2022 (12) TMI 443 - AT - Income Tax

Tribunal directs deletion of additions under sec. 69 for share purchase price.

The Tribunal allowed both appeals, directing the Assessing Officer to delete the additions made under section 69 of the Act for the purchase price of ... Addition as unexplained investment under section 69 of the Income-tax Act - application of Bombay Stock Exchange settlement rules to determine accounting year of share transactions - genuineness of share transactions and proof of source of fundsAddition as unexplained investment under section 69 of the Income-tax Act - application of Bombay Stock Exchange settlement rules to determine accounting year of share transactions - genuineness of share transactions and proof of source of funds - Deletion of addition made under section 69 in respect of purchase of shares of Sacheta Metals Ltd for A.Ys. 2005-06 and 2006-07 - HELD THAT: - The Tribunal found that although a contract note was dated 30/03/2005, under Bombay Stock Exchange settlement rules payment was required within two days and accordingly the assessee made payment by account payee cheque on 01/04/2005 and accounted for the purchase in the next year (A.Y. 2006-07). The assessee furnished documentary evidence including the contract note, DEMAT statements, bank confirmation of payment to the broker, the broker's ledger reflecting purchase on 01/04/2005, bank statements showing source of funds, and third party loan confirmation. The Assessing Officer's conclusion that the purchase was bogus merely because it was routed through a broker associated with tainted transactions was rejected: the sale proceeds were offered to tax as business income, the shares were dematerialised, payments were by account payee cheques, and the immediate source of credit was satisfactorily explained. On these factual and documentary grounds, there was no basis for treating the purchases as unexplained investments under section 69 and the additions were directed to be deleted. [Paras 7, 9, 11]Addition under section 69 in respect of Sacheta Metals Ltd purchases for A.Ys.2005-06 and 2006-07 deleted; ground allowed.Addition as unexplained investment under section 69 of the Income-tax Act - genuineness of share transactions and proof of source of funds - Deletion of addition made under section 69 in respect of purchase of shares of Sundaram Finance Ltd for A.Y. 2006-07 - HELD THAT: - The Tribunal applied the same reasoning as for the Sacheta Metals transactions. The assessee purchased 10,000 shares by account payee cheques from a broker linked to the same group, dematerialised the shares, and subsequently sold them through a registered broker, offering the gains to tax as business income. Documentary evidence (DEMAT statement, bank statements showing payments, and sale through a registered broker) established the transaction's genuineness and source of funds. There was no foundation for treating the purchase as a bogus entry merely because the counterparty broker was found involved in tainted transactions. Consequently, the addition under section 69 was unsustainable and ordered deleted. [Paras 10, 11]Addition under section 69 in respect of Sundaram Finance Ltd purchases for A.Y.2006-07 deleted; ground allowed.Final Conclusion: Both appeals are allowed: the Tribunal directed deletion of the additions made under section 69 for the purchases of shares in the specified assessment years and restored the position in accordance with the documentary evidence and BSE settlement practice. Issues involved:- Confirmation of addition under section 69 of the Act for purchase price of shares of Sacheta Metals Ltd for A.Ys. 2005-06 and 2006-07.Analysis:1. The primary issue in these appeals is whether the Ld.CIT(A) was justified in confirming the action of the Ld.AO in making an addition under section 69 of the Act for the purchase price of shares of Sacheta Metals Ltd. The assessee contended that the purchase of shares was made in A.Y. 2006-07, not in A.Y. 2005-06. The Ld.AO, however, concluded that the transactions were bogus, leading to the addition under section 69, a decision upheld by the Ld.CIT(A).2. The assessee provided substantial evidence to support their claim. Documents such as the contract note, DEMAT account, bank statements, and ledger entries were submitted to prove the genuine nature of the transactions. The assessee also explained the source of funds for the purchase through account payee cheques and third-party confirmations.3. The Tribunal observed that the purchase of shares of Sacheta Metals Ltd was indeed made in A.Y. 2006-07 in accordance with the settlement rules of the Bombay Stock Exchange. The assessee's meticulous documentation and adherence to proper accounting practices further supported their case. The Tribunal found no basis for the Revenue's allegations of the transactions being tainted.4. Additionally, the Tribunal noted that similar purchase and sale transactions of shares of another company, Sundaram Finance Ltd, were also questioned by the Ld.AO. However, the Tribunal found that these transactions were also genuine, supported by proper documentation, and the gains were appropriately offered as business income.5. Consequently, the Tribunal directed the Assessing Officer to delete the additions made under section 69 of the Act for both the assessment years, as the transactions were adequately explained, supported by documentary evidence, and conducted in accordance with legal requirements.6. Ultimately, both appeals filed by the assessee were allowed, emphasizing the importance of proper documentation, adherence to accounting standards, and the genuine nature of the transactions in dispute.