Bogus LTCG addition confirmed under Section 68, exemption under Section 10(38) denied despite partial relief

The ITAT Mumbai confirmed addition u/s 68 for bogus LTCG on share transactions and denied exemption u/s 10(38). The tribunal relied on SEBI's order finding price manipulation and trading ban on Sunrise Asian Limited shares, concluding the transactions were not genuine despite other judgments deleting similar additions. However, the presumptive addition for brokerage payments was deleted due to lack of actual material evidence of outgoing by the department. The assessee's appeal was partly allowed.

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Issues Involved:

1. Addition of Rs. 2,70,01,771/- under Section 68 for alleged bogus Long Term Capital Gain (LTCG) on sales transactions of shares of M/s. Sunrise Asian Limited.
2. Addition of presumptive brokerage alleged to have been paid to the broker at Rs. 8,10,053/-.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,70,01,771/- under Section 68 for alleged bogus Long Term Capital Gain (LTCG):

The assessee, an individual deriving income from salary and house property, declared long-term capital gains from the sale of shares for the A.Y. 2014-15. The shares in question were those of M/s. Sunrise Asian Limited, which were acquired through a series of transactions involving the purchase of shares from M/s. Conart Traders Ltd. and subsequent amalgamation with M/s. Sunrise Asian Ltd.

The Assessing Officer (AO) doubted the genuineness of the transactions, citing the lack of substantial profit or financial results of the companies involved. The AO referred to the survey and statements recorded from the Director of Sunrise Asian Ltd., who admitted to being unaware of the company's activities and being a dummy director. Further investigation revealed that Shri Vipul Vidur Bhatt, an established entry operator, managed and controlled several bogus entities, including Sunrise Asian Ltd., to provide accommodation entries for bogus LTCG.

The AO's findings were supported by the SEBI's investigation, which confirmed manipulative trading practices and price rigging in the shares of Sunrise Asian Ltd. The SEBI's order highlighted that the price of the shares was artificially inflated through circular trading among connected entities, contributing to a significant positive LTP (Last Traded Price).

The assessee argued that the purchase and sale of shares were genuine, supported by contract notes, demat account statements, and bank transactions. However, the AO rejected these documents, considering the entire transaction as dubious and non-genuine, and added the entire sale proceeds under Section 68.

The CIT(A) upheld the AO's decision, noting that the financials of Sunrise Asian Ltd. did not justify the rise in share prices and that the statements from key individuals involved in the manipulation were credible, despite retractions.

The Tribunal, considering the SEBI's detailed investigation and findings, concluded that the transaction was not genuine. The SEBI's order provided substantial evidence of price manipulation and fraudulent practices, corroborating the AO's and CIT(A)'s findings. The Tribunal emphasized that the test of genuineness should be based on the 'preponderance of probabilities,' and in this case, all factors indicated that the transaction was a sham.

2. Addition of presumptive brokerage alleged to have been paid to the broker at Rs. 8,10,053/-:

The AO added a presumptive brokerage of Rs. 8,10,053/-, assuming that the assessee paid a commission for the accommodation entry. The CIT(A) confirmed this addition.

However, the Tribunal found no actual material evidence of such an outgoing payment by the assessee. Therefore, the presumptive addition on account of brokerage was not sustained and was deleted.

Conclusion:

The Tribunal confirmed the addition of Rs. 2,70,01,771/- under Section 68, finding the transaction to be non-genuine based on substantial evidence from the SEBI's investigation and other factors. However, the presumptive addition of Rs. 8,10,053/- for brokerage was deleted due to a lack of material evidence. The appeal of the assessee was partly allowed.

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