Shares purchased through registered broker with STT payment cannot be deemed bogus without actual sale evidence

ITAT Kolkata held that shares purchased through registered broker with payment of securities transaction tax and service tax could not be treated as bogus transactions where no sale occurred during the relevant financial year. The tribunal relied on precedent establishing that without evidence of actual sale, purchase transactions remain legitimate. Appeal succeeded on bogus transaction issue. Regarding incorrect TDS credit, matter was remanded to AO for verification with direction to allow credit per law after assessee provides necessary evidence, as this ground was not adjudicated by CIT(A).

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Issues Involved:
1. Legitimacy of the addition of Rs. 1,77,391/- as bogus transaction.
2. Procedural lapses in the assessment process, including non-supply of the Investigation Wing's report and lack of notice under Section 143(2).
3. Incorrect credit of TDS of Rs. 81,500/-.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 1,77,391/- as Bogus Transaction:

The primary issue in this case was whether the addition of Rs. 1,77,391/- to the assessee's income as a bogus transaction was justified. The assessee's return for AY 2011-12 was reopened based on information from the Investigation Wing, Kolkata, regarding manipulated penny stock transactions. The Assessing Officer (AO) concluded that the assessee was a beneficiary of bogus Long-Term Capital Gains (LTCG) from transactions in Global Capital Markets Ltd. However, the assessee contended that no shares were sold during the FY 2010-11, and thus, there were no LTCG or Short-Term Capital Loss (STCL). The Tribunal found that the shares were indeed purchased during FY 2010-11 but were not sold, as evidenced by contract notes and Demat statements. Consequently, the Tribunal ruled that the alleged transaction of sale did not occur in the relevant assessment year, and the addition was not justified. Therefore, the appeal on this ground was allowed.

2. Procedural Lapses in the Assessment Process:

The assessee raised concerns about procedural lapses, including the failure of the AO to issue a notice under Section 143(2) and not providing the Investigation Wing's report, which was the basis for reopening the assessment. The Tribunal noted that since the relief was granted on the merits of the case, these procedural issues became academic and did not require separate adjudication. The Tribunal emphasized that the alleged sale transaction did not pertain to the assessment year under consideration, rendering the procedural lapses moot.

3. Incorrect Credit of TDS of Rs. 81,500/-:

The assessee claimed incorrect credit of TDS amounting to Rs. 81,500/-. The Tribunal directed the AO to verify the TDS claim and allow the credit in accordance with the law. The assessee was instructed to provide necessary evidence to support the claim. This issue was not adjudicated by the CIT(A), and the Tribunal's directive aimed to rectify this oversight.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, primarily on the grounds that the alleged sale transaction did not occur during the relevant assessment year, thus invalidating the addition of Rs. 1,77,391/- as a bogus transaction. The procedural lapses were deemed academic due to the decision on merits, and the issue of incorrect TDS credit was remanded to the AO for verification. The order was pronounced in the open court on 19th November 2024.

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