Assessee wins appeal on bogus LTCG addition under section 68 and section 10(38) exemption denial

ITAT Surat allowed the assessee's appeal regarding bogus LTCG addition under section 68 and denial of exemption under section 10(38). The tribunal found that the assessee proved genuineness of share sale transactions through contract notes, bank statements, and demat account records showing share transfers. Following precedents from Gujarat HC in Himani M. Vakil and other cases, the tribunal held that without evidence of price manipulation or bogus transactions with the broker, and given proper documentation including BSE transactions and security transaction tax payment, the AO was not justified in treating LTCG as unexplained cash credit under section 68. The addition was deleted.

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Issues Involved:
1. Addition in quantum assessment.
2. Rectification in the assessment order u/s 154.

Summary:

1. Addition in Quantum Assessment:
The assessee challenged the addition of Rs. 46,96,881/- made by the AO on account of disallowance of exempt income u/s 10(38) of the IT Act, being LTCG on shares of Sunrise Asian Ltd., treated as bogus u/s 68 of the IT Act. The AO relied on the Investigation Wing, Kolkata's report, claiming market manipulation in certain listed companies, including Sunrise Asian Ltd. Despite the assessee providing substantial evidence such as contract notes, demat details, and bank statements, the AO disregarded these and upheld the addition. The NFAC/Ld. CIT(A) confirmed the AO's decision without independent findings, relying on the case of PCIT vs. Swati Bajaj.

2. Rectification in the Assessment Order u/s 154:
The AO rectified the assessment order on 15.03.2021, taxing the addition u/s 68 at a special rate of 30% and adding undisclosed expenditure of Rs. 2,34,844/-. The assessee appealed against this rectification, arguing that no show-cause notice was served, and the addition was unjustified.

Tribunal's Decision:
The Tribunal condoned the delay of 24 days in filing the appeals, attributing it to frequent password changes by the assessee's CA. On the merits, the Tribunal found that the AO's addition lacked justification as the assessee had provided sufficient evidence to prove the genuineness of the transactions. The Tribunal noted that the AO's reliance on the Investigation Wing's report without adverse findings against the assessee or the broker was insufficient to disallow the LTCG. The Tribunal cited several precedents, including the jurisdictional High Court's decisions, supporting the assessee's claim. Consequently, the addition of undisclosed income u/s 68 was deleted, and the appeal (ITA No. 15/SRT/2024) was allowed.

Regarding the rectification order (ITA No. 16/SRT/2024), the Tribunal ruled that since the primary addition was deleted, the related rectification and additional tax u/s 115BBE would not survive. The Tribunal also noted the lack of a show-cause notice before the rectification. Hence, this appeal was also allowed.

Conclusion:
Both appeals were allowed, and the additions made by the AO were deleted. The Tribunal emphasized the importance of substantial evidence and proper procedural conduct in tax assessments and rectifications.

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