2024 (11) TMI 1058 - AT - Income Tax

Assessee wins appeal against Section 147 reopening and Section 68 addition for bogus LTCG with proper documentation

Shri Dinesh Prabhudas Hingoo Versus ACIT Circle-31 (1), Mumbai And DCIT 41 (4) (1), Mumbai Versus Shri Dinesh Prabhudas Hingoo

ITAT Mumbai allowed the assessee's appeal against reopening of assessment u/s 147 and addition u/s 68 for bogus LTCG. The assessee successfully ... Reopening of assessment u/s 147 - Addition u/s 68 - bogus Long Term Capital Gains (LTCG) - AO relied on the statement of the principal officer of stock exchange and other persons - HELD THAT:- As the Assessee has demonstrated the genuineness of its claim by producing the payment voucher of purchase of shares, contract notes, shares in physical mode, Demat statement, broker ledger, statement bill cum transaction and bank statement etc. and none of the persons whose statements have been relied on by the AO, have made any allegations against the Assessee. Even otherwise the AO has not granted any opportunity to cross-examine the witnesses whose statements were recorded by the investigation wing as relied on by the AO. Further, there were/are no orders by the SEBI against the Assessee qua any irregularities or penalty. Whereas the Assessee has been able to discharge its prima-facie onus cast upon him u/s 68 of the Act, therefore the addition u/s 68 of the Act is at all unsustainable. Reopening of assessment - As we have observed above that in the case of South Yara Holdings [2019 (3) TMI 582 - BOMBAY HIGH COURT] has quashed the reopening of proceedings in the identical facts and circumstances, as involved in this case and therefore on that aspect as well, the impugned assessment made on the basis of the reasons recorded and the notice issued u/s 148 of the Act, is liable to be quashed. In cumulative effects, the addition on legal as well as on merits, is liable to be deleted, hence the same is deleted. In the result, the appeal filed by the Assessee stands allowed. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Validity of the addition under Section 68 of the Income Tax Act for alleged bogus Long Term Capital Gains (LTCG).3. Deletion of the addition for alleged unexplained expenditure under Section 69C.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income Tax Act was valid. The AO initiated the reopening based on information received from the Deputy Director of Income Tax (Investigation) regarding alleged penny stock transactions involving M/s. Nivyah Infrastructure & Telecom Ltd. However, it was found that the assessee had traded in shares of M/s. S.V. Electricals Ltd., not M/s. Nivyah. The Tribunal observed that the AO did not apply his mind to the specific facts of the assessee's case before reopening the assessment. Citing the judgment in South Yara Holdings, the Tribunal held that reopening based on incorrect facts and without the AO's own satisfaction is invalid. Consequently, the notice issued under Section 148 and the subsequent assessment were quashed.2. Validity of Addition under Section 68 for Alleged Bogus LTCG:The AO had treated the LTCG claimed by the assessee as bogus, alleging it was an accommodation entry to convert unaccounted money into white money. The AO relied on external information, financials of the company, and statements recorded by the investigation wing. However, the assessee provided substantial documentation, including purchase vouchers, contract notes, Demat statements, and bank statements, to substantiate the genuineness of the transactions. The Tribunal noted that the AO did not provide any opportunity for the assessee to cross-examine the witnesses whose statements were used against him. Furthermore, there were no specific allegations against the assessee regarding irregularities. The Tribunal, referencing judgments from higher courts, concluded that the assessee had discharged the prima facie onus under Section 68, and thus, the addition was unsustainable. The addition was deleted.3. Deletion of Addition for Alleged Unexplained Expenditure under Section 69C:The AO had also made an addition for unexplained expenditure under Section 69C, calculated as 3% of the alleged bogus LTCG. The Commissioner of Income Tax (Appeals) had deleted this addition, which was contested by the Revenue. However, since the Tribunal deleted the substantive addition of LTCG, the related addition under Section 69C was also deemed unsustainable. The Tribunal confirmed the deletion of this addition by the Commissioner.Conclusion:The Tribunal allowed the appeal by the assessee, quashing the reopening of the assessment and deleting the additions under Sections 68 and 69C. The appeal by the Revenue was dismissed. The judgment emphasized the necessity for the AO to independently verify information and apply his mind before reopening assessments, and highlighted the importance of providing the assessee an opportunity to counter the evidence used against them.