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2025 (5) TMI 353 - AT - Income TaxAddition u/s 68 - bogus LTCG - onus to prove - HELD THAT - As the Assessee has been able to discharge his prima-facie onus cast u/s 68 and the Revenue Department has not rebutted the documents and/or claim of the Assessee by producing any corroborating material concerning directly and thus as relying on MR. RAMBILAS S AGARWAL 2025 (4) TMI 744 - ITAT MUMBAI addition u/s 68 deleted. Unexplained expenditure addition u/s 69C calculated as commission on the alleged bogus transactions - As the substantive addition has been deleted and therefore the addition being commission @ 4% made on account of commission made u/s 69C of the Act also collapsed consequently the same is also deleted. Appeal filed by the Assessee is allowed.
Issues Presented and Considered
The core legal questions considered in this appeal are:
Issue-wise Detailed Analysis 1. Legitimacy of Long-Term Capital Gains and Exemption under Section 10(38) Legal Framework and Precedents: Section 10(38) exempts long-term capital gains arising from transfer of equity shares subject to Securities Transaction Tax (STT). The burden lies on the Assessee to establish the genuineness of the transaction. Relevant precedents include the judgment of the Hon'ble Gujarat High Court in PCIT-1 Vs Divyaben Prafulchandra Parmar, which dealt with identical shares of Sunrise Asian Ltd., and the decision of the Apex Court in PCIT vs Smt. Renu Aggarwal, emphasizing the need for evidence beyond mere suspicion. Court's Interpretation and Reasoning: The Tribunal examined the evidentiary documents submitted by the Assessee, including purchase contracts, bank statements evidencing payment through banking channels, share certificates, demat statements, and contract notes for sale. The Court observed that the shares were held for approximately 17 months, indicating a genuine investment rather than speculative or bogus transactions. The Tribunal relied on the coordinate bench's decision in a similar matter involving the same scrip, which held that the shares could not be doubted as bogus in absence of corroborative evidence. Key Evidence and Findings: The Assessee's payment was made through cheque, shares were dematerialized and sold via recognized stock exchange platforms, and the bank statements reflected both payment and receipt of sale proceeds. There was no direct evidence linking the Assessee to any price rigging or manipulation. SEBI had not taken any adverse action against the Assessee, and the volatility of share price alone was not sufficient to impugn the genuineness. Application of Law to Facts: The Tribunal applied the principle that mere suspicion or reliance on investigation reports without direct evidence is insufficient to disallow exemption. The holding period and mode of transaction supported the genuineness. The Tribunal further distinguished the facts from cases involving penny stocks or rigged scrips, noting the absence of any nexus between the Assessee and alleged price manipulation. Treatment of Competing Arguments: The Revenue's argument based on investigation reports, price fluctuations, and SEBI's temporary suspension was considered but found inadequate to rebut the Assessee's documentary evidence. The Tribunal emphasized that additions cannot be sustained on conjecture or third-party statements without corroboration. Conclusion: The exemption under Section 10(38) was rightly claimed by the Assessee, and the addition under Section 68 for unexplained cash credit was not justified. 2. Validity of Addition under Section 68 of the Income Tax Act Legal Framework and Precedents: Section 68 casts an onus on the Assessee to explain the nature and source of unexplained cash credits. The Supreme Court in Union of India vs Kamalakshi Finance Corporation Ltd. has held that the burden is on the Assessee to satisfactorily explain the credit, failing which it can be added to income. However, if the Assessee discharges this onus by producing credible evidence, the addition cannot be sustained. Court's Interpretation and Reasoning: The Tribunal noted that the Assessee had produced comprehensive evidence including purchase and sale documents, bank statements, demat records, and share certificates. These documents established that the transactions were routed through legitimate banking channels and stock exchanges. The Assessing Officer's reliance on the Directorate of Investigation's report and the SEBI's observations was found to be insufficient to establish any nexus between the Assessee and alleged bogus transactions. Key Evidence and Findings: The absence of any adverse findings or action against the Assessee by SEBI or other regulatory authorities was significant. The investigation report did not provide direct evidence implicating the Assessee. The price rise and fall of the scrip was attributed to market conditions and not to any manipulation involving the Assessee. Application of Law to Facts: The Tribunal applied the principle that additions under Section 68 require credible evidence of unexplained credits. Mere suspicion, price volatility, or third-party statements do not suffice. The Assessee's discharge of onus through banking and transactional documents was accepted. Treatment of Competing Arguments: The Revenue's reliance on investigation reports and price fluctuations was rejected as not constituting evidence against the Assessee. The Tribunal also distinguished this case from others involving penny stocks or rigged shares where the facts were materially different. Conclusion: The addition of Rs. 25,15,320/- under Section 68 was deleted. 3. Addition under Section 69C on Account of Commission Legal Framework and Precedents: Section 69C deals with unexplained expenditure. If the main addition under Section 68 is disallowed, consequential additions under Section 69C generally collapse unless independently established. Court's Interpretation and Reasoning: Since the substantive addition under Section 68 was deleted, the Tribunal held that the addition of Rs. 1,00,613/- being 4% commission under Section 69C also failed. There was no independent basis to sustain this addition. Conclusion: The addition under Section 69C was deleted. 4. Applicability of Precedents and Jurisdictional Authority Legal Framework and Precedents: The Tribunal relied on the principle that decisions of the jurisdictional High Court have binding precedence over non-jurisdictional High Courts. The Gujarat High Court's decision on the identical scrip was held to have binding value over the Calcutta High Court decision cited by the Assessing Officer. Court's Interpretation and Reasoning: The Tribunal followed the coordinate bench's recent decisions and the Gujarat High Court ruling in PCIT-1 Vs Divyaben Prafulchandra Parmar, which had affirmed the genuineness of the shares and disallowed additions on similar facts. The Tribunal also relied on the Supreme Court decision in PCIT vs Smt. Renu Aggarwal, which stressed the need for evidence beyond suspicion. Application of Law to Facts: The Tribunal gave precedence to the jurisdictional High Court ruling and coordinate bench decisions, which favored the Assessee's claim. The Calcutta High Court decision was held to have only persuasive value and was distinguished. Conclusion: The Tribunal's decision was consistent with binding precedents and legal principles regarding jurisdiction and evidentiary standards. Significant Holdings "The Tribunal has also concluded that the presumption drawn by the Assessing Officer was not corroborated by any evidence to establish the alleged non-genuine transaction by the assessee. It was, therefore, rightly held by the Tribunal that the claim of the assessee for exemption of Long Term Capital Gains under Section 10(38) of the Act cannot be held to be bogus on the basis of presumption in absence of any evidence brought on record by the assessee with regard to shares of Sunrise Asian Ltd, which is not even found to be rigged by the SEBI also." "The Assessee held the shares for two and half years and after holding the shares for a long period, the same were sold by the assessee and therefore, reliance was placed on the decision of this Court in the case of Jagat Pravinbhai Sarabhai (supra), wherein this Court has held as under: 'The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span.' " "Considering the impugned assessment order, the ld. AO has not provided any evidence even worth a name that Assessee's own money has been routed back to him. There is no nexus with the Assessee with price rigging and no adverse observation from stock exchange. The addition simply on third party statement is uncalled for." "The Assessee by filing relevant documents such as purchase bills of shares, bank account statement, DP statement and some broker notes in order to establish his claim of LTCG, has discharged primafacie onus cast u/s 68 of the Act." "The additions in view of the above facts and circumstances and decisions, are not sustainable, thus the same are deleted." Core Principles Established:
Final Determinations:
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