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Facts
The assessee claimed exemption for long-term capital gains on sale of shares of Eicher Motors Limited. The Assessing Officer (AO) disallowed the exemption, treating the amount as unexplained cash credit, based on findings from a search related to accommodation entries in another entity connected to the share transaction.
Held
The Tribunal held that the AO could not bring on record any specific incriminating evidence to prove the transaction was not genuine. The assessee had provided documentary evidence for the purchase and sale of shares. The AO's addition was based on suspicion and information from unrelated searches.
Key Issues
Whether the addition made on account of unexplained cash credit was justified when the assessee provided documentary evidence for the share transactions and the AO relied on general information from other searches.
Sections Cited
147, 144B, 68, 10(38), 133(6), 115BBE, 148A
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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
O R D E R
The appeal in AY 2018-19 arises out of the order of the ld. National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] in Appeal No. ITBA/NFAC/S/250/2024- 25/1072636719(1) dated 28.01.2025 against the order of assessment passed u/s 147 r.w.s. 144B of the Income-tax Act, 1961 dated 17.03.2023 (hereinafter referred to as „the Act‟) by NFAC (hereinafter referred to as „ld. AO‟).
The only issue to be decided in the appeal of the revenue is as to whether the learned NFAC was justified in deleting the addition made on account of unexplained cash credit under section 68 of the Act in the sum of Rs 28,91,775/- in the facts and circumstances of the instant case.
I have heard the rival submissions and perused the materials available on record. The assessee is the proprietor of M/s 35 Automotive System doing business of trading of CNG parts and servicing of CNG vehicles and is also a director of M/s Advantech fuel system private limited and drawing salary from that company. The original return of income for the assessment year 18-19 was filed by the assessee on 21-08-2018 declaring total income of Rs 14,26,720/-. The case of the assessee was sought to be reopened under section 147 of the Act by issuing notice under section 148 of the Act on 27-03-2022 after taking prior approval from the competent authority. In the reassessment proceedings, the learned AO noted that assessee had claimed exemption under section 10(38) of the Act amounting to Rs 28,91,775/- on account of long-term capital gains from sale of shares on which securities transaction tax (STT) is paid. The assessee was asked to justify the claim of exemption. In response there to, assessee submitted that he had sold shares of Eicher Motors Limited ( a listed company share) in the secondary market through a registered sharebroker in the recognized stock exchange after duly suffering STT. The assessee sold 90 shares of Eicher Motors Limited for Rs 29,26,122.49 in the secondary marked through the registered broker DSE Financial Services Ltd. These shares were purchased by him on 05-08-2009 for Rs 34,347.44 in cash through the broker Karnam Securities Ltd. This resulted in a long-term capital gain of Rs 28,91,775.05 which was shown in the return of income and exemption under section 10(38) of the Act being claimed by the assessee. Notice under section 133(6) of the Act was issued by the learned AO to the broker DSE Financial Services Limited calling for specific details and in complaince there to, the broker duly furnished the reply by furnishing the relevant information called for. The Learned AO observed in page 12 of his order that during the course of search proceedings on Lifeline Securities Limited, it was found that Karnam Securities Limited which was the earlier holding company of Lifeline Securities Limited was involved in providing accommodation entries of bogus long-term capital gains. It was established that the contract note was fabricated and bogus. The shares were purchased through the stock market by entry operator controlled entity just before transfer of the shares to the assessee beneficiary within a few days of purchase by way of off-market transfers using accounts controlled and managed by entry providers from where it was sold within few days. In this manner, the assessee's own unaccounted money was camouflaged as exempt long-term capital gains and no tax was paid by it. Accordingly, the Learned AO proceeded to deny the claim of exemption under section 10(38) of the Act on account of long-term capital gains on sale of shares and brought the same to tax as unexplained cash credit under section 68 read with section 115BBE of the Act in the sum of Rs. 28,91,775/-.
The assessee submitted before the Learned NFAC that the Learned AO had made addition on the basis of search conducted in the case of Trade Next Securities Limited (erstwhile Lifeline Securities Limited). However, it has been nowhere mentioned that Karnam Securities Limited which is the broker of the assessee was also covered under search proceedings. No statement of director or office bearer of Karnam Securities Limited had either been recorded or been brought on record by the Learned AO. Hence, neither the director of Karnam Securities Limited nor any office bearer of Karnam Securities Limited had admitted that they were providing accommodation entries in the form of bogus long term capital gains. No relationship was even established by the revenue between Trade Next Securities Limited(erstwhile Lifeline Securities Limited) and Karnam Securities Limited despite the search conducted on Trade Next Securities Limited. The shares purchased by the assessee through Karnam Securities Limited were transferred to the assessee's Demat account within few days of purchase. The assessee had not traded through Trade Next Securities Limited. Hence, whatever adverse evidences that were found in the course of search of Trade Next Securities Limited and the statements recorded thereon would have absolutely no bearing with the transactions carried out by the assessee through Karnam Securities Limited for the purchase of Eicher Motors Limited shares. The Learned NFAC found lot of force in the arguments advanced by the assessee and deleted the addition made under section 68 of the Act by observing as under:-
“7. After due consideration of all the facts available on record, the appellant's grounds are found to be justifiable due to the fact that specific findings in the assessment order have been controverted by the appellant along with corroborative evidences. The arguments advanced by the appellant in these grounds of appeal are also supported by tangible arguments put forth in the course of assessment proceedings which is mentioned in their written submission.
8. In view of the above facts stated by the appellant and case laws relied upon, it is apparent that the appellant has submitted complete documentary evidence to substantiate the nature and source of credits and to establish genuineness of transaction. It is also seen that the appellant has been able to successfully argue its point that AO has not brought on record any incriminating evidence pertaining to the specific transactions of the present case to hold the same to be not genuine. The appellant has stated that it has discharged its onus by producing all the documentary evidences in support of the nature and source of the transaction of purchase and sale of shares including the contract notes, purchase bills and sale bills etc. during the course of assessment proceedings. I find force in the averment of the appellant that there are various judgements of Hon'ble Supreme Court that suspicion however strong, cannot take place of the evidence and that assessment could not be based on background of suspicion and in absence of any evidence to support the same. I also find reason in the argument of the appellant that the AO is not justified to make the addition in the appellant's case on the basis of information found in the case of another person during the course of search on them. have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc.
9. Considering the fact of the case, addition of Rs.28,91,775/- u/s 68 is hereby deleted.”
5. Further, we find that the Learned AO while passing an order under section 148A(d) of the Act dated 26-3-2022 in para 3 had categorically given a finding that shares of Eicher Motors Limited does not fall under the ambit of „penny stock‟ and that it is a well-known company frequently traded on National Stock Exchange and Bombay Stock Exchange. Hence, we find that this is not a typical case of denial of long-term capital gains exemption under section 10(38) of the Act on sale of penny stock shares. Once the same is not considered as a penny stock (i.e. shares of Eicher Motors Limited) which fact is also admitted by the Learned AO himself in the order passed under section 148A(d) of the Act, the said revenue appeal deserve to be dismissed as not maintainable on the ground of low tax effect as it falls below the monetary limit prescribed for the revenue to Page | 4 prefer appeal before the Tribunal in view of the CBDT Circular dated 17.09.2024. Hence, without going into the merits of the issue, this appeal is hereby dismissed on the ground of low tax effect. The case does not fall under the exceptions provided in the CBDT Circular. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 27/08/2025.