The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently deleted additions of Rs. 1.2 crore made by an Assessing Officer (AO) on the basis of alleged ‘human probabilities’ that the disputed income had not been gained from the sale of shares, but was a method of facilitating tax evasion.
Two Income Tax Appeals were filed before ITAT by the Appellant-Assessee, Jyoti Gupta against two separate Orders passed by the Commissioner of Income-tax Appeals-30, New Delhi ( CIT(A) ) for the financials of the Assessee for the Assessment Years (A.Y.) 2014-15 and 2016-17.
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The facts follow the Assessee’s filing of income tax returns for A.Y. 2014-15 on 28.07.2014 declaring a taxable income of Rs.16,47,870/-. The Assessee’s case was selected for limited scrutiny under Computer Assisted Scrutiny Selection (CASS) in regard of which notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961 were served.
During the Assessment Proceedings, Authorized Representative for the Assessee submitted that the Assessee had earned capital gain amounting to Rs.1,11,95,949/- from sale of shares of M/s. Trinity Tradelink Ltd. and M/s. CCL International Ltd. Such claims were refuted by the AO who observed that the Assessee had gained insurmountable gains during a very short period from the sale of both the companies’ scrips.
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The AO analysed the concerned scrips’ trade and price movement and concluded that rise of the share prices are not commensurate with the movement of SENSEX during the said period.
A personal hearing was conducted following which, the AO remained unsatisfied by the submissions of the Assessee. In furtherance, the AO received an investigation report on penny stock from the Investigation Wing and conducted disallowance of an amount of Rs.1,28,58,450/- under Section 68 of the Income Tax Act, 1961.
Ruchesh Sinha, appearing for the Assessee, averred that the Revenue had not brought on record any evidence to back their claims that the documents submitted by the Appellant were not genuine. The Assessee also claimed that all the concerned transactions occurred through banking channels and recognized stock exchanges, with the same being reflected in physical share certificates and demat accounts.
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The multifarious contentions of the Assessee were countered by Rishpal Bedi, appearing for the Revenue who vehemently held that the stocks involved are penny stock, contending that the Assessee was unable to justify their decision to invest in the concerned companies who had ‘no financial capacity’ to yield such profits.
The two-member Bench of the Income Tax Appellate Tribunal, Delhi composed by S.Rifaur Rahman, Accountant Member and Sudhir Pareek, Judicial Member observed that huge returns from the Assessee’s investments is not enough to classify the scrip as suspicious and penny stock. The Bench further observed that though the financials of the company and their stock price are not commensurate, the Revenue has not brought on record any materials pointing towards dubious transactions relating to entry, price rigging or exit providers.
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The Bench referred the decision of the Bombay High Court in Pr. CIT v. Ziauddin A Siddique (2017) where the High Court upheld the decision of the Tax Tribunals while vitiating the Revenue’s claim of alleged tax evasion on the basis of mere probability, observing that the Assessee had conducted all concerned financial transactions through official channels and adduced documentation verifying the same.
Vitiating the Revenue’s claim on the basis of the Principle of Human Probabilities, ITAT allowed the Appeals by the Assessee.
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