2024 (8) TMI 1658 - AT - Income Tax

Listed share sale long-term capital gains treated as bogus accommodation entries; s.10(38) exemption and s.69C addition deleted.

The dominant issue was whether exemption under s.10(38) could be denied by treating the assessee's long-term capital gains on sale of listed shares as ... Denial of exemption u/s 10(38) - bogus Long Term Capital Gains (LTCG) on sale of shares of Capital Trade Links Ltd - commission expenditure added as unexplained expenditure u/s 69C on account of cost of arranging alleged accommodation entry by the assessee - HELD THAT:- We find that the very same issue was subject matter of adjudication by this Tribunal in the case of assessee's husband, Shri Sanjeev Agrawal [2023 (9) TMI 1730 - ITAT DELHI] wherein the assessee's husband also traded in the very same scrip of Capital Trade Links Ltd. and this Tribunal had deleted the addition made by the Assessing Officer meeting each and every allegation of the Assessing Officer in detail. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether denial of exemption under section 10(38) in respect of long-term capital gains arising from sale of shares of Capital Trade Links Ltd. was justified. 1.2 Whether consequential addition of alleged commission expenditure as unexplained expenditure under section 69C, on the footing that the long-term capital gains were accommodation entries, was sustainable. 1.3 Whether the appellate authority was justified in deleting the above additions by relying on judicial precedents and on the order of the Tribunal in an immediately connected case involving the same scrip and identical facts. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Denial of exemption under section 10(38) on LTCG from shares of Capital Trade Links Ltd. Interpretation and reasoning 2.1 The assessee had purchased shares of Capital Trade Links Ltd. in earlier years at Re. 1 per share and sold them during the relevant year through a registered stock broker on the online stock exchange platform, after payment of securities transaction tax, at prices ranging from Rs. 69 to Rs. 95 per share. 2.2 The assessee furnished documentary evidence comprising bank statements (showing purchase and sale consideration through banking channels), broker statements, contract notes and demat account statements. It was also noted that the assessee was a habitual investor in shares with a consistent portfolio and history of capital gains in preceding and succeeding years. 2.3 The Assessing Officer disbelieved the transactions and denied exemption under section 10(38) on general presumptions of 'penny stock' and accommodation entries, without pointing out any specific defect in the evidences, without establishing that any cash had changed hands, and without undertaking any independent enquiry in respect of the assessee's transactions. 2.4 The appellate authority found that the scrip of Capital Trade Links Ltd. was not suspended by SEBI; it continued to be actively traded even on the date of the appellate order and had declared dividends in subsequent financial years. No adverse material from SEBI, the stock exchange, the company, or the Investigation Wing specifically relating to this assessee's transactions was brought on record. 2.5 The appellate authority relied on a High Court decision (where additions on alleged 'penny stock' LTCG were deleted in absence of specific adverse material or investigation against the assessee) and noted that the Special Leave Petition thereagainst had been dismissed by the Supreme Court. Applying this ratio, it held that mere general allegations of misuse of penny stocks, without specific incriminating material, were insufficient to deny section 10(38) exemption. 2.6 The Tribunal noted that in a closely connected case concerning the assessee's husband, involving the same scrip (Capital Trade Links Ltd.), for the same assessment year and on substantially identical facts and evidentiary pattern, it had already rendered a detailed decision deleting similar additions. In that decision, the Tribunal had, inter alia, held that: (a) The purchase and sale of shares of Capital Trade Links Ltd. stood supported by cogent documentary evidence which the Revenue had not disproved. (b) Off-market purchase of shares is not per se illegal when followed by dematerialisation and subsequent on-market sale through stock exchange with payment of STT. (c) Trading in shares of Capital Trade Links Ltd. had neither been suspended nor was the scrip delisted by SEBI; price movements were within a range and not shown to be abnormal. (d) The Assessing Officer had not carried out any independent enquiry from SEBI, stock exchange, broker or the company; had not confronted the assessee with any adverse material; and had not afforded cross-examination of any purported statements relied upon, thereby violating principles of natural justice, including the mandate of section 142(3). (e) The assessment order itself was unclear as to the exact legal provision invoked (whether section 68 or denial of exemption under section 10(38)), while simultaneously attempting to apply section 115BBE, without laying the factual foundation required for invoking sections 68/69 etc., and without disputing satisfaction of the statutory conditions for exemption under section 10(38). 2.7 The Tribunal, in the present appeal, 'respectfully following' its earlier detailed order on the same scrip and identical factual matrix, held that the reasoning and conclusions reached therein squarely applied to the assessee's case. No distinguishing facts or additional incriminating material had been brought on record by the Revenue. Conclusions 2.8 The denial of exemption under section 10(38) on long-term capital gains from sale of shares of Capital Trade Links Ltd. was not supported by specific adverse material, independent enquiry, or factual findings disproving the genuineness of the documented transactions. 2.9 The conditions for claiming exemption under section 10(38) having been fulfilled and the transactions being duly evidenced and uncontroverted, the addition treating the long-term capital gains as bogus/accommodation entries was unsustainable. 2.10 The Tribunal upheld the appellate authority's deletion of the addition on account of alleged bogus long-term capital gains under section 10(38). Issue 2 - Addition under section 69C towards alleged commission/expenditure for arranging accommodation entries Interpretation and reasoning 3.1 The addition under section 69C was made on the premise that the long-term capital gains on sale of shares were bogus accommodation entries and that commission or related expenditure must have been incurred to procure such entries. 3.2 The appellate authority deleted this addition as consequential, having accepted the genuineness of the long-term capital gains and allowed the exemption under section 10(38). 3.3 In the connected earlier decision concerning the same scrip and identical factual backdrop, the Tribunal had also held that, once the long-term capital gains were found to be genuine, any notional or presumptive commission or expenditure alleged for arranging such gains could not be sustained as 'unexplained expenditure' under section 69C. Conclusions 3.4 As the foundational allegation that the long-term capital gains were bogus accommodation entries failed, the consequential addition towards alleged commission/brokerage under section 69C had no independent leg to stand on. 3.5 The Tribunal affirmed the appellate authority's deletion of the addition made under section 69C. Overall outcome 4.1 The Tribunal found no infirmity in the appellate order granting relief on both counts-deletion of addition by denying section 10(38) exemption and deletion of consequential addition under section 69C. 4.2 The Revenue's appeal was dismissed, and the assessee's cross-objection, not pressed in view of the relief already allowed, was also dismissed.