2024 (6) TMI 152 - AT - Income Tax

Penny stock transactions deemed genuine with proper documentation, additions under sections 68 and 69C deleted

The ITAT Mumbai held in favor of the assessee regarding penny stock transactions challenged under section 68. The assessee, a regular share investor, ... Addition u/s 68 - penny stock transactions - genuineness of share transactions proved or not - Relevancy of Documentary Evidence - denying the claim for exemption u/s 10(38) - as argued assessee is an investor and made purchase & sale of shares through the stock brokers and are genuine and the assessee has substantiated with various details with the both the authorities - HELD THAT:-Assessee has furnished the financials, details of price trend of shares at BSE to substantiate the listing/quote of shares, existence of the company to prove the genuineness of share transactions. AO has doubted the purchase and sale of shares and observed that the price rise is not commensurate with the financials of the company. The assessee has substantiated with all details and information and the revenue could not make out a case that there is unaccounted money transactions took place in the hands of the assessee and the AO has relied on the investigation report and treated the long term capital gains on sale of shares as not genuine. AO has not made any enquiry or independent investigation and relied on the statements. The fact remains that the assessee is a regular investor in shares and has submitted the requisite details in respect of purchase and sale of shares and were not disproved. The transaction of sale of shares is through SEBI registered broker of BSE & NSE supported with the sale bills cum contract notes subjected to Securities Transaction Tax(STT) and the demat account statement reflecting debits on the sale of shares and the sale proceeds are received through banking channel. A.O has not established that the assessee was involved in the price rigging of the shares and also any enquiry was conducted by the SEBI and BSE. Hon’ble Tribunal dealt on the same scrip of share and for the same assessment year and has allowed the appeal. Accordingly, considering all we set aside the order of the CIT(A) and direct the assessing officer to delete the additions u/sec 68 & 69C of the Act and we allow the grounds of appeal in favour of the assessee. Issues Involved:1. Natural Justice2. Validity of the Proceedings3. Merits of the Case4. Addition of Commission as Unexplained ExpenditureSummary:1. Natural Justice:The assessee contended that the CIT(A) erred in confirming the AO's action, which involved significant additions to the returned income, violating principles of natural justice. The Tribunal noted that the AO did not provide adequate opportunity for the assessee to cross-examine third parties whose statements were used against them. The Tribunal emphasized that the principles of natural justice were not adhered to, and thus, the order passed by the CIT(A) affirming the AO's decision was flawed.2. Validity of the Proceedings:The assessee argued that the assessment order was bad in law and void, as it was passed in violation of extant law and judicial precedents. The Tribunal observed that the CIT(A)'s order lacked independent reasoning and was a non-speaking order, merely relying on certain judgments without establishing their applicability to the appellant's case. Therefore, the proceedings were deemed invalid.3. Merits of the Case:The CIT(A) confirmed the AO's addition of Rs. 75,39,089/- u/s 68, denying the exemption claim u/s 10(38). The Tribunal found that the assessee had provided substantial documentary evidence, including purchase and sale details, demat account statements, and bank statements, proving the genuineness of the transactions. The Tribunal referred to several judicial precedents, including decisions from the Bombay High Court and the Supreme Court, which supported the assessee's claim. The Tribunal concluded that the AO's addition was based on assumptions and conjectures without proper evidence. Thus, the addition u/s 68 was deleted, and the exemption u/s 10(38) was allowed.4. Addition of Commission as Unexplained Expenditure:The CIT(A) upheld the AO's addition of Rs. 75,391/- u/s 69C, treating it as unexplained expenditure. The Tribunal noted that this addition was based purely on assumptions without any basis. The Tribunal emphasized that the assessee had provided sufficient evidence to prove the genuineness of the transactions. Consequently, the addition u/s 69C was deleted.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions u/s 68 & 69C of the Act. The appeal filed by the assessee was allowed. The Tribunal also left open the grounds of appeal concerning the validity of assessment proceedings as academic, given the decision on the merits.