Tax Tribunal Upholds Addition of Unexplained Credit as Long-Term Capital Gain

The Tribunal upheld the addition of Rs. 41,00,925/- as unexplained credit under section 68 of the Income Tax Act, 1961, in a case involving the sale of shares claimed as Long-Term Capital Gain. The Tribunal found that the transaction was not genuine, lacked substantiation, and was structured to capitalize black money. The appeal was dismissed due to the assessee's non-attendance, and the order was pronounced on 28th June 2021.

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Issues Involved:

1. Addition of Rs. 41,00,925/- on sale of shares as non-genuine LTCG.
2. Addition under section 68 of the Income Tax Act, 1961.
3. Basis of conjecture and surmises without specific cogent material.
4. Addition without confronting the assessee with alleged statements or evidence.
5. Addition of Rs. 2,10,046/- on account of brokerage or commission.
6. Consideration of additional evidence and principles of natural justice.

Issue-wise Detailed Analysis:

1. Addition of Rs. 41,00,925/- on Sale of Shares as Non-genuine LTCG:

The assessee claimed Long-Term Capital Gain (LTCG) on the sale of shares of M/s Smart Champ IT & Infra Ltd, which later merged with M/s Cressanda Solutions Ltd. The Assessing Officer (AO) held the transaction as a pre-arranged device for converting black money into tax-exempted income. The AO based this conclusion on inquiries by the Investigation Wing of the Income Tax Department and other factors such as purchase through offline route, dematerialization just before the sale, and financials of the scrip company not supporting such high value. The AO concluded that the transactions were sham and aimed only to bring unaccounted money in the semblance of exempted LTCG.

2. Addition Under Section 68 of the Income Tax Act, 1961:

The AO treated the receipt from the sale of shares as unexplained credit under section 68 of the Income Tax Act, 1961. The AO's conclusion was based on the view that the transaction did not accord with the test of human probabilities and was a prearranged device to introduce unaccounted income into the books. The AO held that the amount of Rs. 41,00,925/- was introduced by the assessee out of purported share sale receipts during the financial year 2013-14 as unexplained cash credit.

3. Basis of Conjecture and Surmises Without Specific Cogent Material:

The assessee contended that the AO made the addition merely on the basis of conjecture and surmises without bringing any specific cogent material against the assessee. The AO, however, relied on various factors including the nature of the transaction, the manner it was conducted, and the abnormal appreciation in the value of shares to conclude that the transaction was not genuine.

4. Addition Without Confronting the Assessee with Alleged Statements or Evidence:

The assessee argued that the AO did not confront him with the alleged statements or evidence on the basis of which the addition was made. The AO noted that the assessee did not explore the possibility of cross-examining the persons who had given statements to the Directorate of Investigation.

5. Addition of Rs. 2,10,046/- on Account of Brokerage or Commission:

The AO made an addition of Rs. 2,10,046/- on account of brokerage or commission, estimated at 5%, based on presumption without providing any opportunity to the assessee to explain the same. The CIT(A) upheld this addition.

6. Consideration of Additional Evidence and Principles of Natural Justice:

The assessee claimed that the CIT(A) did not consider the additional evidence filed by him, which was against the principles of natural justice. The CIT(A), however, upheld the AO's decision, noting that the transaction was structured to capitalize black money by claiming it as LTCG.

Conclusion:

The Tribunal upheld the findings of the AO and CIT(A), noting that the assessee failed to substantiate the claim of LTCG. The Tribunal found that the purchase was not done through an open platform of a recognized stock exchange and SEBI had noticed abnormal activities of artificial price rigging in the shares of M/s Cressanda Solutions Ltd. The Tribunal concluded that the assessee failed to discharge his onus of substantiating the transaction as genuine and upheld the addition of Rs. 41,00,925/- as unexplained credit under section 68. The grounds raised by the assessee were dismissed, and the appeal was heard ex parte due to non-attendance by the assessee. The appeal was dismissed, and the order was pronounced in the open court on 28th June 2021.

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