such an investment was made - raises reasonable doubt to suspect the bona fides of the transaction and in the absence of any satisfactory explanation offered by the assessee on the vital points raised by the learned Assessing Officer, it is not possible to brush aside the orders of the authorities below. Both the authorities below have the cogent reasons for reaching the conclusions and we find it difficult to interfere with the same. With this view of the matter, we dismiss the grounds of. - Decided against assessee. Issues Involved:1. Legitimacy of Long Term Capital Gains (LTCG) claimed by the assessee.2. Assessment of whether the share transactions were genuine or part of a tax evasion scheme.3. Evaluation of the evidence and the burden of proof.4. Procedural fairness regarding the opportunity for cross-examination.Detailed Analysis:1. Legitimacy of Long Term Capital Gains (LTCG) Claimed by the Assessee:The primary issue revolves around the legitimacy of the LTCG claimed by the assessee, who declared an income of Rs. 3,26,210 for the Assessment Year 2014-15 and claimed an LTCG exemption under section 10(38) of the Income Tax Act, 1961, on the sale of shares of M/s Kappac Pharma Ltd. The Assessing Officer (AO) observed an astronomical return of approximately 6300% over a short period, prompting a deeper investigation into the price movements and share market behavior of the entities involved.2. Assessment of Whether the Share Transactions Were Genuine or Part of a Tax Evasion Scheme:The AO concluded that the share transactions were not genuine, based on a detailed examination of the trading history, financials of M/s Kappac Pharma Ltd, and reports from the investigation wing, Kolkata, and SEBI. The AO determined that the transactions were part of a meticulously planned circular trading scheme designed to convert unaccounted money into tax-exempt income. The AO's findings were corroborated by confessions from brokers, operators, and exit providers, leading to the addition of Rs. 84,38,907 as unexplained cash credit under section 68 of the Act.3. Evaluation of the Evidence and the Burden of Proof:The assessee contended that the transactions were genuine, supported by valid documentation, and that the statements from the investigation wing were admitted without an opportunity for cross-examination. The CIT(A) upheld the AO's findings, concluding that the assessee failed to discharge the burden of proving the genuineness of the transactions. The CIT(A) referred to established case law, including CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, to support the conclusion that the transactions were sham and aimed at tax evasion.4. Procedural Fairness Regarding the Opportunity for Cross-Examination:The assessee argued that the assessment proceedings were vitiated due to the lack of an opportunity to cross-examine the individuals whose statements were recorded by the investigation wing. However, the Tribunal found that the AO's conclusions were based on independent investigations and not solely on the statements from the investigation wing, thus no prejudice was caused to the assessee.Conclusion:The Tribunal, after reviewing the record and submissions, concluded that the share transactions were surrounded by suspicion and the assessee failed to dispel this suspicion. The AO's findings were based on a thorough analysis of the financials of M/s Kappac Pharma Ltd and other relevant circumstances. The Tribunal upheld the orders of the authorities below, finding no reason to interfere with their conclusions. Consequently, the appeal of the assessee was dismissed.Order Pronounced:The appeal of the assessee was dismissed, and the order was pronounced in the Open Court on 26th November 2019.