2022 (1) TMI 919 - AT - Income Tax

Tribunal allows deletion of unexplained cash credit & commission addition under Income Tax Act

Shri Rakesh Shantilal Shah Versus ITO-18 (3) (4), Mumbai

The Tribunal directed the deletion of the addition of Rs. 5,46,21,248/- under Section 68 of the Income Tax Act as unexplained cash credit, recognizing the ... Addition u/s 68 - unexplained cash credit - Bogus LTCG - disallowance of long term capital gain resulting from sale of equity shares which was claimed as exempt under section 10(38) - HELD THAT:- We find that the assessee has sold 2,88,600 shares of M/s. S.R.K. Industries Ltd. at Bombay Stock Exchange through broker M/s. Vishesh Capital Pvt. Ltd. dated 16.12.2013 and 10.01.2014. The facts qua the purchase of these shares were already discussed hereinabove - assessee has filed before the AO the proofs of purchase and sale of these shares, payment through banking channel, receipt of sale consideration into assessee’s bank account, sale through registered brokers on stock exchange and D-mat account regarding the entries of purchase and sale of these shares etc AO has not found any defect in the documents submitted by the assessee, however, primarily relied on the report of investigation wing, Kolkata that the scrip is part of penny stocks and therefore are of bogus in nature - order of Ld. CIT(A) upholding the order of AO is not correct as the conclusion is merely based on the suspicious without bringing on record any concrete evidences to the contrary. As the long term capital gain which was earned through recognized stock exchange and is evidenced by the documentary evidences and mere fact that the scrip price has risen many times can not be sole factor for treating the same as bogus. We also note that the co-ordinate Bench of the Tribunal in the above two cases namely Smt. Geeta Khare vs. ACIT [2019 (5) TMI 1846 - ITAT MUMBAI] and Smt. Bhavna B. Kothari vs. ITO [2020 (9) TMI 491 - ITAT MUMBAI] the scrip involved was M/s. S.R.K. Industries Ltd. and the co-ordinate Bench of the Tribunal has held the long term capital gain to be genuine and not bogus. - Decided in favour of assessee. Issues Involved:1. Confirmation of addition under Section 68 of the Income Tax Act as unexplained cash credit.2. Confirmation of addition as commission.Detailed Analysis:1. Confirmation of Addition Under Section 68 as Unexplained Cash Credit:The primary issue in this case was the confirmation of an addition of Rs. 5,46,21,248/- by the Assessing Officer (AO) under Section 68 of the Income Tax Act, treating the sale consideration from equity shares as unexplained cash credit. The assessee had declared a long-term capital gain of Rs. 5,38,89,313/- from the sale of equity shares, which was claimed as exempt under Section 10(38) of the Act.Facts:- The assessee filed a return of income declaring Rs. 30,40,850/- after claiming an exemption on income, including long-term capital gains on listed shares.- Shares were purchased and later credited to the Demat account. The shares were sold through a registered broker, and the sale consideration was credited to the assessee's bank account.- Despite providing various evidences like contract notes, Demat account statements, and proof of payment through banking channels, the AO concluded the transactions were bogus based on an investigation wing report and added the entire sale consideration as unexplained income.CIT(A) Observations:- The CIT(A) upheld the AO’s decision, noting the appellant misutilized Section 10(38) provisions.- The CIT(A) emphasized the lack of prospective growth in the company’s financials and the artificial increase in share prices, concluding the transactions were manipulated to earn tax-free exempt LTCG.- The CIT(A) relied on the investigation report and other judicial precedents, stating the transactions were premeditated for tax evasion.Assessee’s Arguments:- The assessee argued the transactions were genuine, supported by contract notes, banking transactions, and payment of STT.- The assessee cited various judicial decisions where similar transactions were held genuine, emphasizing the need for concrete evidence against the provided documentation.Tribunal’s Findings:- The Tribunal noted the AO did not find defects in the documents submitted by the assessee.- The Tribunal criticized the reliance on the investigation wing report without concrete evidence.- The Tribunal referenced previous decisions where similar cases involving the same scrip were decided in favor of the assessee, establishing the transactions as genuine.- The Tribunal concluded that mere suspicion and the rise in share prices could not justify treating the transactions as bogus without substantial evidence.Conclusion:- The Tribunal directed the deletion of the addition of Rs. 5,46,21,248/- as unexplained cash credit, recognizing the transactions as genuine and supported by adequate documentation.2. Confirmation of Addition as Commission:The second issue was the confirmation of an addition of Rs. 1,36,553/- as commission at 0.25% of the total sale consideration.Tribunal’s Decision:- Since the primary issue of treating the sale consideration as unexplained cash credit was resolved in favor of the assessee, the consequential addition of commission was also directed to be deleted.Final Judgment:- The Tribunal allowed the appeal of the assessee, directing the deletion of both the additions under Section 68 and the commission, emphasizing the need for substantial evidence to support claims of bogus transactions.