2019 (9) TMI 1060 - AT - Income Tax

Tribunal rules LTCG not bogus cash credit under Section 68

Sri Asish Kumar Ghosh Versus DCIT, Circle-1 (1)

Sri Asish Kumar Ghosh Versus DCIT, Circle-1 (1) - TMI Issues Involved:1. Treatment of Long-Term Capital Gains (LTCG) as bogus unexplained cash credits under Section 68 of the Income Tax Act, 1961.2. Legitimacy of share transactions and the application of human probability principles.3. Reliance on judicial precedents and the necessity of cross-examination for fair trial.4. Recalculation of interest under Section 234B based on the appellate order.Detailed Analysis:1. Treatment of LTCG as Bogus Unexplained Cash Credits:The primary issue revolves around whether the LTCG amounting to Rs. 112,12,338/- derived from the transfer of shares in Sulabh Engineering and Service Ltd. should be treated as bogus unexplained cash credits under Section 68 of the Income Tax Act, 1961. The lower authorities argued that the shares were part of a stock market price rigging scheme involving various entry operators. The CIT(A) supported this view by citing the lack of business activity and growth prospects of the penny stock company, Sulabh Engineering and Service Ltd., and referenced the Supreme Court's principle that the apparent can be rejected when there are reasons to believe it is not the real fact (CIT vs. Durga Prasad More, 82 ITR 540).2. Legitimacy of Share Transactions and Human Probability Principles:The CIT(A) dismissed the appellant's reliance on judicial precedents by emphasizing the preponderance of probability against the assessee. The CIT(A) referenced several judgments, including Sanjay Bimalchand Jain vs. Pr. CIT (2018) and others, to support the conclusion that the appellant engaged in dubious share transactions to account for undisclosed income as LTCG. The CIT(A) argued that the rapid and unjustified increase in share prices indicated manipulation and thus treated the transactions as bogus.3. Reliance on Judicial Precedents and Necessity of Cross-Examination:The appellant argued that the transactions were genuine, supported by documentary evidence such as purchase and sale bills, contract notes, demat statements, and bank statements. The appellant also cited several Tribunal and High Court decisions where similar transactions were held to be genuine. The Tribunal highlighted the principle that suspicion, however strong, cannot replace evidence (CIT(Central), Kolkata vs. Daulat Ram Rawatmull, 87 ITR 349). The Tribunal also emphasized the necessity of cross-examination, referencing the Supreme Court's ruling in Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors., which held that denying cross-examination violates the principles of natural justice.4. Recalculation of Interest under Section 234B:The issue of charging interest under Section 234B was deemed consequential. The Tribunal directed the Assessing Officer to recalculate the interest based on the final assessed tax after giving effect to the appellate order.Conclusion:The Tribunal concluded that the lower authorities failed to provide specific evidence to counter the appellant's documentary proof of genuine transactions. The Tribunal relied on various judicial precedents, including decisions from the Kolkata Bench of the ITAT and the Calcutta High Court, which supported the genuineness of similar transactions. Consequently, the Tribunal deleted the addition made under Section 68 and allowed the appeal in favor of the assessee. The recalculation of interest under Section 234B was directed to be done as per the final appellate order.