2017 (10) TMI 522 - ITAT KOLKATA

Addition u/s 68 - sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources - rejecting the assessee’s claim of long term Capital Gains (LTCG) on sale of those shares - claim of exemption u/s 10(38) - Held that:- SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and/or Ashita Stock Broking Ltd’s name is not reflected at all. Hence the allegation that the assessee and/or Ashita Stock Broking Ltd. getting involved in price rigging of KAFL shares fails. We also find that even the SEBI’S order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is not evidence against the assessee.

Much less to speak of direct evidence. The enquiry by the Investigation wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s to be false or fabricated.

The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee.

Unexplained expenditure u/s 69C - assessee must have incurred commission expenses @ 5% of the LTCG - Held that:- As already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the Id AO. Consequently the addition u/s 69C of the Act is hereby directed to be deleted. We accordingly hold that the reframe question no. 2 raised hereinabove is decided in the negative and in favour of the assessee.

Disallowance u/s 14A - Held that:- AO did not record any satisfaction in terms of section 14A of the Act, We also find that Demat expenses were not claimed by the assessee in the return filed. We hold that the Id AO ought to have recorded primarily his satisfaction as mandated in terms of section 14A(2) of the Act and Rule 8D(1) of the Rules and without resorting to the same, he ought not to have proceeded directly as per Rule 2D(2) of the Rules. Only if the test provided in Rule 8D(1) of the Rules fail, the Id AO is authorized in law to proceed with the computation mechanism provided in Rule 8D(2) of the Rules. In view of this we hold that the Id AO was not justified in invoking the provisions of section 14A of the Act read with Rule 8d of the Rules, the disallowance made by the Id AO directed to be deleted - Decided in favour of assessee.