Tribunal upholds AO decision on fabricated LTCG, unexplained cash credits. Assessees fail to prove genuineness.

The Tribunal dismissed the appeals of the assessees, upholding the decision of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)). The Tribunal found that the Long Term Capital Gains (LTCG) reported were fabricated, and additions under Section 68 as unexplained cash credits were justified. Relying on the precedent set by the jurisdictional High Court of Calcutta in a similar case, the Tribunal concluded that the assessees failed to prove the genuineness of their transactions. The orders of the AOs were restored, and the appeals were dismissed on 29.09.2022.

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Issues Involved:
1. Disallowance of claim of exemption under Section 10(38) of the Income-tax Act, 1961.
2. Addition of Long Term Capital Gains (LTCG) as unexplained cash credits under Section 68 of the Income-tax Act, 1961.
3. Validity of the assessment orders based on the investigation report by the Directorate of Income Tax, Investigation, Kolkata.
4. Applicability of the jurisdictional High Court of Calcutta's decision in the case of Swati Bajaj and others.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Exemption under Section 10(38):
In all the appeals, the primary issue was the disallowance of the claim of exemption under Section 10(38) of the Income-tax Act, 1961, in respect of LTCG arising from the sale of shares. The Assessing Officer (AO) treated the reported LTCG as bogus, asserting that the transactions were fabricated to introduce unaccounted money into the books using the LTCG route, which is exempt from tax under Section 10(38). The AO's decision was based on the report from the Investigation Wing of the Department, which detailed the modus operandi of rigging penny stock prices to generate capital gains. The CIT(A) upheld the AO's decision, leading the assessees to appeal before the Tribunal.

2. Addition of LTCG as Unexplained Cash Credits under Section 68:
The AO added the amounts reported as LTCG to the total income of the assessees, treating them as unexplained cash credits under Section 68 of the Act. The AO relied on the investigation report, which indicated that the transactions were part of a larger scheme to manipulate stock prices and generate tax-exempt capital gains. The CIT(A) confirmed these additions, and the Tribunal was tasked with reviewing these decisions.

3. Validity of Assessment Orders Based on Investigation Report:
The assessment orders were primarily based on the investigation report by the Directorate of Income Tax, Investigation, Kolkata. The report detailed how penny stocks were manipulated to create artificial capital gains. The assessees contended that they were not named in the report and that the non-furnishing of the report violated principles of natural justice. However, the Tribunal noted that the assessees had the opportunity to access the report, which was available in the public domain, and failed to prove the genuineness of their transactions.

4. Applicability of the Jurisdictional High Court's Decision in Swati Bajaj and Others:
The Tribunal referred to the recent decision by the Hon'ble jurisdictional High Court of Calcutta in the case of Swati Bajaj and others, which dealt with similar issues. The High Court upheld the AO's and CIT(A)'s decisions, emphasizing the test of preponderance of probabilities and the need to consider the totality of circumstances. The High Court found that the transactions in question involved penny stocks with a steep and unjustified rise in prices, indicating manipulation. The Tribunal applied this binding precedent to the present cases, noting that the facts were identical and the assessees failed to prove the genuineness of their transactions.

Conclusion:
After considering the factual matrix and the binding decision of the jurisdictional High Court in Swati Bajaj and others, the Tribunal dismissed the appeals of the assessees. The Tribunal restored the orders of the respective AOs, as affirmed by the CIT(A), concluding that the LTCG reported by the assessees were indeed fabricated and the additions under Section 68 were justified. The appeals were dismissed, and the order was pronounced in the open court on 29.09.2022.

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