2019 (2) TMI 798 - AT - Income Tax

Tribunal rules in favor of assessee, rejecting unjustified income additions. Emphasizes need for incriminating evidence.

Ramesh Chandra K. Shah Versus Assistant Commissioner of Incometax, Central Circle-3 (1), Kolkata.

Ramesh Chandra K. Shah Versus Assistant Commissioner of Incometax, Central Circle-3 (1), Kolkata. - TMI Issues Involved:1. Addition of sale consideration/LTCG/exempt income on sale of shares of M/s. Tuni Textiles Mills Ltd. (TTML).2. Addition of 0.5% as commission on the sale of shares.3. Validity of additions based on incriminating material found during the search.4. Evidentiary value of statements made during the survey.5. Genuineness of the transactions and the applicability of Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Addition of Sale Consideration/LTCG/Exempt Income on Sale of Shares of M/s. Tuni Textiles Mills Ltd. (TTML):The assessee's main grievance was against the addition of Rs. 2,35,58,171/- for AY 2011-12 and Rs. 2,89,17,929/- for AY 2012-13, which were claimed as sale consideration/LTCG/exempt income on the sale of shares of TTML. The AO considered these gains as bogus LTCG based on the abnormal rise in share prices and the company's lack of financial credibility. The AO alleged that the transactions were a colorable device to launder unexplained money. However, the assessee contended that the transactions were genuine, backed by documentary evidence such as purchase bills, sale contract notes, demat statements, and bank statements. The Tribunal found that the AO failed to provide concrete evidence to prove that the transactions were bogus and held that the assessee's claim of LTCG was genuine.2. Addition of 0.5% as Commission on the Sale of Shares:The AO added 0.5% of the sale amount as commission, assuming that the assessee would have paid this amount to brokers for facilitating the bogus LTCG. The Tribunal, however, found that since the transactions were genuine, the addition of Rs. 1,17,791/- as commission for AY 2011-12 and Rs. 1,44,590/- for AY 2012-13 was not justified and directed the AO to delete these additions.3. Validity of Additions Based on Incriminating Material Found During the Search:The AO asserted that incriminating materials (CJ-2 and CJ-13) were found during the search, which indicated that the assessee had availed of bogus LTCG. The Tribunal examined these documents and concluded that they were regular business documents such as bank statements, ledgers, and contract notes, which were already disclosed before the search. Therefore, these documents could not be classified as incriminating materials. The Tribunal emphasized that no addition could be made without the aid of incriminating material found during the search, especially for completed assessments.4. Evidentiary Value of Statements Made During the Survey:The AO relied on the statement of Shri Narendra Prabhudayal Sureka, the Managing Director of TTML, who admitted that TTML was a penny stock company used to provide accommodation entries for bogus LTCG. However, the Tribunal noted that this statement was recorded before the search and did not directly implicate the assessee. The Tribunal also highlighted that the statement was recorded behind the back of the assessee, and no opportunity for cross-examination was provided. Therefore, the statement could not be used as incriminating evidence against the assessee.5. Genuineness of the Transactions and the Applicability of Section 68 of the Income Tax Act:The Tribunal found that the assessee had provided all necessary documents to substantiate the genuineness of the transactions, including purchase and sale contract notes, demat statements, and bank statements. The AO did not find any defects in these documents. The Tribunal held that the AO's conclusions were based on suspicion and conjectures without any legally admissible evidence. The Tribunal referred to various judicial precedents that emphasized the need for concrete evidence to prove that a transaction was bogus. Therefore, the Tribunal directed the AO to delete the additions made under Section 68 of the Income Tax Act.Conclusion:The Tribunal concluded that the assessee's transactions were genuine and directed the AO to delete the additions related to the sale consideration/LTCG/exempt income and the commission. The Tribunal emphasized that no addition could be made without incriminating material found during the search and that statements made during the survey could not be used as evidence without providing an opportunity for cross-examination.