2024 (6) TMI 1056 - AT - Income Tax

Tax tribunal confirms bogus capital gains addition despite share holding period and STT payment under sections 68 and 10(38) (38)

ITAT Delhi upheld addition under section 68 and disallowed deduction under section 10(38) for alleged bogus long-term capital gains. Despite assessee ... Long term capital gains exemption under section 10(38) - cash credit treated as unexplained income under section 68 - application of section 115BBE - human probability test in tax adjudication - sham/bogus/accommodation entries in share transactions - reliance on third party investigative/SEBI material and principles of natural justiceLong term capital gains exemption under section 10(38) - human probability test in tax adjudication - sham/bogus/accommodation entries in share transactions - Exemption claimed under section 10(38) for long term capital gain on sale of shares was not allowable. - HELD THAT: - The Tribunal accepted the revenue finding that the purchase was effected in physical form by cash and subsequently converted to electronic mode, the payments were not through normal banking channels, the assessee was not a regular investor, and no satisfactory proof of source for the purchase was furnished. Applying the test of human probabilities and having regard to concurrent adverse findings of fact and the precedents relied upon by the revenue, the Tribunal held that the transactions were of the nature of accommodation/sham entries and therefore the claim of exemption under section 10(38) could not be permitted. [Paras 11, 12]Claim of exemption under section 10(38) rejected and not allowed.Cash credit treated as unexplained income under section 68 - application of section 115BBE - Sale proceeds were treated as unexplained cash credit under section 68 and taxed accordingly with applicability of section 115BBE. - HELD THAT: - The Assessing Officer treated the sale proceeds as unexplained cash credit under section 68 on the basis that the capital gain claim was not genuine. The AO made additions and applied section 115BBE; the CIT(A) confirmed those additions. The Tribunal, on the material and concurrent factual findings recorded below regarding the nature of the transactions and absence of verifiable source, found no reason to interfere with the additions and the tax treatment upheld by the lower authorities. [Paras 4, 12]Addition under section 68 upheld and section 115BBE treatment maintained.Reliance on third party investigative/SEBI material and principles of natural justice - The plea that reliance on departmental/third party investigation material (SEBI report etc.) without furnishing it to the assessee violated principles of natural justice was not accepted. - HELD THAT: - Although the assessee contended that additions were based on third party documents not provided for rebuttal, the Tribunal noted the concurrent findings of fact and the investigative material and precedents relied upon by the revenue; it found the lower authorities' reliance on such material and their factual conclusions sustainable and declined to find a breach warranting interference. [Paras 11, 12]Contention of violation of natural justice by non furnishing of third party documents did not merit deletion of the addition.Final Conclusion: On the facts and concurrent findings recorded by the revenue authorities-purchase in physical form by cash, absence of verifiable source, and adoption of the human probability test-the Tribunal declined to interfere with the AO and CIT(A) and dismissed the assessee's appeal for A.Y. 2014 15. Issues Involved:1. Whether the findings of the Commissioner of Income Tax (Appeals) were based on speculation and impermissible assumptions.2. Relevance of the findings of the Commissioner of Income Tax (Appeals) in deciding the issue of exemption of Capital Gain.3. Allegation of the appellant bringing out black money as legitimately earned LTCG.4. Reliance on judgments of other cases by the Commissioner of Income Tax (Appeals).5. Violation of principles of natural justice.6. Addition of Rs. 46,01,445/- as unexplained cash deposit under section 68.Summary:Issue 1: Speculation and AssumptionsThe appellant contended that the findings of the Commissioner of Income Tax (Appeals) were speculative and based on impermissible assumptions, such as the appellant being part of a scheme to provide entries of LTCG for a commission and benefiting from transactions to convert unaccounted money into white. The appellant argued that there was no evidence linking them to any syndicate or operator, making the findings contrary to facts and law.Issue 2: Relevance of FindingsThe appellant argued that the findings regarding the credibility of the company in which they invested, the abrupt movement of share prices, and the bogus nature of the sale of shares were irrelevant. The appellant claimed to have fulfilled all requirements under section 10(38) of the Income Tax Act, 1961, by providing necessary documents and evidence of transactions through a recognized stock exchange and payment of Securities Transaction Tax (STT).Issue 3: Allegation of Black MoneyThe appellant contested the finding that their motive was to bring out black money as legitimately earned LTCG, stating that there was no material on record to support the possession of black money. The appellant viewed this as an abuse by the Assessing Officer and CIT(A), arguing that no adverse inference should be drawn from such findings.Issue 4: Reliance on Other JudgmentsThe appellant challenged the reliance on judgments from other cases, arguing that the addition of Rs. 46,01,445/- was incorrect in light of other ITAT decisions, specifically a detailed judgment of the SMC Bench of Delhi. The appellant contended that the addition was contrary to law and should be deleted.Issue 5: Violation of Natural JusticeThe appellant claimed that the addition was based on third-party documents, such as departmental investigation reports and SEBI reports, which were not made available to them for rebuttal, thus violating the principles of natural justice. The appellant argued that this warranted the deletion of the addition.Issue 6: Addition as Unexplained Cash DepositThe appellant argued that the addition of Rs. 46,01,445/- as unexplained cash deposit under section 68 was based on mere suspicions and speculations. The appellant maintained that they fulfilled all conditions for claiming exemption under section 10(38) and provided all necessary documents, which were not contradicted or found defective by the authorities.Judgment:The Tribunal upheld the findings of the lower authorities, noting that the transactions were against human probability and involved purchase payments made in cash, which were non-verifiable. The Tribunal found that the appellant failed to furnish proof of source for the purchase transactions and that the entire transactions were against human probability. Consequently, the appeal of the assessee was dismissed.