Assessee wins appeal on bogus LTCG and cash credit additions under section 68

ITAT Surat allowed the assessee's appeal regarding bogus LTCG and unexplained cash credit u/s 68. The assessee successfully proved identity, creditworthiness and genuineness of share transactions through contract notes, banking channels, and stock exchange documentation. Following Gujarat HC precedent in Jagat Pravinbhai Sarabhai case, the tribunal found that shares held for over ten years and sold at prevailing market prices constituted genuine LTCG, not penny stock transactions. AO failed to provide material evidence proving collusive transactions. Consequently, ITAT deleted additions u/s 68 and related u/s 69C commission charges, ruling in favor of the assessee.

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Issues Involved:
1. Confirmation of additions made by the Assessing Officer.
2. Denial of claim of long-term capital gain and treatment as unexplained cash credit under Section 68.
3. Addition on account of unexplained investment under Section 69C.

Summary:

Issue 1: Confirmation of Additions
The assessee appealed against the order of the National Faceless Appeal Centre (NFAC), which confirmed the additions made by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961, for the assessment year 2015-16.

Issue 2: Denial of Long-Term Capital Gain and Treatment as Unexplained Cash Credit
The AO denied the assessee's claim of long-term capital gain (LTCG) of Rs. 5,97,489 from the sale of shares of Lifeline Drugs & Pharma Ltd., treating it as unexplained cash credit under Section 68. The AO based this on the Kolkata Investigation Report indicating that the scrip was a penny stock with no substantial business activities, and the share price was artificially inflated. The NFAC upheld this view, noting that the financial parameters of the company did not justify the price rise, and the assessee's transactions were not genuine.

Issue 3: Addition on Account of Unexplained Investment under Section 69C
The AO also added Rs. 17,925 as unexplained investment under Section 69C, presuming it to be a commission paid for arranging the LTCG. The NFAC confirmed this addition, stating that commission payments are inherent in such transactions.

Assessee's Arguments:
The assessee's counsel argued that the transactions were genuine, supported by bank statements, contract notes, and other documents. He cited several judicial precedents to support the claim and contended that the AO failed to identify any mistakes in the submitted documents. He also argued that the AO's presumption of commission payment was baseless, as no evidence of cash movement was provided.

Revenue's Arguments:
The Revenue defended the NFAC's order, arguing that the facts of the assessee's case were different from the cited precedents. They maintained that the addition under Section 69C was justified due to the inherent nature of commission payments in such transactions.

Tribunal's Findings:
The Tribunal examined the documents submitted by the assessee and found that the transactions were conducted through proper banking channels and were genuine. Citing the Gujarat High Court's decision in Jagat Pravinbhai Sarabhai, the Tribunal held that the AO failed to provide any material evidence to prove that the transactions were collusive. Therefore, the additions of Rs. 5,97,489 and Rs. 17,925 were deleted.

Conclusion:
The appeal filed by the assessee was allowed, and the additions made by the AO under Sections 68 and 69C were deleted. The Tribunal emphasized the importance of relying on evidence rather than suspicion or probabilities. The order was pronounced on 27/02/2024.

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