Purchase of Shares Accepted in EITO, Wad 5(1)arlier AYs Cannot be Doubted Upon its Sale: ITAT Quashes ₹9.32 Cr Addition [Read Order]
Observing that the purchase of these shares were accepted in earlier Assessment Years, the tribunal ruled that sales of the shares cannot be questioned.
The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that investments accepted as genuine in earlier scrutiny assessments cannot be doubted when the shares are subsequently sold and deleted the addition.
Superdeal Resources Pvt. Ltd. (the assessee) filed an appeal against the CIT(A)'s order for the Assessment Year (AY) 2022-23. The sole issue was the confirmation of the addition of ₹9,32,00,000/- made by the AO on account of unexplained cash credit under Section 68 of the Income-tax Act, 1961, in respect of the sale of investments.
The assessee had declared a total income of ₹1,94,410, was selected for scrutiny due to "information in verification cases uploaded through CRIU". The AO concluded that the sale of investments of ₹9,32,00,000/- was not genuine, observing that the companies whose shares were sold were not conducting any business activity.
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The AO termed the shares bogus and the transactions a modus operandi for accommodation entries. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal.
The CIT(A) held that the sale consideration was "apparently bogus in nature to provide accommodation entries only" and also relied on the principle/theory of human probabilities. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before ITAT.
The assessee's counsel submitted that the shares were purchased in the preceding assessment year, specifically F.Y. 2012-13, and sold during the impugned year, realizing ₹9,32,00,000/-. The counsel submitted that the purchase and sale bills, along with bank statements of both the assessee and buyer companies, were submitted to the AO but were not examined.
The assessee also highlighted that the investments were duly shown in the books of account and that the AO's reliance on the DDIT Investigation report was wrong.
The two-member bench comprising Rajesh Kumar (Accountant Member) and Pradip Kumar Choubey (Judicial Member) observed that the investments in private unlisted equity shares were made in AY 2012-13.
The tribunal observed that the investments were not doubted in earlier scrutiny proceedings for AY 2017-18 and AY 2018-19, where the latter's subject matter was investments in private unlisted equities.
The tribunal observed that the assessee had filed comprehensive evidence, including ITRs, audited balance sheets, bank statements, and confirmations of the purchasers, proving the identity, creditworthiness, and genuineness of the transactions, and this evidence was also filed by the purchasing companies.
The tribunal held that since the department had accepted these investments in the year of purchase and subsequent scrutiny assessments, the sale transactions cannot be doubted in the instant financial year.
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The Tribunal relied on its co-ordinate bench decision in the case of ACIT Vs Pawanputra Advertising Private Limited and the High Court decision in the case of PCIT Vs. Tulsyan and Sons Private Limited, which held that when investments were accepted in earlier years, their subsequent sale cannot be discredited as bogus.
The tribunal directed the AO to delete the addition of ₹9,32,00,000. The appeal of the assessee was allowed.
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