Bogus LTCG Addition not sustainable if AO fails to disprove claim of Assessee

Ms. Anupama Garg Vs ITO (ITAT Delhi)

Conclusion:

Where assessee had furnished relevant evidences such as copies of bank statement, demat account, share purchase documents and share certificate., etc., to prove its bogus long-term capital gain on sale of shares and no adverse material had been brought on record by AO to disprove the claim of assessee, addition made under section 68 on account of unexplained credit could not be sustained.

Held:

Assessee claimed exemption under section 10(38) in respect of long-term capital gain on sale of shares. A.O. observed the modus operandi of LTCG accommodation entry in the assessment order and also referred to recommendation of Special Investigation Team and held that huge capital gains were earned by assessee within a short period of time by investing in penny stock whose fundamental/financials had no support, was neither the result of co-incidence nor of a genuine investment activities but were created through well planned and an executed scheme in which Company brokers and buyers and sellers of the scrip worked deliberately to achieve the pre-determined objectives. Therefore, addition made on account of unexplained credit. It was held assessee sold shares on BSE and payment was received from share broker. Assessee submitted copies of bank account, Demat account, share purchase documents and share certificate and also copy of evidence for payment of securities transaction tax before the authorities. The documentary evidences submitted by assessee had not been rebutted by the A.O. No adverse material had been brought on record to disprove the claim of assessee. Therefore, addition made under section 68 could not be sustained.

FULL TEXT OF THE ITAT JUDGEMENT

All the above four appeals filed by different Assessees are directed against different Orders of the Ld. CIT(A)-14, New Delhi, Dated 31.07.2018 for the A.Y. 2015-2016.

2. I have heard the Learned Representatives of both the parties and perused the findings of the authorities below and considered the material available on record. Learned Representatives of both the parties submitted that the issue is same in all the appeals. Therefore, all appeals were heard together. Both the parties mainly argued in the case of Ms. Anupama Garg in I.T.A.No.5971/Del./2018 and have submitted that the issue is same in the remaining three appeals. Therefore, Order in this case may be followed in other three appeals. In this view of the matter, I proceed to decide ITA.No.5971/Del./2018 as under.

ITA.No.5971/Del./2018 – Ms. Aupama Garg, New Delhi :

3. Briefly, the facts of the case are that the assessee filed return of income declaring income of Rs.3,57,000/-. The case was selected on reasons of “Suspicious long term capital gains on shares”. During the scrutiny assessment, statement of assessee was recorded on oath under section 131 of the I.T. Act. The A.O. found that assessee had sold 2000 shares of M/s. Jackson Investment Limited on BSE and payment was received from the broker M/s. Anurity Multi Broking Pvt. Ltd. The assessee explained that shares were purchased in October, 2011 and were sold in October, 2014. The purchase price was Rs.20,000/- which was sold for Rs.6,14,000/- and the long term capital gains of Rs.5,83,762/- was claimed as exempt under section 10(38) of the I.T. Act. The assessee submitted copies of the bank account, Demat account, share purchase documents and share certificate are on record. The details of purchase and sale of this particular scrip i.e., M/s. Jackson Investment Limited were examined. It was found that assessee had purchased 2000 shares of the scrip in October, 2011 in physical form which were sold in October, 2014 and there were abnormal rise in the price of the sale of the share. The financials of M/s. Jackson Investment Limited are noted in the assessment order to show that there were no business activity and it was either in loss or no profit earning. The A.O, therefore, found that the growth rate in the share price was abnormal. The A.O. also noted that department has made search and surveys operations on some share broking entities and Investigation Wing of Kolkata found many brokers indulged in providing accommodation entries of long term capital gains. Statements of some of the brokers viz., Sri Bidyoot Sarkar, Sri Nikhil Jain, Sri Sanjay Vora, Sri Rakesh Somani, Sri Anil Khemkha and Sri Jai Kishan Poddar recorded by the Investigation Wing, Kolkata are reproduced in the assessment order. The A.O. observed the modus operandi of LTCG accommodation entry in the assessment order and also referred to recommendation of Special Investigation Team and held that huge capital gains were earned by the assessee within a short period of time by investing in penny stock whose fundamental/financials had no support, was neither the result of co-incidence nor of a genuine investment activities but were created through well planned and an executed scheme in which Company brokers and buyers and sellers of the scrip worked deliberately to achieve the pre-determined objectives. The A.O. called for the explanation of assessee. The reply of the assessee is reproduced in the assessment order in which the assessee filed the requisite details and documentary evidences before A.O. It was also explained that assessee held the share for three years in physical form and then in Demat account and then sold these shares on recognized Stock Exchange through share broker on which STT on sale of share have been paid. The assessee produced sufficient documentary evidences to prove genuineness of the transaction. No adverse material have been brought on record against the assessee. The assessee relied upon several decisions to show that proposed action for addition is wholly unjustified. The A.O. however, rejected the explanation of assessee and noted that assessee has received sale consideration of Rs.6,14,000/- on sale of shares of penny stock company M/s. Jackson Investment Limited which is considered as unexplained cash credit. Addition of Rs.6,14,000/- was accordingly made. The A.O. also noted that entry have been obtained after paying Commission. Therefore, addition of Rs.18,420/- was made under section 69C of the I.T. Act on account of unexplained expenditure incurred for obtaining LTCG accommodation entry.

4. Both the additions were challenged before the Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order in which the assessee reiterated the same submissions. The Ld. CIT(A), however, dismissed the appeal of assessee. The assessee in the present appeal challenged the addition of Rs.6,14,000/- under section 68 of the I.T. Act on account of sale proceeds of the shares and addition of Rs.18,420/- on account of Commission under section 69C of the I.T. Act.

5. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that assessee was holding shares for about 36 months which were sold in assessment year under appeal. Purchase and sale of shares have not been doubted. These were supported by documentary evidences and all the transactions are carried-out through banking channel. The assessee asked for cross-examination of the share brokers whose statements are referred in the assessment order, but, no cross-examination have been allowed to their statements. Therefore, such statements shall not be admissible in evidence against the assessee. The statement referred to at page-29 of the PB in which assessee asked for an opportunity to cross-examine these persons who have admitted to have provided accommodation entry. Learned Counsel for the Assessee, therefore, submitted that since no cross-examination have been allowed to the statement of these persons/brokers, therefore, their statements are not admissible in evidence against the assessee. Learned Counsel for the Assessee relied upon the following decisions :

5.1. Learned Counsel for the Assessee on merit also submitted that all the documentary evidences were produced before the authorities below which have not been doubted by them, therefore, assessee proved genuineness of the transaction in the matter. Therefore, addition is wholly unjustified.

6. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that assessee could not explain the receipt of alleged share transaction profits credited in her bank account, therefore, addition was rightly made. The Ld. D.R. relied upon the following decisions.

7. I have considered the rival submissions and perused the material available on record. In this case, assessee purchased the shares in question in October, 2011 which was sold in October, 2014. The A.O. admitted that assessee purchased the shares in physical form, therefore, assessee hold the shares for three years. Assessee sold shares on BSE and payment was received from share broker. The assessee submitted copies of bank account, Demat account, share purchase documents and share certificate before the authorities below. The assessee explained that after purchase of the shares in physical form, then, the same were put in Demat account and were sold through recognized Stock Exchange on which STT has also been paid. The documentary evidences submitted by assessee have not been rebutted by the A.O. No adverse material has been brought on record to disprove the claim of assessee. It is a case where shares have been purchased in earlier year which have not been doubted in earlier year by the Revenue Department and only the sale of shares have been doubted without giving any just reasons in the impugned Orders. An identical issue has been considered and decided by ITAT, Delhi SMC Bench in the case of Shri Amar Nath Goenka, Delhi vs. ACIT, Circle-20(1), New Delhi in ITA.No.5882, 5883, 6457 to 6459/Del./2018 vide Order dated 12.12.2018 and the findings of the Tribunal are reproduced as under: