ITAT allows assessee's appeal, deletes additions under sections 68 and 69C for share transactions from listed company

ITAT Mumbai allowed the assessee's appeal against additions made under sections 68 and 69C regarding share transactions from a recognized stock exchange listed company. The tribunal followed judicial consistency principles, noting that coordinate benches had previously deleted similar additions involving the same script in multiple cases, including the assessee's sister's case for the same assessment year. The AO was directed to delete the additions, with the tribunal emphasizing adherence to judicial discipline and consistency in similar matters.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal relate to the validity of additions made under sections 68 and 69C of the Income Tax Act, 1961, concerning the purchase and sale of shares of a company listed on a recognized stock exchange. Specifically:

• Whether the shares acquired by the assessee were received through genuine transactions on a recognized stock exchange or were acquired through preferential allotment, amalgamation, merger, or off-market transactions that could be suspect.
• Whether the sale consideration received by the assessee for the shares sold on the Bombay Stock Exchange (BSE) was genuine and properly reflected in the assessee's bank account.
• Whether the share price and trading activity of the company's stock were subject to manipulation or rigging, thereby rendering the transactions bogus or non-genuine.
• Whether the additions made under sections 68 (unexplained cash credits) and 69C (unexplained investments) of the Income Tax Act were justified on the facts and evidence presented.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature and genuineness of acquisition of shares

The Tribunal examined the factual matrix regarding the purchase of 2,500 shares of the company (referred to as Splash Media Ltd., later renamed Luharuka Media & Infra Ltd.) by the assessee through a registered broker on the Bombay Stock Exchange's electronic trading platform. The assessee executed the purchase order online, paid the consideration by cheque, and received delivery of shares in the demat account maintained with Axis Bank Ltd.

Relevant legal framework includes provisions of the Income Tax Act, particularly section 68, which requires the assessee to explain the nature and source of any cash credits or unexplained investments, and the procedural safeguards for verifying genuineness of transactions.

The Tribunal noted the documentary evidence: purchase bills issued by the broker, bank statements evidencing payment, and demat account statements confirming receipt of shares. The assessee further demonstrated receipt of bonus shares and stock split, increasing the holding to 100,000 shares by August 2010.

The Tribunal rejected the Revenue's contention that the shares were acquired through preferential allotment or off-market transactions, holding that the acquisition was through genuine market transactions on a recognized stock exchange. The Tribunal relied on the fact that the purchase was executed via SEBI-registered broker and the shares were duly credited in the demat account.

Issue 2: Genuineness of sale transactions and receipt of sale consideration

The assessee sold the entire holding of 100,000 shares in multiple tranches on the Bombay Stock Exchange through the same registered broker, receiving aggregate consideration exceeding Rs. 1 crore. The Tribunal scrutinized the sale bills/contract notes issued by the broker and the bank statements showing credit of sale proceeds in the assessee's savings bank account.

The Tribunal emphasized that the sale price was determined by the recognized stock exchange, which is independent and not controlled by the assessee. It was held that mere information from the Income Tax Department's Investigation Wing labeling the stock as a "penny stock" does not ipso facto imply misappropriation or bogus transactions.

The Tribunal applied the principle that transactions executed on recognized stock exchanges through registered brokers, accompanied by payment and delivery through banking and demat channels, are presumed genuine unless disproved by cogent evidence.

Issue 3: Allegation of price manipulation and rigging of stock

The Revenue's case was premised on suspicion of manipulation of the scrip's price and market activity, based on reports from the Investigation Wing. The Tribunal examined the detailed SEBI investigation report, which was placed on record in a related case involving the assessee's sister.

The SEBI report, after exhaustive analysis of volume and price patterns over multiple periods, categorically found no evidence of price rigging, market manipulation, or violation of SEBI regulations in respect of the company's shares. The report absolved all buyers and sellers, including the assessee, from any adverse inference.

The Tribunal accorded significant weight to the SEBI findings, noting that the department's initial suspicion was clarified and negated by SEBI's independent investigation. The Tribunal held that in absence of any adverse findings from SEBI, the Income Tax Department could not treat the transactions as bogus or non-genuine.

Issue 4: Justification of additions under sections 68 and 69C of the Income Tax Act

The Assessing Officer had made additions under section 68 and 69C on the premise that the share transactions were not genuine and that the sale consideration was unexplained. The Commissioner of Income Tax (Appeals) upheld these additions.

The Tribunal, however, following the detailed factual findings, documentary evidence, and judicial precedents, found no basis for such additions. It relied on coordinate bench decisions involving the same script, the same assessment year, and even the assessee's sister, where similar additions were deleted after considering SEBI's report and the genuineness of transactions.

The Tribunal cited multiple precedents where similar transactions were held to be genuine, and additions under sections 68 and 69C were deleted. The principle of judicial consistency and discipline was invoked to uphold these precedents.

The Tribunal directed the Assessing Officer to delete the additions made under sections 68 and 69C and also deleted the adhoc commission charged at 3% on the sale consideration.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The transaction of purchase and sale of shares online through Bombay Stock Exchange cannot be held to be bogus or non-genuine and accordingly, addition of Rs. 1,00,99,878/- made u/s. 68 of the Act is deleted. Consequentially, the adhoc commission made @3% is also deleted."

"The SEBI report itself clarifies the doubts of the ld. AO and also Director, Investigation Wing, Kolkata who had specifically referred this matter that it should be further investigated by the SEBI. SEBI did not find any manipulation in the prices or that the prices were rigged by some entities either by the buyers or by the sellers and no adverse inference have been drawn even with regard to the exit providers. Thus, the SEBI report itself absolves the case of the assessee."

Core principles established include:

• Transactions executed on recognized stock exchanges through SEBI-registered brokers, with payment and delivery through banking and demat channels, are presumed genuine unless disproved by clear and cogent evidence.
• Allegations of market manipulation must be substantiated by credible findings, preferably from SEBI or other competent authorities; mere suspicion or investigation reports without conclusive findings cannot justify additions under sections 68 or 69C.
• Judicial consistency and discipline require adherence to coordinate bench decisions on identical facts and issues, especially when the same script and assessment year are involved.

Final determination was that the additions under sections 68 and 69C were unwarranted and were accordingly deleted, allowing the assessee's appeal.

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