When Assessing Officer admitted the genuineness of transaction in his Remand report, addition cannot be confirmed by CIT(A)


Sh. Mukesh Nanubhai Desai vs ACIT [ITA No. 781/SRT/2018]

Facts of the case

Assessee has  earned exempt income of Rs. 8,67,79,658/- on account of Long term capital gain on which STT was paid exempt u/s 10(38) of Rs. 8,66,13,252/- and profit share from firm of Rs. 1,66,406/- exempt u/s 10(2A).

Assessee submitted that the transactions were genuine and that all the details were furnished to the assessing officer such as books of accounts of assessee and details of various scrips of shares with their date of purchase and its sales.

The Assessing Officer also stated that out of the directors of the companies “Nimbus Industries Ltd’ and Regency Trust Ltd in which assessee has invested were banned from trading by SEBI.

CIT (A) directed the Assessing Officer to furnish a factual report confirming if the aforesaid details were filed or not. Assessing Officer in his remand report admitted before the Ld. CIT (A)  that the transactions were genuine.

The Ld. CIT (A) was of the view that although the basis of making the addition did not survive, there existed a prearranged scheme to bring unaccounted income back into the books by claiming exempt Long term capital gain.

Assessee’s Contention

The Ld. AR of assessee contented that Assessing Officer made addition on account of the transactions not being genuine but later the assessing officer admitted by way of his remand report that the transactions were genuine.

Ld. CIT (A) cannot confirm addition merely on the basis of probability, surmises, suspicion or conjectures that the Assessing Officer didn’t conduct any verification of the documents.

The director who was banned was only one of the common directors and price rigging (the reason for which the director was banned) didn’t take place in Nimbus Industries (the company in which assessee has invested. Both the companies in which assessee transacted were not alleged to be involved in price rigging or manipulation.

Additions  in  this  case  is  not  based  on  investigation report of either income tax department or other authority  or  on  the  statement  of  entry  provider.  Further, SEBI has not taken any action against alleged two companies or their directors or concern brokers for any manipulation of prices prevailing in the stock exchange.

Once the department accepts the purchases, the sales of similar shares cannot be doubted.

Crux of the case

When the assessee furnishes complete details of purchase and sales of the shares were provided to the assessing officer and these details are able to prove the genuineness of transaction, the addition cannot be made by a higher authority merely on the basis of probability, surmises, suspicion or conjectures. 

The genuineness of the transactions was proved and also admitted by the Assessing officer in his Remand report and Also, since addition in this case was not based on any investigation report of either income tax department or other authority or on the statement of entry provider, the addition cannot sustain.

Reliance placed on:

  • CIT Vs Mahesh Chandra G. Vakil [220 Taxman 166 (Gujarat HC)]
  • CIT  Vs Himani M. Vakil [10 taxmann.com 326 (Guj HC)]
  • PCIT  Vs  Dhwani  M.  Shah  [Tax  Appeal  No.  674  of  2017  ] (Gujarat HC )

ITAT ruled in favour of assesse.

Download full judgment at https://www.itatorders.in/appeal/ita-781-srt-2018-14-shri-mukesh-nanubhai-desai-surat-the-assistant-commissioner-of-income-tax-circle-1-1-2-surat

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