Tribunal deletes Income Tax Act additions, emphasizes lack of inquiry & genuine transactions

The Tribunal allowed the appeal, directing the deletion of the additions made under Section 68 and Section 69 of the Income Tax Act. The Tribunal emphasized the lack of independent inquiry by the Assessing Officer and the absence of the assessee's name in SEBI's debarred entities list, supporting the genuineness of the transactions. The Tribunal found that the assessee had provided sufficient evidence of genuine transactions, including payments through banking channels and dematerialized shares, leading to the deletion of the additions totaling Rs. 2,24,23,848/-.

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Issues Involved:

1. Addition of Rs. 2,10,23,848/- under Section 68 of the Income Tax Act, 1961.
2. Addition of Rs. 14 lakhs under Section 69 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of Rs. 2,10,23,848/- under Section 68

The assessee's grievance pertains to the addition of Rs. 2,10,23,848/- under Section 68 of the Income Tax Act, 1961, denying the claim of exemption under Section 10(38) of the Act. The assessee had purchased 40,000 equity shares through an Initial Public Offer (IPO) of HPC Bioscience Ltd on 15.03.2013, with payment made on 16.03.2013. Out of these, 39,000 shares were sold during the year under consideration for Rs. 2,10,23,848/-, resulting in a long-term capital gain of Rs. 1,96,23,848/- after deducting the acquisition cost of Rs. 14 lakhs, which was claimed as exempt under Section 10(38).

During the scrutiny assessment, the Assessing Officer (AO) formed a belief, supported by SEBI and Income Tax Department investigations, that the share prices were manipulated by a cartel. The AO relied heavily on SEBI's Ad-Interim Order dated 29.06.2015, which categorized entities involved in pre-IPO activities and trading of shares, none of which included the appellant's name. Subsequent SEBI orders did not find violations against the appellant, and the interim order was revoked for 216 entities, including the appellant.

The AO's findings were confirmed by the CIT(A). However, the Tribunal noted that the AO's assessment was based on SEBI's interim order without independent enquiry or evidence. The Tribunal referenced similar cases where the appellants were not named in SEBI's debarred entities list, leading to favorable judgments for the assessee. The Tribunal concluded that the assessee had discharged the onus under Section 68 by providing sufficient evidence of genuine transactions, including payments through banking channels and dematerialized shares. Consequently, the Tribunal directed the AO to accept the long-term capital gain as declared and delete the addition of Rs. 2,10,23,848/-.

Issue 2: Addition of Rs. 14 lakhs under Section 69

The assessee also contested the addition of Rs. 14 lakhs under Section 69 as unexplained investment. The Tribunal noted that the purchase of 40,000 equity shares through the IPO of HPC Bioscience Ltd occurred in FY 2012-13, relevant to AY 2013-14, not AY 2015-16, which was under consideration. Therefore, the Tribunal opined that no addition could be made under Section 69C for the year under consideration and directed the deletion of the Rs. 14 lakhs addition.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the deletion of both the Rs. 2,10,23,848/- addition under Section 68 and the Rs. 14 lakhs addition under Section 69. The Tribunal emphasized the lack of independent enquiry by the AO and the absence of the assessee's name in SEBI's debarred entities list, thereby upholding the genuineness of the transactions and the assessee's compliance with the onus under Section 68. The order was pronounced in the open court on 19.03.2021.

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