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of <h1>ITAT Mumbai deletes additions for unexplained cash credit under section 68 and bogus share transactions</h1> <h3>Sanjay Basudeo Agarwal Versus ITO, Ward - 25 (1) (1), Mumbai.</h3> Sanjay Basudeo Agarwal Versus ITO, Ward - 25 (1) (1), Mumbai. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe appeal before the Appellate Tribunal ITAT Mumbai presented several core legal issues:Whether the CIT(A) erred in confirming the assessment order under section 143(3) of the Income Tax Act, allegedly against the principles of natural justice.Whether the CIT(A) was correct in confirming Rs. 24,68,800/- as unexplained cash credit under section 68 of the Income Tax Act 1961, instead of accepting it as Long Term Capital Gains.Whether the CIT(A) erred in confirming Rs. 61,790/- as unexplained expenditure under section 69 of the Income Tax Act 1961.Whether the CIT(A) was justified in confirming the charging of interest under sections 234A, 234B, and 234C of the Income Tax Act 1961.Whether the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act 1961 was appropriate.2. ISSUE-WISE DETAILED ANALYSISUnexplained Cash Credit under Section 68:Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, placing the onus on the taxpayer to satisfactorily explain the nature and source of any sum credited in the books.Court's Interpretation and Reasoning: The Tribunal considered the evidence presented by the assessee, including the purchase and sale of shares, bank statements, and demat account records. The Tribunal noted that the AO had relied heavily on the investigation reports without conducting an independent inquiry.Key Evidence and Findings: The assessee provided evidence of purchasing shares through banking channels and their subsequent sale through a recognized stock exchange, supported by contract notes and demat account statements.Application of Law to Facts: The Tribunal found that the assessee had discharged the onus of proving the genuineness of the transactions. The AO's reliance on general investigation reports without specific evidence against the assessee was insufficient to sustain the addition under section 68.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument regarding the alleged bogus nature of the transactions but found the evidence provided by the assessee more compelling.Conclusions: The Tribunal directed the AO to delete the addition of Rs. 24,68,800/- under section 68, accepting it as genuine Long Term Capital Gains.Unexplained Expenditure under Section 69:Legal Framework and Precedents: Section 69 deals with unexplained investments or expenditures, requiring the taxpayer to explain the source of such expenditures.Court's Interpretation and Reasoning: The Tribunal noted that the AO had estimated commission expenditure without concrete evidence.Key Evidence and Findings: The assessee provided documentation supporting the transactions, including the payment of securities transaction tax (STT).Application of Law to Facts: The Tribunal found no basis for the AO's estimation of commission expenditure, as the transactions were adequately documented and genuine.Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument of unexplained expenditure, given the lack of evidence.Conclusions: The Tribunal directed the deletion of the addition of Rs. 61,790/- under section 69.Interest under Sections 234A, 234B, and 234C:Legal Framework and Precedents: These sections deal with interest for defaults in furnishing returns, payment of advance tax, and deferment of advance tax.Court's Interpretation and Reasoning: The Tribunal's decision on the primary issues rendered the interest charges moot.Conclusions: The Tribunal directed the AO to delete the interest charges under sections 234A, 234B, and 234C.Penalty under Section 271(1)(c):Legal Framework and Precedents: This section pertains to penalties for concealment of income or furnishing inaccurate particulars.Court's Interpretation and Reasoning: Given the Tribunal's findings on the main issues, the basis for penalty proceedings was undermined.Conclusions: The Tribunal directed the AO to drop the penalty proceedings under section 271(1)(c).3. SIGNIFICANT HOLDINGSCore Principles Established: The Tribunal emphasized the necessity of concrete evidence when making additions under sections 68 and 69, particularly when the taxpayer provides substantial documentation supporting the genuineness of transactions.Final Determinations on Each Issue: The Tribunal allowed the appeal, directing the deletion of additions under sections 68 and 69, the removal of interest charges under sections 234A, 234B, and 234C, and the cessation of penalty proceedings under section 271(1)(c).Verbatim Quote: The Tribunal noted, 'The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold.'
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