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Bogus LTCG Addition without Incriminating Material in Search Assessment Invalid: ITAT Grants Relief u/s 10(38) [Read Order]

The Tribunal held that in assessments u/s 153A, additions can only be based on incriminating material unearthed during search, following Supreme Court precedent in Abhisar Buildwell.

Bogus LTCG Addition without Incriminating Material in Search Assessment Invalid: ITAT Grants Relief u/s 10(38) [Read Order]
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The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of Rs. 94,59,870 treated as bogus long-term capital gain (LTCG) and ruled that such addition was unsustainable in a search assessment u/s 153A as no incriminating material was found during the search.Shri Satish Soin (assessee), an individual, filed a return declaring income including LTCG exempt u/s...


The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of Rs. 94,59,870 treated as bogus long-term capital gain (LTCG) and ruled that such addition was unsustainable in a search assessment u/s 153A as no incriminating material was found during the search.

Shri Satish Soin (assessee), an individual, filed a return declaring income including LTCG exempt u/s 10(38) from sale of shares. A search u/s 132 was conducted on 28.12.2012, leading to assessment u/s 153A r.w. 143(3) on 31.03.2015, where no addition was made on LTCG as no incriminating material was found.

The Commissioner invoked Section 263 on 22.02.2017, setting aside the order and directing examination of LTCG claim. Fresh assessment order was passed which added Rs. 94,59,870 as bogus LTCG, treating the transaction as involving penny stocks based on a general report from the Investigation Wing without specific evidence linking the assessee.

Aggrieved by the addition, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the addition, disregarding submissions on lack of incriminating material and jurisdictional limitations under Section 153A of Income Tax Act.

Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT. The assessee raised an additional ground challenging mechanical approval u/s 153D, which the ITAT rejected as the issue attained finality in the original assessment not appealed against.

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The assessee argued that post-Supreme Court’s ruling in Abhisar Buildwell Pvt. Ltd. additions in unabated assessments u/s 153A are restricted to incriminating material from search. The assessee argued that no such material was found or referenced by the Assessing Officer (AO), who relied solely on generic modus operandi without enquiry or evidence disproving the assessee’s documented share transactions.

The two-member bench comprising Rajpal Yadav (Vice President) and Manoj Kumar Aggarwal (Accountant Member), observed that the AO’s reference to the Kolkata report was theoretical and lacked connection to the assessee’s case.

The tribunal observed no steps were taken to verify transactions despite the assessee providing details of share purchases, merger, and sales through recognized channels.

The bench held that the scope of Section 153A assessments is limited to incriminating material, as clarified by the Supreme Court, overruling contrary High Court views relied upon in the Section 263 order. It noted the absence of any seized document or transmitted evidence questioning the LTCG genuineness, rendering the addition invalid.

The tribunal further referenced jurisdictional High Court decisions in Hitesh Gandhi and Prem Pal Gandhi, where similar penny stock additions were deleted on comparable facts, emphasizing that suspicion cannot substitute evidence. The tribunal deleted the Rs. 94,59,870 addition. The appeal of the assessee was allowed.

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