2022 (4) TMI 1510 - HC - Income Tax

Addition u/s 68 - bogus LTCG on purchase and sale of shares - Tribunal held that assessee s dealings in shares are supported by the contract notes issued by broker as well as demat account. Genuineness of contract notes or demat accounts have not been disputed even in the show cause notice by the assessing officer - HELD THAT - Having regard to the aforesaid finding of facts recorded by the Tribunal we are not inclined to interfere in this appeal. We are of the view that the question of law formulated by the Revenue is more on facts rather than on law. It cannot be said to be a substantial question of law. Decided against revenue.

Summary

Issues:
Tax appeal under Section 260-A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal regarding additions made under sections 68 and 69C of the Act.

Analysis:
1. Issue 1 - Addition under Section 68: The Assessing Officer noted the declaration of long-term capital gains by the assessee on the sale of shares and claimed exemption under Section 10(38) of the Act. However, suspicions arose regarding the genuineness of the transactions, as the department found evidence suggesting that the assessee engaged in sham transactions to evade capital gain taxation. The Assessing Officer highlighted discrepancies in the explanation provided by the assessee regarding the sale of shares, including the lack of satisfactory evidence on the physical delivery of shares and the poor financial condition of the company. The CIT (A) affirmed the addition, emphasizing the lack of economic or financial justification for the sale price of shares and the absence of identification of the purchaser or response from the broker company. Ultimately, the Tribunal overturned the addition, citing supporting documents such as contract notes, demat accounts, and transaction details, which were not disputed by the assessing officer. The Tribunal emphasized the absence of concrete evidence to prove the transactions were sham, relying on legal precedents that require strict proof of bogus transactions.

2. Issue 2 - Addition under Section 69C: The second issue pertained to the payment of commission to entry operators/brokers for arranging the alleged bogus long-term capital gain entries. The appellant contended that the commission paid was integral to the alleged scheme. The Assessing Officer upheld the addition, considering the commission as part of the overall plan to introduce unaccounted money as exempted capital gains. However, the Tribunal, after evaluating the evidence presented by the assessee, including ledger accounts, contract notes, and bank statements, found no concrete proof to support the revenue's claim. The Tribunal highlighted the lack of adverse inferences drawn during the assessment proceedings and the absence of evidence indicating the commission was linked to sham transactions. Consequently, the Tribunal decided in favor of the assessee, emphasizing the need for strict evidence to establish the alleged commission payment was part of a dubious scheme.

3. Final Decision: The High Court, after considering the detailed findings of the Tribunal and the lack of substantial legal questions raised by the Revenue, dismissed the appeal. The Court concurred with the Tribunal's assessment that the additions made by the Assessing Officer lacked sufficient evidentiary support and were not based on concrete legal grounds. Consequently, the Court upheld the Tribunal's decision to delete the additions, emphasizing the importance of stringent evidence to prove allegations of sham transactions and commission payments in tax matters.