The Delhi High court held that the lower tax authorities cannot sustain addition without any cogent material on record.
The Respondent-Assessee is an individual who has derived income from interest on loan, FDR, NSC and bank interest under the head of ‘income from other sources’ in respect of Assessment Year 2015-16.
The assessee filed the ITR, declaring total income of Rs.13.96 Lakh. After claiming deduction of Rs. 1,60,000 under Chapter VI-A, the total taxable income of Respondent was declared to be Rs. 12,36,120. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny.
During the scrutiny proceedings, the AO noticed that for the relevant year under consideration, the Respondent had claimed exempted income of Rs.96,75,939 as receipts from Long Term Capital Gain (LTCG) under Section 10(38) of the Act.
The AO concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060, making an addition of Rs. 96,75,939 under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited.
The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted.
Mr. Zoheb Hossain, senior standing counsel for the revenue (Appellant herein), contended that the ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suffers from perversity.
Mr. Hossain added that there are certain germane factual errors, inasmuch as the learned ITAT has wrongly recorded that there was no independent enquiry conducted by the AO, when in fact the AO had issued notices to the companies in question under Section 133(6) of the Act.
The division bench of Justices Sanjeev Narula and Rajiv Sahai Endlaw noted that AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai, and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham, and nothing other than a racket of accommodation entries.
The court while dismissing the appeal of the revenue held that ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record.
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