2018 (8) TMI 508 - AT - Income Tax

Tax Tribunal Overturns Disallowance, Deems Capital Gain Genuine

Shri Pramod Kumar Lodha Versus The Income Tax Officer, Ward 6 (2), Jaipur

The Tribunal allowed the appeal of the assessee, holding that the disallowance of the claim based on mere suspicion without concrete evidence was not ... Addition u/s 69 - unaccounted income in the shape of long term capital gain - Held that:- As regards the statement recorded by the ITO Investigation Indore of one Shri Mahesh Pancholi, it is recorded by the AO that the said person was in the employment only for the past four years and further the said witness has not denied the confirmation issued by the broker, but has given a vague statement of having any knowledge of such transaction of shares sold to the assessee. These enquiries were conducted at Indore and the statement was recorded at the same place and rather at the back of the assessee. Until and unless these witnesses were present during the assessment proceedings, the assessee was denied the proper opportunity of cross examination. Merely supplying of statement to the assessee at the fag end of the assessment proceedings is not sufficient to meet the requirement of giving an opportunity to cross examine the witness when the witness himself was not available at the place. Accordingly, we hold that the denial of the claim on the basis of suspicion without any cogent material to show that the assessee has brought back his own unaccounted income in the shape of long term capital gain, the said action of the AO is not sustainable. The authorities below qua this issue and delete the addition made by the AO on this account. - Decided in favour of assessee Issues Involved:1. Genuineness of Long Term Capital Gain on Sale of Shares.2. Addition to Income under Section 69 of the IT Act, 1961.3. Denial of Exemption under Section 10(38) of the IT Act.4. Opportunity to Cross-Examine Witnesses.Issue-wise Detailed Analysis:1. Genuineness of Long Term Capital Gain on Sale of Shares:The primary issue was whether the long term capital gain of Rs. 72,61,309/- on the sale of shares was genuine. The assessee claimed exemption under section 10(38) of the IT Act for the capital gain arising from the sale of equity shares of M/s. Well Pack Papers & Containers Ltd. The Assessing Officer (AO) doubted the genuineness of the transaction, suspecting it to be a sham. The AO conducted an enquiry, which revealed that the broker, M/s. Arihant Securities & Shares, did not exist at the given address. Despite the assessee providing purchase bills, broker confirmations, D-mat account statements, and sale bills, the AO concluded the transaction was bogus based on the statement of Shri Mahesh Pancholi from M/s. Arihant Capital Market Ltd., who denied any transaction with the assessee. However, the Tribunal noted that the shares were dematerialized and sold through recognized channels, and the purchase and sale transactions were recorded in the books of accounts and balance sheets. The Tribunal emphasized that mere suspicion without concrete evidence could not invalidate the transaction.2. Addition to Income under Section 69 of the IT Act, 1961:The AO added the entire sale consideration of Rs. 72,61,309/- to the income of the assessee under Section 69, treating it as unaccounted money. The assessee argued that the shares were purchased and recorded in the books of accounts and balance sheet as of 31st March 2009, and the sale proceeds were received through banking channels. The Tribunal found that the AO's addition was based on suspicion without any direct evidence of unaccounted money. The Tribunal held that the AO’s action of treating the transaction as bogus without disproving the documentary evidence provided by the assessee was not justified.3. Denial of Exemption under Section 10(38) of the IT Act:The AO and CIT (A) denied the exemption under Section 10(38) on the grounds that the transaction was bogus. The Tribunal observed that the shares were listed on the Stock Exchange, and the sale transactions were subjected to Securities Transaction Tax (STT). The Tribunal reiterated that the AO did not dispute the sale of shares or the receipt of consideration through banking channels. The Tribunal held that in the absence of any contrary evidence proving the transaction to be bogus, the denial of exemption under Section 10(38) was not sustainable.4. Opportunity to Cross-Examine Witnesses:The assessee contended that the AO did not provide an opportunity to cross-examine Shri Mahesh Pancholi, whose statement was used to deny the claim. The Tribunal noted that the statement was recorded at the back of the assessee, and merely supplying the statement at the end of the assessment proceedings did not fulfill the requirement of providing an opportunity for cross-examination. The Tribunal cited the decision of the Hon’ble Supreme Court in CIT vs. Sunita Dhadda, emphasizing the necessity of cross-examination when a statement is used against an assessee. The Tribunal concluded that the denial of the claim based on such a statement without cross-examination was not justified.Conclusion:The Tribunal set aside the orders of the authorities below, holding that the disallowance of the claim based on mere suspicion without cogent evidence was not sustainable. The Tribunal allowed the appeal of the assessee and deleted the addition made by the AO.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced in the open court on 16/07/2018.