2024 (3) TMI 1361 - AT - Income Tax

ITAT rules in favor of assessee on bogus LTCG allegations, deletes additions under sections 68 and 69

Abhishek Tejraj Doshi Versus Income Tax Officer Jurisdiction Circle 19 (1), Mumbai, Mumbai

ITAT Mumbai ruled in favor of the assessee regarding alleged bogus long-term capital gains transactions. The AO had treated LTCG as non-genuine under ... Bogus LTCG - Treatment of long-term capital gains as non-genuine - unexplained cash credit u/s 68 - denial of exemption u/s 10(38) - AO observed that the transaction of LTCG is a manipulated transaction done by assessee in connivance with the operators to evade taxes on his unaccounted income and treated the LTCG as non-genuine - HELD THAT:- There is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. AO and CIT (A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider. Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Addition on account of commission paid on alleged bogus share transaction - As already held that the transaction involving the LTCG is genuine and in favour of the assessee, the consequential addition relating to the above transaction is also deleted. Accordingly, we direct the AO to delete the above addition made u/s 69 - Decided in favour of assessee. Issues Involved:1. Legality of the reassessment based on information from the investigation wing.2. Treatment of long-term capital gains as non-genuine.3. Consideration of documentary evidence provided by the assessee.4. Validity of the sale being treated as off-market.5. Denial of exemption under Section 10(38) of the Income Tax Act.6. Reliance on circumstantial evidence for treating transactions as non-genuine.7. Application of judicial pronouncements.8. Addition of unexplained expenditure under Section 69C.9. Alternative argument on the extent of addition.Issue-wise Detailed Analysis:1. Legality of the Reassessment:The assessee contested the reassessment, arguing it was based solely on information from the investigation wing without tangible material connecting the appellant to the alleged transactions. The Tribunal observed that the reassessment was initiated after receiving information about bogus long-term capital gains from penny stock transactions. However, it was noted that the statements from brokers did not specifically mention the appellant, and no cross-examination opportunity was provided. The Tribunal found that there was no substantial evidence directly linking the assessee to the alleged bogus transactions.2. Treatment of Long-Term Capital Gains as Non-Genuine:The Assessing Officer treated the long-term capital gains from the sale of shares in Shreenath Commercial and Finance Limited as non-genuine, alleging manipulation and tax evasion. The Tribunal examined the findings and concluded that the transactions were pre-arranged to evade taxes. However, the assessee provided documentary evidence such as contract notes, bank statements, and demat accounts to substantiate the transactions. The Tribunal found that the evidence suggested genuine transactions, and the reliance on the investigation report without specific evidence against the assessee was insufficient to declare the gains non-genuine.3. Consideration of Documentary Evidence:The assessee provided substantial documentary evidence to support the transactions, including bank statements and broker's contract notes. The Tribunal noted that the Assessing Officer disregarded this evidence and relied heavily on the investigation report. The Tribunal emphasized the importance of considering direct evidence and found that the documentary evidence provided by the assessee substantiated the genuineness of the transactions.4. Validity of the Sale Being Treated as Off-Market:The Assessing Officer claimed the sale was off-market, but the assessee argued that transactions were conducted via the stock exchange, supported by demat accounts and contract notes. The Tribunal found that the transactions were indeed conducted through the stock exchange, and the claim of off-market sales was not substantiated by evidence.5. Denial of Exemption Under Section 10(38):The exemption under Section 10(38) was denied by the Assessing Officer on the grounds of non-genuine transactions. The Tribunal, after reviewing the evidence and the nature of transactions, held that the conditions for claiming the exemption were satisfied, and the denial was not justified.6. Reliance on Circumstantial Evidence:The Tribunal noted that the lower authorities relied on circumstantial evidence, such as price movements, to declare transactions non-genuine. The Tribunal found this approach insufficient without concrete evidence directly linking the assessee to any manipulation or dubious activities.7. Application of Judicial Pronouncements:The Tribunal observed that the lower authorities relied on judicial pronouncements that were not directly applicable to the facts of the case. The Tribunal emphasized the need to consider decisions relevant to the specific circumstances of the case, such as the decision in the case of Smt. Veena Chaturvedi, which had similar facts and was decided in favor of the assessee.8. Addition of Unexplained Expenditure Under Section 69C:The Assessing Officer added an amount as unexplained expenditure under Section 69C, representing commission paid to entry providers. The Tribunal found no corroborative evidence for this addition and held that it was based on presumptions. Consequently, the Tribunal directed the deletion of this addition.9. Alternative Argument on the Extent of Addition:The assessee argued that if the transaction was deemed non-genuine, the addition should be limited to the net gain. However, since the Tribunal found the transactions to be genuine, this alternative argument was not addressed further.Conclusion:The Tribunal allowed the appeal, holding that the transactions were genuine and the addition made by the Assessing Officer was not justified. The Tribunal directed the deletion of both the addition of long-term capital gains and the unexplained expenditure under Section 69C. The decision was based on the lack of direct evidence against the assessee and the substantial documentary evidence provided in support of the transactions.