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2021 (3) TMI 342 - AT - Income TaxUndisclosed income offered during the course of search - AO has alleged that the assessee is beneficiary of bogus long term capital gain derived from sale of penny stocks - AO making additions only on the basis of statements recorded during the course of search without reference to any incriminating material found during the course of search to suggest undisclosed income - HELD THAT:- As explained by the assessee, the disclosure is only on adhoc offer without any specific reference to any material found at the time of search. Wherever, it is with reference to specific material that does not relate to this year. The declaration by the assessee itself being incorrect, therefore we are of the considered view that the additions made by the AO towards undisclosed income offered in the statement recorded during the course of search was neither based on any evidence collected during the course of search nor relates to the assessee. In fact, the assessee had agreed to offer additional income only to buy peace and from the fact that nondisclosure of income was not admitted in the return itself is a rebuttal of statement. Hence, we are of the considered view that the AO as well as the CIT(A) were completely erred in making additions towards undisclosed income on the basis of statements recorded during the course of search, even though, there is no evidence collected during the course of search which suggest undisclosed income for the relevant assessment year. Hence, we direct the AO to delete additions made towards undisclosed income. - Decided in favour of assessee. Deemed dividend u/s.2(22)(e) - Addition credit balance - HELD THAT:- In the present case, there is no personal benefit at all to the assessee. The AO himself accepts the fact that the funds were utilized during the course of business and therefore, this transaction at any point did not get out of the business circle at all. The provisions of section 2(22)(e) of the Act, is a deeming provision and should be construed strictly. It is an established fact that the said transaction took place during the course of business and there being no personal/individual benefit accrued to the assessee and hence section 2(22)(e) of the Act cannot be invoked. Had it been the case of the AO that the assessee had directly borrowed loans and advances from the company to his proprietorship concern, then the AO could have invoked the provisions of section 2(22)(e) of the Act. In this case, as rightly observed by the AO, the assessee has indirectly borrowed the funds of M/s. Infinity Jewellers and M/s. Mariyam Creations and that allegation of indirect benefit is only a formulative theory of circuitous transactions without there being any evidence to prove that these transactions are loans and advances giving benefit to the shareholder. Therefore, we are of the considered view that the AO as well as the CIT(A) were completely erred in coming to the conclusion that amount due in the books of M/s. AK Exports to M/s. Infinity Jewellers and M/s. Mariyam Creations is diversion of funds from LJM to the assessee and such transactions comes under the purview of deemed dividend u/s.2(22)(e) -at commercial transactions in the books of M/s. AK Exports due to M/s. Infinity Jewellers and M/s. Mariyam Creations cannot be considered as indirect borrowing from LJM to treat the same as deemed dividend u/s.2(22)(e) of the Act. Hence, we direct the ld.AO to delete the addition made towards deemed dividend u/s.2(22)(e) of the Act.- Decided in favour of assessee. Bogus LTCG - Disallowance of exemption claimed u/s.10(38) towards long term capital gain derived from transfer of equity shares of M/s. Mahavir Advanced Remedies Limited - Addition based on the investigation report by SEBI pertaining to certain cases based from Kolkatta wherein share prices rigged substantially over a period of time - HELD THAT:- Merely on suspicion and surmises, this disallowance was made without any corroborative evidence. The AO failed to bring on record any evidence indicating bogus transactions. The essential requirements for a claim u/s. 10(38) are that; the income should arise from a sale of LTC Asset; that LTCA is an equity share in the company or unit of an equity oriented fund or unit of business trust; The transaction of sale entered comes on or after FA 2004 came into force; Such transaction is subject to Securities Transaction Tax. In this case, the genuineness of the transaction is not disputed by the lower authorities at all. All these transactions are through proper banking channels, Dematted and subjected to securities transaction tax. When the pre-requisite conditions imposed by the legislature stands complied in toto, the AO cannot proceed to treat the same as bogus and disallow the same solely based on the fact that the shares prices went up substantially. More importantly, said company Mahavir Remedies haven’t been termed as SHELL Company which involved in unlawful trading of scripts. AO as well as the ld.CIT(A) were erred in holding that long term capital gain derived from transfer of equity shares of M/s. Mahavir Advanced Remedies Ltd., is bogus in nature, which is assessable as unexplained credit under the head ‘income from other sources’. Hence, we direct the AO to delete additions made towards long term capital gain derived from transfer of shares.- Decided in favour of assessee. Addition towards unexplained jewellery u/s.69 - HELD THAT:- It is an admitted fact that there was a difference in diamond jewellery found during the course of search, for which no proper explanation was offered by the assessee. Although, the assessee explained that his wife has brought some diamonds at their wedding but failed to substantiate his claim with necessary evidences. Therefore, we are of the considered view that there is no error in the findings recorded by the AO and affirmed by the CIT(A) to confirm addition towards unexplained jewellery amounting to ₹ 10,17,000/-. Hence, we are inclined to uphold the findings of CIT(A) and reject the ground taken by the assessee.
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