The addition of capital gain under section 68 as unexplained cash credit without incriminating material is not permissible, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held as above.
The assessee was represented by Shri Mani Jain and the department was represented by Dr Mahesh Akhade
Nitan Chhatwal, the assessee had filed his return of income for this year under section 139(1) of the income tax Act on 29-09-2013 declaring a total income of Rs.3,57,59,670/-. The AO completed the assessment u/s 143(3) of the Act on 31.3.2015 accepting the return of income filed by the assessee. The AO initiated the assessment proceedings u/s 153A and completed the assessment u/s 143(3) r.w.s 153A of the Act determining the total income of the assessee at Rs.43.41 crores by making various additions.
The AO held that the capital gains declared by the assessee are bogus in nature and accordingly assessed them u/s 68 of the Act as unexplained cash credit based on the report of the investigation wing of the income tax department, which alleged that the prices of certain shares termed as “penny stocks” have been rigged to gain the advantage of capital gain/capital loss.
The CIT(A) deleted both additions by placing reliance on the decision rendered by the Tribunal in the assessee’s case and confirmed the disallowance of a claim of loss on the sale of shares of M/s Ken Financial Services Ltd.
It was contended by the assessee that the AO has fully relied upon external information supplied by the investigation wing of the Income tax department alleging artificial manipulation of prices by certain people to take undue advantage of artificial capital gains/capital losses. And the search officials did not find any material to prove that the assessee herein was part of such a group which indulged in such kind of manipulation of prices to take undue advantage.
A Coram of Shri B.R. Baskaran (AM) & Smt. Kavitha Rajagopal (JM) viewed that the only information related to their investigation was that the assessee has purchased and sold shares, which were identified as a penny stock and the search officials did not unearth any incriminating material.
The addition of capital gains made in AY 2012-13 was deleted and quashed the impugned orders passed by the tax authorities below for AY 2015-16 by the Tribunal. The appeals of the revenue are dismissed and the appeal and cross-objection filed by the assessee are allowed.
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