2012 (8) TMI 1007 - AT - Income Tax

Assessment order passed u/s. 143(3) r.w.s. 153A - additions made u/s. 68 - Held that - We find that the AO is carried away in his presumptions and surmises in respect of penny stock. disregarding the direct evidences filed by the assessee in the form of Contract Notes brokers confirmation and PA No. Without making any enquiry on his part the AO simply formed a belief that since some irregular practices have happened in the stock market the windfall gain made by the assessee is a result of such malpractices. We find that the Ld. CIT(A) has also been carried away with such news items without realizing that his powers are co-terminus to that of the AO and if the AO has failed to make certain enquiries the Ld. CIT(A) could have done so on his own. The Revenue cannot convert good evidences into bad evidences on surmises and conjectures just because certain brokers formed a cartel and manipulated prices of certain stocks and if the assessee is one of the beneficiaries then solely on the basis of this it cannot be said that the assessee has entered into some sham transaction. We have no hesitation to say that the findings of the lower authorities are totally based on presumptions and surmises without any enquiry. No hesitation to hold that the transaction has resulted into Long Term Capital gains as shown by the assessee. We therefore direct the AO to accept the gains as Long Term Capital Gains. Appeal filed by the assessee is allowed.

Summary

Issues:
Validity of assessment order under section 143(3) read with 153A of the Act; Treatment of Long Term Capital Gain as unexplained under section 68 of the Act.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Mumbai concerned the assessment year 2005-06 and was directed against the order of the Ld. CIT(A)-37, Mumbai. The case involved a search and seizure action under section 132(1) of the Act related to M/s. Sia Lifestyles Pvt. Ltd. and its group concerns, directors, and related persons, including the assessee. The Assessing Officer observed Long Term Capital Gain on the sale of shares of Offshore-Finvest Ltd. and questioned its exemption under section 54F. The AO treated the gain as unexplained under section 68 or alternatively as short term capital gains due to the nature of the stock.

2. The assessee challenged the assessment order under section 143(3) read with 153A, arguing that the additions made under section 68 were not based on evidence found during the search. The Ld. CIT(A) upheld the AO's decision, considering the transaction as a result of market manipulation and contravention of SEBI regulations. The CIT(A) relied on internet information and confirmed the additions made by the AO.

3. The Appellate Tribunal found that the AO and CIT(A) based their decisions on presumptions and surmises, neglecting direct evidence provided by the assessee in the form of contract notes and broker confirmation. The Tribunal noted that the authorities failed to conduct proper inquiries and unjustly linked the gain to market malpractices. Relying on direct evidence and a judgment of the Jharkhand High Court, the Tribunal held that the transaction indeed resulted in Long Term Capital Gains, directing the AO to accept it as such.

4. The Tribunal did not delve into the legal issues raised by the appellant, as the decision was based on factual and merit-based considerations. Consequently, the appeal filed by the assessee was allowed, overturning the decisions of the lower authorities. The Tribunal emphasized the importance of considering direct evidence and conducting thorough inquiries rather than relying on presumptions and conjectures.

5. The judgment was pronounced on August 24, 2012, with the Appellate Tribunal ITAT Mumbai ruling in favor of the assessee based on the factual findings and merits of the case, directing the AO to treat the gains as Long Term Capital Gains.