2019 (1) TMI 213 - AT - Income Tax

Tribunal rules in favor of assessee, questioning AO's lack of evidence and procedural fairness

The Tribunal concluded that the AO's addition under Section 68 was based on suspicion and lacked concrete evidence. The assessee provided ample ... Addition u/s 68 - sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources - rejecting the assessee’s claim of Long Term Capital Gains (LTCG) on sale of those shares - scrips of M/s. KAFL was artificially rigged to provide LTCG to the assessee which cannot be allowed - Held that:- Referring to case of Manish Kumar Baid case [2017 (10) TMI 522 - ITAT KOLKATA] the enquiry by the Investigation wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee. Unexplained expenditure towards commission charges of sale of such shares by the operator - Held that:- As have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition is hereby directed to be deleted. - Decided in favour of the assessee. Issues Involved:1. Justification of addition made by the AO under Section 68 of the Act regarding sale proceeds of shares treating them as income from undisclosed sources.2. Validity of the assessee's claim of Long Term Capital Gains (LTCG) on the sale of shares.3. Examination of evidence and procedural fairness in the assessment process.4. Relevance of previous judicial decisions and their applicability to the current case.Detailed Analysis:1. Justification of Addition under Section 68:The main issue was whether the addition made by the AO under Section 68 of the Income Tax Act, treating the sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) as income from undisclosed sources, was justified. The AO did not accept the assessee's claim of LTCG and exemption under Section 10(38) of the Act. The AO found the price movement of the shares and the resultant profits to be beyond human probabilities and suspected manipulation. The AO relied on statements from various individuals and SEBI orders to conclude that the transactions were non-genuine and aimed at providing bogus LTCG to the assessee.2. Validity of the Assessee's Claim of LTCG:The assessee claimed LTCG on the sale of shares of KAFL, which were acquired through the amalgamation of M/s Careful Projects Advisory Limited (CPAL) with KAFL. The assessee provided evidence including purchase bills, demat account statements, and bank statements to substantiate the claim. The Tribunal noted that the transactions were conducted through recognized stock exchanges and the sale proceeds were received through banking channels. The Tribunal found that the AO's conclusions were based on suspicion and surmises without any concrete evidence to disprove the genuineness of the transactions.3. Examination of Evidence and Procedural Fairness:The Tribunal emphasized the importance of procedural fairness, noting that the AO did not provide the assessee an opportunity to cross-examine the individuals whose statements were relied upon. This was a violation of principles of natural justice, making the AO's reliance on those statements unsustainable. The Tribunal referred to the Supreme Court's decision in CCE vs. Andaman Timber Industries, which underscores the necessity of cross-examination to uphold the validity of adverse statements used in assessments.4. Relevance of Previous Judicial Decisions:The Tribunal cited several previous judicial decisions where similar issues were adjudicated in favor of the assessee. Notably, in the cases of Manish Kumar Baid vs. ACIT and Rukmini Devi Manpria vs. DCIT, the Tribunal had allowed the assessee's claim of LTCG on the sale of shares of KAFL, finding no evidence of bogus transactions. The Tribunal also referred to decisions by the Hon'ble Calcutta High Court and other High Courts, which held that transactions supported by documentary evidence such as contract notes, demat statements, and bank statements should be accepted as genuine unless disproved by concrete evidence.Conclusion:The Tribunal concluded that the AO's addition under Section 68 was based on suspicion and lacked concrete evidence. The assessee had provided sufficient documentary evidence to substantiate the claim of LTCG. The procedural lapse of not allowing cross-examination further weakened the AO's case. The Tribunal allowed the appeals of the assessee, directing the AO to treat the gains as LTCG and delete the consequential additions. The Tribunal also deleted the addition of Rs. 1,83,020/- as unexplained expenditure towards commission charges, aligning with the finding that the transactions were genuine.