Reena Kumari Vs ITO (ITAT Delhi)
Conclusion: When an assessee deposes on oath giving explanation of the reasons and circumstances for investment, the same could not be brushed aside on the basis of general principles of the modus operandi of bogus LTCG claims. Thus, tax authorities had fallen in error in considering the LTCG claim of the assessee from the two disputed scrips as bogus claim and making addition under section 68.
Held: Assessee’s return of income of Rs.10,31,940/- was selected for complete scrutiny on the basis of suspicious sale transaction in shares and exempt long- term capital gain shown in the return arising out of alleged penny stocks. AO examined the transactions of the assessee in two groups: the first being HPC Bioscience Ltd. (HPC) and the second M/s Sunstar Realty Development Ltd. (SRDL) from which assessee had earned long-term capital gain (LTCG) totaling to Rs.6,98,64,254/- which was claimed as exempt income u/s 10(38). AO examined the transactions in the light of the investigation conducted by the Directorate of Investigation, Kolkata and taking into consideration certain orders of the Security and Exchange Board of India (SEBI). AO, on the basis of surrounding circumstances, human conduct and preponderance of probabilities surrounding the transaction and after taking into consideration the general principles of tainted transactions in penny stocks and scheme of LTCG, made the addition u/s 68 in regard to the returns holding that the LTCG transaction was not genuine and was a sham. AO held that the transaction was bogus and sham and by way of accommodation entries. It was held that AO had primarily gone on the broad parameters of analyzing transactions of bogus LTCG claims. The conclusions were more outcome of the Investigation Wing report and the SEBI orders then anything specific discovered by any independent investigation or enquiry of the AO, except for recording statements of assessee u/s 131 and of one Shri Sumit Kumar, the director of AMS Power Tronics Ltd.. Assessee had been faulted by questioning the reasons for investments which was not an appropriate manner to discharge the burden on the AO for establishing that assessee had taken recourse to invest only for generating an exempt LTCG. Non- provision of statement and absence of opportunity for cross-examination was sufficient to draw an adverse inference and setting aside the conclusions drawn out of the statement of Shri Sumit Kumar. AO had discredited the explanation of the assessee being general in nature. However, the findings and reasoning of the AO were patently very general. No doubt, the test of preponderance of probability would be applicable, but, that would be on the basis of some evidence indicating that some colorable device was used for introduction of unaccounted money through the LTCG Claim. The financials of the two scrips or the movement in the prices were indeed relevant, but, could not alone be relied for considering the investment to be motivated for preparing false LTCG claim. When an assessee deposes on oath giving explanation of the reasons and circumstances for investment, the same could not be brushed aside on the basis of general principles of the modus operandi of bogus LTCG claims. Thus, tax authorities below had fallen in error in considering the LTCG claim of the assessee from the two disputed scrips as bogus claim.
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