2023 (6) TMI 87 - AT - Income Tax

Tribunal orders deletion of tax addition, citing lack of evidence. Importance of nexus in tax assessments

The Appellate Tribunal directed the AO to delete the addition made under section 68 of the Income Tax Act, acknowledging the lack of evidence linking the ... Addition u/s 68 - proceeds from the sale of shares by treating the scrips as penny stocks - Whether any link between the assessee with the entry operators/exit providers? - HELD THAT:- Despite the Revenue having the information regarding the stockbrokers through whom the shares were sold, there is no evidence on record that even these shareholders were named in the investigation conducted by the Investigation Wing of the Department. AO has not given any adverse comments or drawn adverse inferences on the documentary evidence submitted by the assessee. Revenue has failed to prove with any cogent evidence on record that the assessee was involved in converting his unaccounted money into long-term capital gains and short-term capital gains by conniving with any entry operator/exit provider, who was involved in artificial price rigging of shares. This is the case wherein the AO merely on the basis of suspicion rejected the claim of the assessee, without establishing any link between the assessee with the entry operators/exit providers, who were allegedly involved in price rigging of shares artificially of the aforesaid companies. Direct the AO to delete the impugned addition made under section 68 and accept the plea of the assessee in respect of the long-term capital gains and short-term capital gains earned during the year. Decided in favour of assessee. Issues involved:The appeal challenging the order passed under section 250 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) for the assessment year 2014-15.Issue 1: Treatment of long-term capital gains as non-genuineThe appellant contested the assessing officer's treatment of long-term capital gains as non-genuine based on findings without concrete evidence linking the appellant to the alleged bogus transaction. The appellant presented documentary evidence such as bank statements and contract notes to support the legitimacy of the share transactions. The addition under section 68 was deemed as presumptive and disregarded direct evidence on record.Issue 2: Denial of exemption under sec. 10(38) and concessional tax rateThe appellant challenged the denial of exemption under section 10(38) and the concessional tax rate on short-term capital gains. The appellant asserted that all conditions for claiming exemption were met, and the denial was unfounded. The CIT(A) erred in confirming the action of the AO without considering the appellant's evidence to support the exemption claim.Issue 3: Allegations of non-genuine transaction based on circumstantial evidenceThe appellant disputed the characterization of the transaction as non-genuine, arguing that reliance on circumstantial evidence, such as equity share price movements, did not establish the appellant's involvement. The CIT(A) overlooked distinct judicial pronouncements and failed to consider relevant evidence supporting the genuine nature of the transactions.Issue 4: Lack of nexus with entry operators and exit providersThe AO alleged that the appellant engaged in a preconceived scheme with entry operators to evade taxes through price manipulation in share transactions. However, the Revenue failed to provide concrete evidence linking the appellant with entry operators or exit providers involved in price rigging. The AO's conclusion was based on suspicion without establishing a direct link between the appellant and the alleged operators.Separate Judgment:The Appellate Tribunal directed the AO to delete the addition made under section 68 of the Act, acknowledging the lack of evidence linking the appellant to the alleged non-genuine transactions. The Tribunal allowed the appeal by the assessee, emphasizing the importance of establishing a clear nexus between the taxpayer and any fraudulent activities in tax assessments.