2023 (1) TMI 1404 - AT - Income Tax

ITAT deletes additions under sections 68 and 69C ruling suspicion cannot substitute evidence in LTCG transactions

ITAT Mumbai allowed appeals challenging additions under sections 68 and 69C for alleged bogus LTCG transactions. Despite suspicious share price movements ... Bogus LTCG - Addition u/s 68 - Gain on sale of shares - HELD THAT:- True, the suspicious rise/fall of share price of M/s KAFL raises doubt in the mind, but Hon’ble Supreme Court held that suspicion cannot take the place of evidence. And it is noted that when called upon by the AO to prove the claim of LTCG from the transaction of M/s KAFL, the assessee have filed the best evidence to prove the transaction in question viz, bills, contract notes, demat Statement and the bank accounts statements to prove the genuineness of the transaction relating in the purchase of M/s. Panchshul Marketing Ltd and thereafter sale of shares [after amalgamation] of M/s KAFL which resulted in LTCG claim. Therefore, by applying the test of preponderance of probability, the LTCG cannot be disallowed without AO pointing out any infirmities in the evidences produced by assessee, which unfortunately AO could not point out. So the assessee’s claim of LTCG need to be allowed. And the commission added also is based on surmises & conjectures. Likewise on same reasoning, the LTCG claim in the case of Mrs. Rashmi Sukesh Malik Alias Jyoti Srichand Bathija need to be allowed and is ordered so. And the commission added was based on surmises & conjecture which need to be deleted. Thus, no addition u/s 68 and 69C of the Act was warranted and so it is ordered to be deleted in both cases - Appeals of the assessee are allowed. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Validity of Long Term Capital Gain (LTCG) claims from the sale of shares.3. Reliance on SEBI interim order and investigation reports.4. Addition under Section 68 and Section 69C of the Income Tax Act.Detailed Analysis:1. Reopening of Assessment under Section 147 of the Income Tax Act:The assessee's case was reopened under Section 147 of the Income Tax Act based on information received by the Assessing Officer (AO) that the assessee's claim of LTCG from the sale of shares of M/s. Kailash Auto Finance Ltd. (KAFL) was bogus. The AO issued a notice under Section 148 to initiate the reassessment process.2. Validity of Long Term Capital Gain (LTCG) Claims from the Sale of Shares:The assessee claimed LTCG from the sale of shares of M/s. KAFL, which were acquired through the amalgamation of M/s. Panchshul Marketing Ltd. The assessee provided several documents to substantiate the genuineness of the transactions, including:- Demat account statements.- Contract-cum-sale bills.- Ledger accounts with brokers.- Bank passbooks reflecting the receipt of sale proceeds.Despite these submissions, the AO disallowed the LTCG claim, suspecting the transactions to be bogus based on a suspicious rise in share prices and statements from third parties. The assessee contested this, arguing that all transactions were conducted through recognized stock exchanges and banking channels, and provided further evidence, including the final order from SEBI exonerating the involved entities.3. Reliance on SEBI Interim Order and Investigation Reports:The AO relied heavily on the SEBI interim order dated 29.03.2016 and the investigation report from the Directorate, Kolkata, which suggested price manipulation in the shares of M/s. KAFL. However, the SEBI's final order dated 21.09.2017 revoked the interim order against 244 entities, including M/s. KAFL and M/s. Panchshul Marketing Ltd., finding no adverse evidence of violation of securities laws.The Tribunal noted that the AO's reliance on the SEBI interim order and investigation reports was misplaced, as the final SEBI order exonerated the entities involved. Additionally, the investigation report's reliance on third-party statements, recorded behind the assessee's back without the opportunity for cross-examination, was deemed unsustainable in law.4. Addition under Section 68 and Section 69C of the Income Tax Act:The AO made additions under Section 68 (unexplained cash credits) and Section 69C (unexplained expenditure) of the Income Tax Act, disallowing the LTCG claim and adding commissions as unexplained investments. The Tribunal found that the AO and CIT(A) had proceeded on presumptions without verifying the evidences provided by the assessee.The Tribunal emphasized that the assessee had furnished all necessary documents to prove the genuineness of the transactions, and the AO had failed to point out any specific infirmities. The Tribunal concluded that the suspicious rise in share prices alone could not justify disallowing the LTCG claim, especially when the transactions were supported by substantial evidence.Conclusion:The Tribunal allowed the appeals of the assessee, holding that the AO was not justified in rejecting the LTCG claims and making additions under Sections 68 and 69C. The Tribunal ordered the deletion of the additions, emphasizing that suspicion could not replace concrete evidence. The appeals were allowed, and the orders of the lower authorities were set aside.Order Pronounced:The order was pronounced in the open court on 13/01/2023.