Tribunal upholds disallowance of exemption claim for capital gains, adds as unexplained cash credit.

The Tribunal dismissed both appeals, upholding the disallowance of the exemption claim under section 10(38) of the Income Tax Act for long-term capital gains from the sale of shares, adding them as unexplained cash credit under section 68. The Tribunal supported the Assessing Officer's conclusions based on the suspicious nature of transactions and lack of credible evidence from the assessee. The decision was influenced by the precedent set by the High Court, emphasizing the burden of proof on the assessee to prove transaction genuineness.

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Issues Involved:
1. Disallowance of claim of exemption under section 10(38) of the Income Tax Act in respect of long-term capital gains (LTCG) from the sale of shares.
2. Addition of unexplained cash credit under section 68 of the Income Tax Act.
3. Addition of unexplained commission expenditure related to the alleged bogus LTCG.

Issue-Wise Detailed Analysis:

1. Disallowance of Claim of Exemption under Section 10(38):
The primary issue in both appeals was the disallowance of the exemption claim under section 10(38) of the Income Tax Act for LTCG arising from the sale of shares. The Assessing Officer (AO) based the disallowance on information from the Directorate of Income Tax (Investigation), Kolkata, which identified 84 companies as penny stock companies involved in providing bogus LTCG entries. In ITA No. 509/KOL/2019, the assessee claimed exempt income of Rs. 2,26,86,516/- from the sale of shares of CCL International Limited, which was one of the penny stock companies. Similarly, in ITA No. 1365/KOL/2019, the assessee claimed LTCG of Rs. 52,83,100/- from the sale of shares of Parag Shilpa Investments Limited, another penny stock company. The AO concluded that the LTCG was bogus and added it as unexplained cash credit under section 68.

2. Addition of Unexplained Cash Credit under Section 68:
The AO added the LTCG as unexplained cash credit under section 68 of the Income Tax Act due to the suspicious nature of the transactions. The AO's decision was based on the sudden and steep rise in the share prices of insignificant companies, which did not align with their financial performance. The Tribunal referenced the judgment of the Hon'ble Jurisdictional High Court in Swati Bajaj & Others (2022) 139 taxmann.com 352 (Cal.), which upheld similar additions, emphasizing the test of preponderance of probabilities and the burden on the assessee to prove the genuineness of the transactions.

3. Addition of Unexplained Commission Expenditure:
In both cases, the AO made an additional disallowance for unexplained commission expenditure, calculated at 0.5% of the LTCG. This was based on the assumption that the assessee had paid a commission to arrange the bogus LTCG. The Tribunal upheld this addition, finding no credible evidence from the assessee to refute the AO's findings.

Conclusion:
The Tribunal dismissed both appeals, finding no infirmity in the orders of the CIT(Appeals). The Tribunal's decision was heavily influenced by the binding precedent set by the Hon'ble Jurisdictional High Court in Swati Bajaj & Others, which supported the AO's methodology and conclusions. The Tribunal emphasized that the burden of proof lay with the assessee to demonstrate the genuineness of the transactions, which was not satisfactorily met.

Order Pronouncement:
The Tribunal pronounced the order dismissing both appeals on October 31, 2022.

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