2024 (10) TMI 581 - AT - Income Tax

Assessee's LTCG from penny stock transactions upheld after deletion of section 68 addition by authorities

DCIT, Circle-7 (1) (1) Mumbai Versus Nisha Shantaram Pokle 42 Dattashram

ITAT Mumbai upheld CIT(A)'s deletion of addition under section 68 for alleged bogus LTCG from penny stock transactions. AO had disallowed entire LTCG ... Addition u/s 68 - bogus LTCG - penny-stocks purchases - addition on account of commission - AO concluded that the entire LTCG claim of assessee was bogus, and such an act was resorted to by assessee for converting her black money to white - AO has disallowed the LTCG claim of assessee by mainly taking note of report submitted by Investigation Wing (Kolkata) as well as he doubted the financial prudence of the assessee to have purchased the shares of M/s. Marigold and wondered as to how the price of shares of M/s. Marigold would have commanded a price of (approximately) Rs.90 per share within a span of two years HELD THAT:- As decided in Renu Agarwal [2022 (7) TMI 1340 - ALLAHABAD HIGH COURT] the lower appellate authorities had extensively examined the facts of the case and taken note of the material fact that there was no adverse comment in form of any specific statement by Principal Officer of stock exchange or by company whose shares were involved in these transactions against the assessee and that the AO had only cited statements of unrelated persons on basis of unfounded presumptions. On these given facts, the Hon’ble High Court upheld the order of lower authorities deleting the addition made in relation to LTCG derived on sale of shares. For the various reasons discussed in the foregoing and following the judgments cited above, more particularly of the binding jurisdictional High Court in the cases of Shyam Pawar [2014 (12) TMI 977 - BOMBAY HIGH COURT], Ziauddin A Siddique [2022 (3) TMI 1437 - BOMBAY HIGH COURT], Mukesh R Marolia [2011 (9) TMI 919 - BOMBAY HIGH COURT] & Jamna Devi Agarwal [2010 (9) TMI 81 - BOMBAY HIGH COURT], we uphold the impugned action of Ld. CIT(A) in deleting the addition and also the addition on account of commission. And we direct the AO to verify and allow the correct LTCG/exemption claimed by assessee u/s 10(38) of the Act on sale of shares - Decided against revenue. Issues Involved:1. Legitimacy of the Long Term Capital Gain (LTCG) claim by the assessee on the sale of shares.2. Applicability of Section 68 of the Income Tax Act, 1961 regarding unexplained cash credits.3. Validity of commission expenditure addition by the Assessing Officer (AO).Issue-wise Detailed Analysis:1. Legitimacy of the LTCG Claim:The primary issue was whether the LTCG claimed by the assessee on the sale of shares of M/s. Marigold Glass Industries Ltd (now M/s. Greencrest Financial Services Ltd) was genuine. The AO argued that the LTCG was bogus, based on reports from the Investigation Wing and statements from entry operators, suggesting price rigging and accommodation entries. However, the assessee provided substantial primary documents, including share certificates, demat statements, and bank statements, to prove the purchase and sale of shares through proper channels. The Ld. CIT(A) found that the assessee had discharged her burden of proof, and there was no material evidence from the AO to counter the primary documents provided by the assessee. The Tribunal upheld this view, emphasizing that the AO failed to demonstrate any direct involvement of the assessee in any fraudulent scheme.2. Applicability of Section 68:The AO invoked Section 68 to treat the sale consideration as unexplained cash credit, arguing that the transactions were not genuine. The Tribunal noted that the assessee had fulfilled all statutory conditions for claiming LTCG exemption under Section 10(38) of the Act, such as holding the shares in a demat account and conducting transactions through the Bombay Stock Exchange. The Tribunal also highlighted that the AO did not find any deficiencies in the primary documents submitted by the assessee. The reliance on third-party statements without allowing cross-examination was deemed insufficient to invoke Section 68, and the Tribunal found no evidence linking the assessee to any alleged entry operations.3. Validity of Commission Expenditure Addition:The AO assumed that the assessee incurred commission expenditure at 6% of the sale amount, adding Rs. 35,77,543/- to the income. However, this was based on conjecture without any supporting evidence. The Ld. CIT(A) deleted this addition, and the Tribunal agreed, noting that the AO failed to substantiate the claim of commission payments with any concrete evidence or link it to the assessee's transactions.Conclusion:The Tribunal dismissed the revenue's appeal, affirming the Ld. CIT(A)'s decision to delete the additions made by the AO under Section 68 and on account of commission expenditure. The Tribunal emphasized the importance of concrete evidence and the necessity for the AO to establish a direct link between the assessee and any alleged fraudulent activities, which was not demonstrated in this case. The decision reinforced the principle that genuine transactions supported by valid documentation cannot be disregarded based on general reports or assumptions.