ITAT allows appeal on bogus LTCG after SEBI revokes interim order, deletes additions under sections 68 and 69C

The ITAT Mumbai allowed the assessee's appeal regarding bogus LTCG treatment. The AO had denied exemption u/s 10(38) and made additions u/s 68 and 69C based on an interim SEBI order. The Tribunal held that the AO's inference lacked foundation as SEBI's final order dated 21/09/2017 revoked the interim order, demolishing the AO's premise. No enquiry was conducted regarding the specific scrip (Shreenath Commercial Finance Ltd.) or the assessee's broker (RBK Share Broking Limited). The statements from other brokers had no connection to the assessee's transactions. Following consistent decisions in similar cases involving the assessee's family members, the Tribunal deleted all additions made by the AO.

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Issues Involved:

1. Validity of reopening under Section 147.
2. Addition under Section 68 for treating long-term capital gains as bogus.
3. Addition for unexplained expenditure related to alleged bogus accommodation entry.

Detailed Analysis:

1. Validity of Reopening Under Section 147:

The reopening of the assessment under Section 147 was based on information from the Directorate of Investigation, which suggested that the assessee had availed bogus long-term capital gains (LTCG) through penny stocks. The notice under Section 148 was issued after obtaining approval from the Additional CIT. The assessee contested the reopening, arguing that the original return should be treated as a response to the notice. However, the Tribunal did not delve into the validity of reopening, leaving the issue open as the appeal was decided on merits.

2. Addition Under Section 68 for Treating Long-Term Capital Gains as Bogus:

The primary issue was the addition of Rs. 8,29,88,876 under Section 68, treating the LTCG from the sale of shares of Shreenath Commercial & Finance Ltd. as bogus. The Assessing Officer (AO) relied on the investigation report, which alleged that the assessee was part of a larger scheme involving rigged stock prices to generate fake LTCG. The AO noted the poor financials of the company and the sudden rise in share prices as indicators of manipulation.

The assessee countered these claims by providing documentary evidence, including contract notes, Demat account statements, and bank statements, to prove the genuineness of the transactions. The assessee argued that the shares were purchased and sold through recognized stock exchanges and that there was no connection with the alleged exit providers or manipulation activities.

The Tribunal found merit in the assessee's submissions, noting that the transactions were conducted through registered brokers with all payments made through banking channels. The Tribunal also highlighted that similar additions in the case of the assessee's husband had been deleted by the Co-ordinate Bench, emphasizing the lack of specific evidence against the assessee.

3. Addition for Unexplained Expenditure Related to Alleged Bogus Accommodation Entry:

The AO also added Rs. 41,49,444 as unexplained expenditure, alleging it as commission for obtaining the bogus LTCG entry. The assessee denied any such expenditure, stating that there was no evidence of any commission payment. The Tribunal, aligning with its findings on the LTCG issue, deleted this addition as well, citing a lack of evidence and the absence of any corroborative material linking the assessee to such payments.

Conclusion:

The Tribunal allowed the appeal on merits, deleting both the addition under Section 68 for LTCG and the addition for unexplained expenditure. The decision was heavily influenced by the documentary evidence provided by the assessee and the lack of specific evidence from the AO to substantiate the claims of bogus transactions. The issue of reopening under Section 147 was left open, as the appeal was resolved on the substantive issues.

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