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.

The Tribunal allowed the appeal of the assessee, ruling in favor of the genuineness of the transactions. The denial of exemption for Long Term Capital ... Bogus LTCG - unexplained credit u/s 68 - HELD THAT:- Backed by the substantial documentary evidence filed by the assessee which beyond doubt substantiates the genuineness of the transaction of purchase and sale of shares of M/s Splash Media Ltd. by her, we are afraid that the unsubstantiated claim of the A.O that the assessee had converted her unaccounted money by taking fictitious LTCG in a pre-planned manner does not merit acceptance. Our aforesaid view that in the absence of any evidence, whatsoever, to allege that money had changed hands between the assessee and the broker or any other person, or that some person provided the entry to convert unaccounted money for getting benefit of LTCG, the uncorroborated claim of the department that the assessee had taken recourse to a structured transaction for evading taxes and laundering her unaccounted money in the garb of exempt LTCG u/s 10(38) of the Act cannot be accepted is supported by the judgment in the case of Pr. CIT & Ors. Vs. Krishna Devi & Ors. [2021 (1) TMI 1008 - DELHI HIGH COURT]. There is no material with the department which would falsify the assessee’s claim of having carried out genuine purchase/sale of shares of M/s Splash Media Ltd., we are unable to persuade ourselves to concur with the disallowance of the assessee’s claim for exemption of LTCG u/s 10(38) of the Act. As we have held that the assessee had carried out genuine transaction of purchase/sale of shares, therefore, as a consequence thereto the addition u/s 69C of commission expenditure would also meet the same fate and is accordingly vacated. - Decided in favour of assessee. 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.