2024 (7) TMI 707 - AT - Income Tax

Investor wins appeal against Section 68 addition for long-term capital gains deemed bogus without specific evidence

Shri Ramesh D. Dedhia Versus ITO, Ward-16 (3) (3), Mumbai

Shri Ramesh D. Dedhia Versus ITO, Ward-16 (3) (3), Mumbai - TMI Issues Involved:1. Violation of principles of Natural Justice.2. Addition of Rs. 22,33,264/- under section 68 of the Income Tax Act.Detailed Analysis:1. Violation of Principles of Natural Justice:The assessee contended that the assessment order passed by the AO and affirmed by the CIT(A) was void due to gross violations of the principles of natural justice. The primary argument was that the addition was made based on statements from third parties without providing the assessee an opportunity to cross-examine these parties or confront the material used against him.2. Addition under Section 68 of the Income Tax Act:The main issue revolved around the addition of Rs. 22,33,264/- under section 68, which the AO treated as unexplained cash credits. The AO's basis for this addition was the alleged non-genuine nature of the Long Term Capital Gain (LTCG) from the sale of shares of Pine Animation Ltd., influenced by an investigation report from the Kolkata Directorate.Arguments by the Assessee:- The assessee, a Chartered Accountant, declared LTCG on the sale of shares of Pine Animation Ltd., which was claimed as exempt under section 10(38).- The AO's addition was based on conjectures and ignored the documentary evidence provided, which included purchase bills, broker notes, share certificates, and Demat statements.- The assessee argued that the AO relied on a general investigation report without specific incriminating evidence against him.- The assessee cited the Bombay High Court decision in PCIT Vs. Indravadan Jain, HUF, asserting that mere mention in an investigation report without concrete evidence linking the assessee to price manipulation cannot justify an addition under section 68.Arguments by the Department:- The Department contended that the AO's detailed analysis of Pine Animation Ltd.'s financials indicated that the price increase was not justified by the company's performance.- The onus was on the assessee to prove the genuineness of the transaction beyond mere documentary evidence.- The AO relied on the investigation report and statements indicating that Pine Animation Ltd. was used for artificial booking of capital gains.Tribunal's Findings:- The Tribunal noted that the AO did not find any specific fault with the evidence submitted by the assessee.- The AO's reliance on the investigation report and the abnormal price increase did not directly incriminate the assessee in price manipulation.- The Tribunal emphasized that the assessee had provided substantial evidence supporting the genuineness of the transactions, including broker bills, contract notes, share certificates, and bank statements.- The Tribunal found merit in the assessee's argument that he was a regular investor and the transactions were part of his normal investment activities.- The Tribunal referenced the Bombay High Court decision in PCIT Vs. Indravadan Jain, HUF, which supported the assessee's case that mere mention in an investigation report without specific evidence cannot justify an addition under section 68.Conclusion:The Tribunal concluded that the addition under section 68 was not justified and deleted the addition made by the AO. The appeal of the assessee was allowed on merits, and the order was pronounced in the open court on 25-01-2024.