2014 (11) TMI 142 - AT - Income Tax

Tribunal deletes income additions, stresses cross-examination importance

Smt. Manjulaben L. Shah Versus The Income Tax Officer

The Tribunal allowed the appeal, deleting the additions of Rs. 1,41,80,926 as income under Section 68 and Rs. 20,00,000 as income from undisclosed ... Unexplained cash credits u/s 68 – Amount shown as LTCG on sale of shares - Held that:- It is amply evident that the AO has not given any independent finding, except for incorporating the observations and finding given in the case of Shri Pinakin L. Shah, a family member of the assessee wherein similar additions have been made - The very premise of reopening the case of the assessee and also the additions made therein is that, the assessee’s family were the beneficiaries of the accommodation entries of long term capital gain given by Shri Mukesh Choksi, Director of M/s. Mahasagar Securities Pvt. Ltd. - Since the nature of capital gain in the case of all the family members were arising out of same set of shares of M/s. Talent Infoway Limited, which were sold through Shri Mukesh Choksi therefore, the facts of the Pinakin L. Shah and the findings given assume a great significance - the purchases of shares have been made in the earlier assessment year and such purchases have not been doubted by the Department - Only the net sale proceeds, which has been shown as long term capital gain, has been added, that is, sales minus purchases - If the factum of purchases recorded in the balance sheet of the earlier years is not disproved, then the sale of the same shares in this year cannot be prima facie held to be bogus. The addition itself has not been made on account of entire sale proceeds, but only on account of net long term capital gain, which itself goes to show that the Department has not carried out proper inquiry or has brought any material on record in the case of the assessee to prove that the entire sale transaction of the assessee is not genuine – there was no reason to confirm the addition on account of long term capital gain, which has been added as income of the assessee u/s 68, and therefore, the same stands deleted. Addition on account of gift – Held that:- When the permanent account number and income-tax details are furnished to the assessing officer by way of confirmation letters as well as affidavits, the AO observing that no details have been furnished is not correct - No attempt has been made to examine the balance sheet to find out the creditworthiness - We also find that the assessing officer had recorded the statement of only one of the donors i.e. Shri Mukesh R.Chokshi and in reply to question Shri Chokshi stated on oath that he has given ₹ 5 lakhs out of love and affection to his business customer and friend and that he would submit his balance sheet to prove this - There is no evidence found by the revenue, which contradicts the evidence filed by the assessee - the addition by invoking the theory of preponderance of probabilities is bad in law. Without there being any proper reasoning by the CIT(A) and analysis of the documents and affidavits furnished, the addition of gifts for sums aggregating ₹ 20 lakh cannot be sustained - after the assessee has filed all the relevant documents and evidences in support of gifts, the department has neither carried out any enquiry nor has rebutted the evidence with any material, except for relying on unsubstantiated statement of Mukesh Choksi, which too was not specific on gifts - the primary onus which lied upon the assessee stood discharged and the amount of gift cannot be added u/s 68 – Decided in favour of assessee. Issues Involved:1. Assessment of long-term capital gains as income under Section 68 of the Income-tax Act, 1961.2. Evidence and material supporting long-term capital gains.3. Reliance on the statement of Shri Mukesh Choksi without cross-examination.4. Consideration of previous ITAT and Bombay High Court decisions in similar cases.5. Assessment of gifts received as income from undisclosed sources.6. Overall validity of the CIT(A) order based on facts and applicable law.Detailed Analysis:1. Assessment of Long-Term Capital Gains as Income under Section 68:The primary issue was whether the long-term capital gains amounting to Rs. 1,41,80,926 shown by the assessee should be assessed as income under Section 68. The Assessing Officer (AO) added this amount as income, based on the statement of Shri Mukesh Choksi, who admitted to providing accommodation entries. The AO did not provide any independent findings and relied on the assessment of a family member, Shri Pinakin L. Shah, who had similar transactions.2. Evidence and Material Supporting Long-Term Capital Gains:The assessee provided extensive documentation, including purchase bills, contract notes, and statements of account with the broker, to support the long-term capital gains. The shares were purchased from M/s. Mahasagar Securities Pvt. Ltd. and later sold at a higher rate. The CIT(A) initially deleted the addition based on these documents and the fact that similar additions were deleted in the case of other family members by the Tribunal and affirmed by the Bombay High Court.3. Reliance on the Statement of Shri Mukesh Choksi without Cross-Examination:The AO and CIT(A) relied heavily on the statement of Shri Mukesh Choksi, who admitted to providing accommodation entries. However, the assessee was not given an opportunity to cross-examine Choksi. The Tribunal highlighted that the principles of natural justice demand cross-examination of a witness whose statement is used against the assessee. The Tribunal noted that Choksi had retracted his statement during cross-examination in the case of Shri Pinakin L. Shah, confirming the genuineness of the transactions.4. Consideration of Previous ITAT and Bombay High Court Decisions:The CIT(A) initially deleted the additions by relying on decisions in similar cases, including those of Shri Pinakin L. Shah and Shri Mukesh R. Marolia. The Tribunal emphasized that the CIT(A) should analyze the facts of the assessee's case independently rather than merely following other decisions. However, the Tribunal found that the facts of the assessee's case were identical to those in the case of Shri Pinakin L. Shah, where the long-term capital gains were held genuine.5. Assessment of Gifts Received as Income from Undisclosed Sources:The AO added Rs. 20,00,000 received as gifts from Shri Mukesh Choksi and Shri Maniklal Chimanlal Choksi as income from undisclosed sources. The assessee provided confirmation letters, affidavits, and income-tax particulars of the donors. The Tribunal noted that similar gifts were received by Shri Pinakin L. Shah and were held genuine. The Tribunal found no reason to deviate from this finding, as the donors were family friends, and the transactions were supported by adequate documentation.6. Overall Validity of the CIT(A) Order:The Tribunal found that the CIT(A) in the second round did not analyze the facts independently and relied solely on the statement of Shri Mukesh Choksi without allowing cross-examination. The Tribunal held that the addition of Rs. 1,41,80,926 as income under Section 68 and the addition of Rs. 20,00,000 as income from undisclosed sources could not be sustained. The Tribunal emphasized that the onus of proving the genuineness of the transactions was discharged by the assessee through adequate documentation, and the Department failed to rebut this with any concrete evidence.Conclusion:The Tribunal allowed the appeal, deleting the additions of Rs. 1,41,80,926 as income under Section 68 and Rs. 20,00,000 as income from undisclosed sources. The Tribunal emphasized the importance of cross-examination and independent analysis of facts, aligning with the principles of natural justice and previous judicial decisions.