Tribunal deletes substantial additions by AO, citing genuine transactions with evidence and criticism of reliance on third-party statements.

Shri Anurag Agarwal Versus ITO – 24 (1) (3), Mumbai

Shri Anurag Agarwal Versus ITO – 24 (1) (3), Mumbai - TMI Issues Involved:
1. Treatment of long-term capital gains as non-genuine and bogus.
2. Addition of Rs. 4,55,14,762/- under Section 68 of the Income Tax Act.
3. Addition of Rs. 13,67,252/- as alleged commission on bogus share transactions.

Issue-Wise Detailed Analysis:

1. Treatment of Long-Term Capital Gains as Non-Genuine and Bogus:
The assessee filed a return declaring total income of Rs. 2,97,090/-. The case was selected for scrutiny, and the Assessing Officer (AO) found that the assessee was involved in bogus long-term capital gains through penny stocks. The AO concluded that the transactions were manipulated to benefit investors in penny stocks. The AO rejected the evidences provided by the assessee and treated the capital gain as unexplained cash credit under Section 68 of the Income Tax Act, adding the entire sale consideration of Rs. 4,55,75,099/- to the income of the assessee. The CIT(A) upheld this view, treating the transactions as accommodation entries.

2. Addition of Rs. 4,55,14,762/- Under Section 68 of the Income Tax Act:
The AO added Rs. 4,55,75,099/- as unexplained cash credit under Section 68. The CIT(A) confirmed this addition, treating the sale proceeds of shares as accommodation entries. The assessee argued that the issue was covered by the decision of a co-ordinate Bench in a similar case (Mukesh B. Sharma vs. ITO), where identical scripts were involved, and the addition was deleted. The Tribunal found that the assessee provided sufficient evidence, including bank statements, D-Mat account details, and contract notes, to prove the genuineness of the transactions. The Tribunal noted that the AO's reliance on statements from third-party investigations was not sufficient to discredit the assessee's evidence.

3. Addition of Rs. 13,67,252/- as Alleged Commission on Bogus Share Transactions:
The AO also added a notional commission of 3% on the total sale proceeds, amounting to Rs. 13,67,252/-, as unexplained expenditure under Section 69 of the Act. The CIT(A) upheld this addition. However, the Tribunal, following the decision in Mukesh B. Sharma vs. ITO, found that the commission addition was consequential and should be deleted if the long-term capital gain was held to be genuine.

Tribunal's Decision:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and directing the AO to delete the addition of Rs. 4,55,75,099/- made under Section 68 and the addition of Rs. 13,67,252/- towards commission. The Tribunal emphasized that the assessee had provided adequate documentary evidence to support the genuineness of the transactions and that the AO's reliance on third-party statements without providing the assessee an opportunity for cross-examination was not justified. The Tribunal also noted that the SEBI had not found any adverse findings against the assessee or his brokers in relation to the transactions in question.

Procedural Note:
The Tribunal acknowledged the delay in pronouncing the order due to the extraordinary period of the COVID-19 pandemic, extending the period beyond the usual 90 days as per Rule 34(5) of the ITAT Rules. The appeal was ultimately allowed, and the additions made by the AO were deleted.