2021 (11) TMI 321 - AT - Income Tax

Appeal granted: Tribunal rules in favor of genuineness, denies LTCG exemption, unexplained credit addition. Lack of evidence emphasized.

Harinder Kawaljit Singh Chadha Versus Income Tax Officer-24 (2) (1), Mumbai

Harinder Kawaljit Singh Chadha Versus Income Tax Officer-24 (2) (1), Mumbai - TMI Issues Involved:1. Reopening of the assessment under Section 147 of the Income Tax Act.2. Denial of exemption for Long Term Capital Gain (LTCG) under Section 10(38) of the Act.3. Addition of the entire sale consideration as unexplained credit under Section 68 of the Act.4. Addition of commission expenditure under Section 69C of the Act.Issue-wise Detailed Analysis:1. Reopening of the assessment under Section 147 of the Income Tax Act:The assessee had initially filed a return of income for the Assessment Year (A.Y) 2011-12, declaring a total income of Rs. 7,18,390/-. This return was processed under Section 143(1) of the Act. Subsequently, the case was reopened under Section 147 of the Act.2. Denial of exemption for Long Term Capital Gain (LTCG) under Section 10(38) of the Act:The controversy centered around the denial of the assessee's claim for exemption of LTCG amounting to Rs. 13,10,647/- arising from the sale of shares of M/s Splash Media Ltd. The assessee had purchased 650 shares, received 2600 bonus shares, and after a stock split, sold 16,000 shares. The Assessing Officer (A.O) labeled the LTCG as an accommodation entry and added the entire sale consideration as unexplained credit under Section 68 of the Act. The A.O's conclusions were based on investigations by the department's Investigation Wing, which suggested that the transactions were pre-arranged to evade taxes and launder money.3. Addition of the entire sale consideration as unexplained credit under Section 68 of the Act:The A.O added Rs. 13,10,647/- as unexplained credit under Section 68, asserting that the transactions were artificial and structured to create tax-free capital gains. The A.O's observations included the mode of acquisition of shares, unusual rise in share prices, findings from the Investigation Wing, and analysis of the transactions, which suggested that the transactions were not governed by market factors but were part of a preconceived scheme.4. Addition of commission expenditure under Section 69C of the Act:The A.O also made an addition of Rs. 39,319/- under Section 69C, assuming that the assessee would have paid this amount as unaccounted commission for obtaining the accommodation entry.Tribunal's Analysis and Judgment:The Tribunal noted that the assessee had provided substantial documentary evidence to support the genuineness of the transactions, including broker notes, demat account statements, and financial records. The A.O's conclusions were primarily based on assumptions, presumptions, and unsubstantiated statements from third parties not connected to the assessee. The Tribunal emphasized that the A.O had failed to disprove the documentary evidence provided by the assessee.The Tribunal also referenced the judgment of the Hon'ble High Court of Delhi in the case of Pr. CIT & Ors. Vs. Krishna Devi & Ors., which highlighted that without concrete evidence to prove that the transactions were bogus, the department's claims could not be sustained. The Tribunal observed that the assessee had successfully discharged the initial onus under Section 68 of the Act by providing evidence of genuine purchase and sale of shares.In conclusion, the Tribunal held that there was no material evidence to falsify the assessee's claim of genuine transactions. Consequently, the disallowance of the assessee's claim for exemption of LTCG under Section 10(38) was not upheld, and the addition under Section 69C was also vacated.Result:The appeal of the assessee was allowed, and the order pronounced in the open court on 29.10.2021.