2025 (7) TMI 102 - AT - Income Tax

Addition u/s 69A - Bogus LTCG - Penny stock purchases - long-term capital gains arising from sale of shares unexplained - CIT(A)/NFAC deleted addition - HELD THAT - NFAC observed that the facts of the assessee s case are exactly identical with the facts in the case of Reeshu Goel 2019 (10) TMI 1387 - ITAT DELHI which was decided by the Tribunal referred supra wherein the same scrip from which the assessee had obtained long-term capital gain has been held to be genuine and held not to be a penny stock. Accordingly the addition made under Section 69A as unexplained money stood deleted by the Learned NFAC correctly. The said decision of this tribunal has been approved by the Hon ble Jurisdictional High Court 2021 (12) TMI 716 - DELHI HIGH COURT Decided in favour of assessee.

Summary

The core legal issue considered by the Tribunal was whether the deletion of the addition made under section 69A of the Income-tax Act, 1961, on account of alleged bogus long-term capital gains arising from sale of shares of CCL International Ltd., was justified in the facts and circumstances of the case.

The Tribunal focused on the genuineness of the share transactions undertaken by the assessee, particularly whether the transactions were bona fide and supported by adequate documentary evidence, or whether they were accommodation entries designed to evade tax. The revenue challenged the deletion of the addition made by the Assessing Officer (AO) and upheld by the National Faceless Appeal Centre (NFAC), which had relied on prior coordinate bench decisions and judicial precedents.

Regarding the relevant legal framework, the provisions primarily invoked were sections 147 and 144B (assessment and reassessment procedures), and section 69A (treatment of unexplained money or investments) of the Income-tax Act, 1961. Section 10(38) relating to exemption of long-term capital gains on sale of equity shares was also central to the dispute. The burden lay on the assessee to prove the genuineness of transactions to claim exemption and avoid additions under section 69A.

The Tribunal extensively analyzed the factual matrix and precedents, particularly relying on a coordinate bench decision in the case of Reeshu Goel vs ITO, which dealt with identical facts involving the same scrip, CCL International Ltd. The Tribunal reproduced the operative findings from that decision, which had been affirmed by the Hon'ble Delhi High Court, thereby lending authoritative support to the assessee's claim.

In the Reeshu Goel decision, the Tribunal noted that the shares of CCL International Ltd. were listed and traded on the Bombay Stock Exchange (BSE) with a detailed price history showing a significant rise in share price over a period. The AO's suspicion of manipulation was based on the fact that trading in the scrip had been suspended briefly by SEBI and that some brokers had admitted to providing accommodation entries in unrelated inquiries. However, the Tribunal found no direct or indirect evidence implicating the assessee or her broker in such transactions.

The assessee had furnished comprehensive documentary evidence including the allotment letter for shares of AAR Infrastructure Ltd. (which later amalgamated into CCL International Ltd.), bank statements evidencing payment, demat account statements confirming shareholding and delivery, broker contract notes for sale transactions, and court orders approving the amalgamation. The shares were purchased in 2011 and sold after a holding period exceeding 18 months, qualifying for long-term capital gains exemption under section 10(38).

The Tribunal observed that the AO's reliance on the general modus operandi of accommodation entries and statements of brokers recorded by the Investigation Wing was insufficient to discredit the assessee's transactions. No inquiry was made of the assessee's broker, nor was any material brought on record to show that the assessee was a beneficiary of bogus transactions. The brief suspension of trading by SEBI occurred in 2010, whereas the assessee's transactions were in 2011-2012, further weakening the AO's suspicion.

Financially, CCL International Ltd. was found to be a genuine operating company with revenues ranging between Rs. 55.25 crores and Rs. 79 crores in the relevant period, negating the characterization of the company as a shell or paper entity. The price rise of shares was within the limits prescribed by SEBI, and the shares were transacted on the recognized stock exchange through registered brokers with payment of securities transaction tax (STT), reinforcing the genuineness of the transactions.

The Tribunal applied the law to the facts by concluding that in the absence of any incriminating material or evidence against the assessee, the addition under section 69A was unwarranted. The assessee had discharged the onus of proving the genuineness of the transactions through credible documentary evidence and consistent conduct of filing returns and trading through registered brokers.

Competing arguments by the revenue, which rested on general suspicion and reliance on investigation reports involving other brokers, were rejected for lack of direct connection to the assessee. The Tribunal emphasized that mere suspicion or generalized findings cannot substitute for concrete evidence against a specific taxpayer.

The Tribunal's conclusion was that the NFAC was justified in deleting the addition, and the appeal by the revenue was dismissed accordingly.

Significant holdings from the Tribunal and the coordinate bench decision include the following verbatim excerpts:

"If the shares have been purchased and sold from the stock exchange on a quoted price with proper contract number, trade time and after paying STT, then it is very difficult to assume that the sale proceeds received from sale of such shares is bogus, especially when purchase of shares are not in dispute. This inter alia means assessee was in possession of shares which were also dematerialised."

"No inquiry whatsoever has been made from the broker of the assessee. Simply relying upon the general modus operandi and statement of some brokers recorded by the Kolkata Investigation Wing does not mean that all the transactions undertaken of the scrip M/s. CCL International Ltd. through the country by millions of subscribers are bogus."

"In absence of any material or evidence against the assessee, we do not find any reason as to why the claim of Long Term Capital Gain from sale of such share should be denied."

"The shares of M/s CCL International Ltd. were freely traded at the Bombay Stock Exchange between the years 2011 and 2014 and the assessee had purchased the shares in 2011 and sold the same in 2012. The revenue from the operation of M/s CCL International Ltd. from March, 2010 to March, 2012 was between Rs.55.25 crores to Rs.79 crores and the share price during the period 2010 to 2014 had increased from Rs.50 per share to Rs.609 per share."

"There is no perversity in any of the findings given by the Tribunal. The Supreme Court... has reiterated that under Section 100 of the Code of Civil Procedure, the jurisdiction of the High Court to interfere with the orders passed by the Courts below is confined to hearing on substantial question of law and interference with finding of the fact is not warranted if it involves re-appreciation of evidence."

Core principles established include the necessity of direct evidence or material implicating the assessee before making additions under section 69A for alleged bogus transactions; the importance of documentary proof such as demat statements, contract notes, and bank records to establish genuineness of share transactions; and the recognition that mere suspicion or generalized investigation findings cannot override such evidence.

On the final determinations, the Tribunal upheld the deletion of the addition made under section 69A, confirmed the genuineness of the share transactions, and dismissed the revenue's appeal. The order of the NFAC was affirmed as being well-founded and consistent with judicial precedents and the facts on record.