Daljit Batra Vs ITO (ITAT Delhi)
Conclusion: Where assessee substantiated purchase, holding and sale of shares of YICL through documentary evidence, DEMAT records, contract notes, STT payments and banking transactions, and Revenue failed to establish any nexus between assessee and alleged price-rigging operators, exemption under section 10(38) could not be denied merely on suspicion or penny-stock allegations. Accordingly, additions under sections 68 and 69C were deleted.
Held: Assessee, an individual, filed his return declaring total income of ₹22.29 lakh. During scrutiny assessment, the Assessing Officer noticed securities transactions aggregating to ₹11.12 crore reflected in STT records. The assessee explained that he had earned exempt LTCG of ₹10.78 crore from sale of shares of YICL and, therefore, had not offered the same to tax. Assessee submitted that he had originally acquired shares of Anax Com Trade Ltd. through preferential allotment in November 2012 by making payment through banking channels. Subsequently, after stock split and amalgamation of Anax Com Trade Ltd. with YICL pursuant to an order of the Bombay High Court, the assessee received shares of YICL which were held in DEMAT form. During the relevant year, such shares were sold through registered stock brokers on recognised stock exchanges after payment of STT. AO, relying upon investigation wing reports and observations regarding YICL being a penny stock, treated the entire LTCG of ₹10.78 crore as unexplained cash credit under section 68 and further made addition of ₹21.57 lakh under section 69C towards alleged commission paid for obtaining accommodation entries. Commissioner (Appeals) confirmed both additions. It was held that assessee discharged the initial burden of proving genuineness of the transaction by furnishing comprehensive documentary evidence covering purchase, holding and sale of shares. Purchase consideration had been paid through banking channels; shares were dematerialised; sales were executed through recognised stock exchanges and registered brokers; STT was paid; and sale proceeds were received through banking channels. AO failed to bring any direct or indirect evidence on record to establish that the assessee had participated in price manipulation or had routed unaccounted money in the guise of exempt LTCG. Mere reliance on investigation reports, SEBI proceedings concerning third parties, abnormal appreciation in share price, or general allegations regarding penny stocks could not justify rejection of otherwise substantiated transactions. The theory of human probabilities and surrounding circumstances could not override unimpeached documentary evidence in absence of cogent material linking the assessee with alleged accommodation entry operators. No independent enquiry or investigation was conducted by AO to establish that the impugned transactions were sham. Since LTCG was held to be genuine and eligible for exemption under section 10(38), consequential addition under section 69C towards alleged commission expenditure for obtaining accommodation entries also could not survive.
