Tribunal deletes addition under section 68, finds transactions genuine.

The Tribunal allowed the assessee's appeal, directing the deletion of the addition made under section 68 of the Income-tax Act. The Tribunal found that the transactions were genuine based on the substantial evidence provided by the assessee, including documentation proving the authenticity of the transactions. The Tribunal emphasized that the AO's decision lacked concrete evidence and denied the right to cross-examine witnesses, leading to the unsustainable addition to the assessee's income. Consequently, the addition of Rs. 21,85,891 was deleted, and the assessee's appeal was allowed.

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Issues Involved:
1. Justification of addition under section 68 of the Income-tax Act, 1961.
2. Denial of exemption under section 10(38) of the Income-tax Act.
3. Right to cross-examine witnesses whose statements were relied upon by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Justification of Addition under Section 68 of the Income-tax Act, 1961:
The assessee filed their return of income declaring a total income of Rs. 20,060. During assessment, the Assessing Officer (AO) found that the assessee had shown a long-term capital gain (LTCG) of Rs. 19,85,891 from the sale of shares, claiming exemption under section 10(38) of the Act. The AO deemed the transaction as a sham aimed at converting unaccounted money into exempted LTCG. The AO based this conclusion on statements from share broking entities and entry operators, including Mr. Pawan Dalmia, who admitted to providing accommodation entries. Consequently, the AO added Rs. 21,85,891 to the assessee's income under section 68.

2. Denial of Exemption under Section 10(38) of the Income-tax Act:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, concurring that the transactions were not genuine. The CIT(A) emphasized that the shares' value increased unrealistically in a short period, and the company was listed as an accommodation entry provider. The CIT(A) also cited the test of human probabilities, concluding that the transaction was a facade, thus denying the exemption under section 10(38).

3. Right to Cross-examine Witnesses:
The assessee argued that the AO's reliance on statements from Mr. Pawan Dalmia and Mr. Alok Harlalka without providing copies or an opportunity for cross-examination was unjustified. The AO dismissed this request, stating it was intended to delay proceedings and that the statements did not directly implicate the assessee. The assessee contended that transactions were conducted through a registered broker, payments were made through banking channels, and there was no manipulation by SEBI or BSE.

Tribunal’s Findings:
The Tribunal observed that the assessee provided substantial documentation, including contract notes, bank statements, transaction statements, and dematerialization request forms, proving the genuineness of the transactions. The Tribunal noted that the AO did not question the assessee's capacity to purchase shares or the authenticity of the documents. The Tribunal referenced several case laws supporting the assessee's position that genuine transactions should not be dismissed based on mere suspicion without concrete evidence.

Legal Precedents:
- Anjali Pandit vs. ACIT: Transactions supported by bills, vouchers, and confirmations should be considered genuine in the absence of contrary evidence.
- Ms. Ferreh Marker vs. ITO: Denial of cross-examination rights renders the assessment order null.
- PCIT vs. Rungta Properties Pvt. Ltd.: No disallowance if the AO does not doubt the genuineness of documents.
- PCIT vs. Prem Pal Gandhi: High appreciation in share value does not justify treating transactions as fictitious if conducted through stock exchange and banking channels.

Conclusion:
The Tribunal concluded that the AO's addition under section 68 was unsustainable due to the lack of opportunity for cross-examination and the substantial evidence provided by the assessee. The Tribunal directed the deletion of the addition of Rs. 21,85,891. Consequently, the assessee's appeal was allowed, and the stay application was dismissed as infructuous.

Order Pronouncement:
The order was pronounced in the Open Court on 21st January, 2019.

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