Assessee wins section 68 addition case for long-term capital gains through BSE with security transaction tax paid

ITAT Surat ruled in favor of the assessee regarding addition under section 68 for alleged bogus long-term capital gains (LTCG). The revenue department rejected the appellant's claim for exemption under section 10(38) on surplus from long-term share sales, treating it as unexplained cash credit. The tribunal held that since the assessee conducted share sales through BSE, paid security transaction tax, and no allegations existed against the share broker regarding price manipulation, there was insufficient evidence to treat LTCG as unexplained cash credit.

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Issues Involved:
1. Addition of Rs. 28,62,300/- u/s 68 for alleged unexplained cash credit.
2. Rejection of exemption claim u/s 10(38) for surplus earned on sale of shares.
3. Addition of Rs. 57,246/- u/s 69.

Summary:

1. Addition of Rs. 28,62,300/- u/s 68 for alleged unexplained cash credit:
The assessee filed a return for AY 2014-15 declaring income of Rs. 3,74,750/-. The Assessing Officer (A.O.) noted a long-term capital gain of Rs. 28,62,300/- from the sale of shares of Sunrise Asian Ltd. and suspected it to be an accommodation entry based on information from the Directorate of Investigation, Kolkata. Despite the assessee providing evidence of purchase and sale through banking channels and demat accounts, the A.O. added the amount u/s 68, considering it bogus. The CIT(A) upheld this addition, relying on the investigation report and the sudden increase in trade volumes and price. The Tribunal, however, found that the A.O. did not provide the investigation report to the assessee nor allowed cross-examination of the person whose statement was relied upon. The Tribunal concluded that the assessee had discharged the primary onus by providing sufficient evidence, and the A.O. failed to disprove it. Thus, the addition u/s 68 was not justified.

2. Rejection of exemption claim u/s 10(38) for surplus earned on sale of shares:
The A.O. rejected the assessee's claim for exemption u/s 10(38) on the grounds that the long-term capital gain was bogus. The CIT(A) confirmed this rejection. The Tribunal, however, noted that the assessee had provided all necessary documents, including contract notes, demat account details, and bank statements showing the sale proceeds. The Tribunal found no evidence of the assessee's involvement in price rigging or any connection with the alleged syndicate. Therefore, the rejection of the exemption claim u/s 10(38) was not justified.

3. Addition of Rs. 57,246/- u/s 69:
The A.O. made an addition of Rs. 57,246/- u/s 69 as unexplained expenditure, assuming a 2% commission on the alleged bogus long-term capital gain. The CIT(A) upheld this addition. The Tribunal found no evidence to substantiate the commission payment and noted that the addition was based on mere guesswork. Therefore, the addition u/s 69 was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, finding no justification for the additions made by the A.O. and confirmed by the CIT(A). The Tribunal emphasized the lack of evidence and the failure to provide the investigation report or allow cross-examination, thereby ruling in favor of the assessee.

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