2019 (2) TMI 1132 - AT - Income Tax

Invalid Section 68 invocation for share sale proceeds; denial of cross-examination violates natural justice.

AMITABH BANSAL, ANJUL BANSAL AND DAYA BANSAL Versus ITO, WARD 46 (4), NEW DELHI

The Tribunal held that the invocation of Section 68 of the Income Tax Act, 1961, for share sale proceeds without proper books of account was incorrect. It ... Addition u/s 68 - bogus LTCG - exemption claimed by assessee u/s 10(38) denied - violation of principle of natural justice - denial of cross examination - Held that:- We find merit in the arguments advanced by the Ld. Counsel for the assessee that the shares have been sold at the rate as prevailing on the stock exchange at the time of sale and the share prices of all the scrip are closely monitored by the stock exchange and SEBI. Even if the prices have gone up artificially as alleged by the revenue authorities, however, there is no material to hold that the assessee was involved therein. It is also an admitted fact that although the Assessing Officer had made enquiries from various entities i.e. assessee’s banker, depository, broker and the banker of M/s. TCL Technologies Limited, however, nothing adverse have been found. There is no adverse finding by SEBI in relation to the scrip in question has been given to the Assessing Officer - merely on the basis of preponderance of human probabilities the addition cannot be made in the hands of the assessee without disproving the various documents filed by the assessee. Referencing to impact of lack of cross examination and violation of principle of natural justice, have no hesitation to accept the plea of Ld AR that lack of cross examination and violation of principle of natural justice results is total nullity of the entire addition, hence, the additions in dispute is hereby deleted. - Decided in favour of assessee. Issues Involved:1. Applicability of Section 68 of the Income Tax Act, 1961 to share sale proceeds.2. Impact of denial of cross-examination on the assessment process.Issue-wise Detailed Analysis:1. Applicability of Section 68 of the Income Tax Act, 1961 to Share Sale Proceeds:The main contention was whether Section 68 of the Income Tax Act, 1961, which pertains to unexplained cash credits, could be invoked for share sale proceeds when no 'books of account' were maintained by the assessee. The Tribunal examined the text of Section 68, which requires a sum to be found credited in the 'books of an assessee' and the explanation offered by the assessee to be unsatisfactory in the opinion of the Assessing Officer (AO). The Tribunal noted that 'books of account' as defined under Section 2(12A) and Section 44AA of the Act include ledgers, day-books, cash books, etc., and mere bank statements do not qualify as books of account.The Tribunal referred to judicial precedents, including the Hon'ble Bombay High Court decision in Sheraton Apparels (256 ITR 20), which clarified that books of account must be maintained in the regular course of business and not merely as a private record. The Tribunal also cited decisions where it was held that credits in bank accounts or raw data available to the AO cannot be considered as books of account under Section 68.The Tribunal concluded that in the absence of valid books of account, the invocation of Section 68 was incorrect. The Tribunal emphasized that the satisfaction required under Section 68 must be of the AO and cannot be implanted by any other authority, as supported by various judicial decisions.2. Impact of Denial of Cross-Examination:The assessee argued that the denial of cross-examination of witnesses, whose statements were heavily relied upon by the AO, violated the principles of natural justice. The Tribunal agreed, highlighting that when the revenue relies on statements to draw adverse inferences, the principle of cross-examination must be followed to ensure truth and justice.The Tribunal cited a series of judicial decisions, including the Hon'ble Supreme Court's ruling in Andaman Timber Industries (Civil Appeal No. 4228 of 2006), which held that not allowing cross-examination of witnesses whose statements form the basis of an order is a serious flaw, rendering the order nullity due to the violation of natural justice principles.The Tribunal noted that the AO had not provided the assessee with the opportunity to cross-examine witnesses or access the investigation wing report and other back material relied upon. This denial was deemed a violation of natural justice, making the assessment order unsustainable.Conclusion:The Tribunal held that the addition made under Section 68 was invalid due to the absence of proper books of account and the incorrect application of the section. Additionally, the denial of cross-examination and failure to provide relevant documents to the assessee violated the principles of natural justice, further invalidating the assessment order. Consequently, the Tribunal directed the AO to delete the additions made in the disputed appeals.