2023 (3) TMI 341 - AT - Income Tax

Appeal allowed on reopening assessment & LTCG exemption disallowance unjustified. (38)

The ITAT allowed the appeal, ruling that the reopening of the assessment under Section 147 was unjustified and the disallowance of LTCG exemption under ... Reopening of assessment u/s 147 - Addition stating bogus LTCG claimed u/s 10(38) in the ROI held to be income from undisclosed sources - HELD THAT:- During the course of assessment proceedings, AO noted that the assessee had purchased 50 shares of unlisted company M/s. Ranisati Commotrrade Pvt. Ltd. for a very meager amount of Rs.500/- in cash from M/s. Pushpanjali Commotrade Pvt. Ltd., Kolkata and then got converted these shares through amalgamation into shares of M/s Blueprint Securities Limited and received as humongous long term capital gain. AO observed that the assesee has not dealt in any other trading activities in shares or made investment on other shares during the year under consideration and thus claimed capital gain as exempted u/s 10(38) which has been treated by the AO as undisclosed income of the assessee. Conclusively the AO held that the amount introduced/credited by the assessee out of these purported share sales receipts during the year under consideration as her income from undisclosed sources and thus computed the bogus LTCG claimed u/s 10(38). Since the issue raised by the assessee is covered to the case of Nilesh Agarwal, HUF, vs ITO [2021 (2) TMI 540 - ITAT JAIPUR] therefore, we do not concur with the findings of the CIT(A) and thus the appeal of the assessee is allowed. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Disallowance of Long Term Capital Gain (LTCG) exemption claimed under Section 10(38).Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the reopening of the assessment by the Assessing Officer (AO) under Section 147, arguing that the AO had not applied his mind and had no concrete information about any escaped assessment. The reopening was based on the suspicion that the assessee was a beneficiary of bogus LTCG entries from M/s Blue Prints Securities Ltd. The assessee contended that no transaction was made with M/s Blue Prints Securities Ltd., and no bogus entry was provided by this company.The CIT(A) dismissed this ground, stating that the AO had received specific information indicating that the assessee indulged in questionable transactions and claimed wrongful exemption under Section 10(35). The reopening was based on specific information, making the decisions relied upon by the assessee inapplicable. The CIT(A) concluded that the ground of appeal lacked merit and was dismissed.The ITAT Bench noted that the reopening was based on information that the assessee received bogus LTCG from transactions made in the scrips of M/s Blueprint Securities Limited through the broker M/s. Badri Prasad & Sons. The AO found that the assessee purchased 50 shares of M/s Rani Sati Commotrade Pvt. Ltd. for Rs. 500 in cash and later converted these shares through amalgamation into shares of M/s Blueprint Securities Limited, resulting in a significant LTCG. The AO treated the LTCG as undisclosed income. The Bench referred to the case of Nilesh Agarwal, HUF vs ITO, where it was held that mere suspicion cannot be a ground for treating transactions as bogus without evidence. The ITAT concluded that the reopening of the assessment was not justified and allowed the appeal.2. Disallowance of LTCG Exemption Claimed under Section 10(38):The assessee claimed LTCG exemption under Section 10(38) for the sale of shares, which the AO disallowed, treating the LTCG as income from undisclosed sources. The AO found that the shares were purchased through an off-market transaction in cash and later sold at a significantly higher price after amalgamation, despite the companies having no demonstrable business activities. The AO also noted that SEBI had banned the broker involved in the transactions for indulging in unfair practices.The CIT(A) upheld the AO's decision, citing clear factual findings and SEBI's indictment of the stock brokers. The CIT(A) dismissed the ground of appeal, agreeing with the AO's reasoning and the binding decisions of higher courts.During the hearing, the assessee argued that all necessary documentary evidence was provided to establish the genuineness of the transactions, including purchase bills, bank statements, and Demat account statements. The assessee relied on several judicial pronouncements supporting the genuineness of the transactions and argued that the AO's decision was arbitrary and lacked evidence.The ITAT Bench referred to the case of Nilesh Agarwal, HUF vs ITO, where it was held that the AO cannot treat transactions as bogus based on mere suspicion without contrary evidence. The ITAT noted that the assessee provided all relevant documentary evidence, and there was no evidence to doubt the genuineness of the transactions. The ITAT concluded that the AO's decision to treat the LTCG as unexplained cash credit was not justified and allowed the appeal.Conclusion:The ITAT allowed the appeal filed by the assessee, holding that the reopening of the assessment was not justified and the disallowance of LTCG exemption under Section 10(38) was arbitrary and lacked evidence. The ITAT emphasized that mere suspicion cannot be a ground for treating transactions as bogus without concrete evidence.