2024 (9) TMI 1705 - AT - Income Tax

Assessee wins appeal as bogus LTCG addition deleted under section 68 after providing complete transaction evidence

Ahmed P. Surani Versus ACIT – 3 (1) (1), Mumbai.

ITAT Mumbai allowed the appeal and directed deletion of addition under section 68 relating to bogus LTCG and disallowance of exemption under section ... Addition u/s 68 - bogus LTCG - disallowance of exemption claim made u/s. 10(38) - HELD THAT:- Assessee has furnished the financial information, details of broker and the transactions status. AO has doubted the purchase and sale of shares and observed that the price rise is not commensurate with the financials of the investee company. The assessee has substantiated with all the details and information and the AO has relied on the investigation report of income tax department and treated the long term capital gains on sale of shares as not genuine. AO has not made any enquiry or independent investigation or cross examination but relied only on the investigation report and the assessee’s name is not included in the list of investigation report. The fact remains that the assessee has submitted the requisite details in respect of purchase and sale of shares and were not disproved. The assessee has filed the SEBI order to highlighting on the facts that the assessee name was not included and he was only a investor and was not involved/connected in price manipulation of scrip. AR has referred to the Audited financial statements in the Annual report in particular financial results summary to substantiate the creditworthiness of the company. AR referred to the share price and volume of trading of shares of M/s Vishvjyoti Trading Ltd at the the Bombay Stock Exchange from February 2014 to January 2015 and the assessee has sold the shares at the average price of Rs. 29.27 (appx) per share on BSE and subsequently the share price movement was high and low at intervals. Whereas the transaction of purchase and sale of shares is through banking channel. The assessee after the sale of shares still was holding 8,00,000 equity shares as on 31-03-2015 in the DCB Bank Demat account statement placed. AR has furnished the data from the MCA Website on the status of the company, which is active and the investee company i.e M/s Vishvjyoti Trading Ltd has filed the last Balance sheet dated 31-03-2023 and the Annual General Body meeting was held on 30-09-2023. Accordingly, set aside the order of the CIT(A) and direct the assessing officer to delete the addition and we allow the grounds of appeal in favour of the assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether the exemption claimed by the assessee under Section 10(38) of the Income Tax Act, 1961, for Long Term Capital Gains on the sale of shares was valid.Whether the addition made under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO) was justified, given the evidence provided by the assessee.Whether the transactions related to the purchase and sale of shares were genuine, and whether the AO's reliance on investigation reports without independent inquiry was appropriate.ISSUE-WISE DETAILED ANALYSIS1. Exemption under Section 10(38) of the Income Tax Act, 1961:Relevant Legal Framework and Precedents: Section 10(38) provides for exemption on long-term capital gains arising from the transfer of equity shares through a recognized stock exchange, subject to the payment of Securities Transaction Tax (STT). Various judicial precedents, including those from the High Courts and the Supreme Court, have upheld the validity of such exemptions when supported by genuine transactions.Court's Interpretation and Reasoning: The Tribunal noted that the assessee had provided substantial evidence, including purchase bills, sale bills, demat account statements, and bank statements, to substantiate the genuineness of the transactions. The Tribunal emphasized that the transactions were conducted through recognized stock exchanges and involved STT payments.Key Evidence and Findings: The assessee purchased shares through banking channels, held them for over a year, and sold them via a SEBI-registered broker. The Tribunal found no adverse findings from the SEBI or any other regulatory body against the assessee.Application of Law to Facts: Given the evidence provided, the Tribunal concluded that the transactions were genuine and the exemption under Section 10(38) was applicable.Treatment of Competing Arguments: The Tribunal dismissed the AO's reliance on investigation reports, noting the lack of independent inquiry and the absence of any direct evidence against the assessee.Conclusions: The Tribunal directed the deletion of the addition made under Section 68 and allowed the exemption under Section 10(38).2. Addition under Section 68 of the Income Tax Act, 1961:Relevant Legal Framework and Precedents: Section 68 deals with unexplained cash credits, where the burden of proof lies on the assessee to explain the nature and source of credits in their accounts. Judicial precedents require a thorough inquiry by the AO before making additions under this section.Court's Interpretation and Reasoning: The Tribunal emphasized the lack of independent inquiry by the AO and the reliance solely on investigation reports, which did not directly implicate the assessee.Key Evidence and Findings: The Tribunal noted that the assessee had provided all necessary documentation to demonstrate the genuineness of the transactions, including confirmations from brokers and demat account statements.Application of Law to Facts: The Tribunal found that the AO failed to discharge the burden of proof required under Section 68, as the evidence provided by the assessee was not effectively countered.Treatment of Competing Arguments: The Tribunal rejected the AO's arguments based on investigation reports, highlighting the absence of any direct evidence against the assessee.Conclusions: The Tribunal set aside the addition made under Section 68, finding it unjustified.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal noted, 'The assessee has substantiated with all the details and information and the AO has relied on the investigation report of income tax department and treated the long term capital gains on sale of shares as not genuine. Further the A.O. has not made any enquiry or independent investigation or cross examination but relied only on the investigation report.'Core Principles Established: The judgment reinforced the principle that genuine transactions backed by substantial evidence should not be disallowed based on mere suspicion or reliance on investigation reports without independent verification.Final Determinations on Each Issue: The Tribunal allowed the appeal by the assessee, directing the deletion of the addition under Section 68 and granting the exemption under Section 10(38) for long-term capital gains.