2020 (1) TMI 149 - AT - Income Tax

ITAT Chennai upholds disallowance of LTCG due to bogus transactions, procedural fairness concerns addressed

Pramila Patel Versus The Income Tax Officer, Non Corporate Ward 10 (3) Chennai.

The ITAT Chennai upheld the disallowance of long-term capital gains (LTCG) due to alleged bogus transactions, validating the reassessment proceedings ... Bogus long term capital gains - HELD THAT:- AO had brought on record, certain incriminating information clearly stipulates that transactions entered by the assessee with Ms. Leena Surana are bogus. It is for the assessee to explain the true nature of the transaction, as she was within exclusive knowledge of the facts which the assessee had failed to do so even before the ld. CIT(A). The findings of the ld. CIT(A) remains unconverted. Thus, we do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee. Issues Involved:1. Validity of reassessment proceedings.2. Disallowance of long-term capital gains on alleged bogus transactions.3. Procedural fairness in denying cross-examination of the broker.4. Condonation of delay in filing the appeal.Detailed Analysis:1. Validity of Reassessment Proceedings:The reassessment proceedings were initiated based on information received from the Deputy Director of Income Tax (Investigation) that the appellant had engaged in bogus transactions to claim long-term capital gains (LTCG). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reassessment, referencing a survey conducted on the broker, Ms. Leela Surana, who admitted to facilitating bogus contract notes for the appellant. The ITAT Chennai found no infirmity in the reassessment proceedings, citing similar cases where reopening was deemed valid.2. Disallowance of Long-Term Capital Gains on Alleged Bogus Transactions:The Assessing Officer (AO) disallowed the LTCG claimed by the appellant, asserting that the transactions were bogus. The AO's findings were based on the demat statements showing discrepancies in the dates of share purchases and sales, and the broker's sworn statement detailing the modus operandi of converting unaccounted cash into accounted money through backdated bogus contract notes. The CIT(A) confirmed these findings, noting that the shares were credited and debited in the appellant's account on the same day, contradicting the claimed purchase dates. The ITAT upheld the disallowance, agreeing with the lower authorities that the transactions were sham and the appellant failed to explain the true nature of the transactions.3. Procedural Fairness in Denying Cross-Examination of the Broker:The appellant requested to cross-examine Ms. Leela Surana, which was initially denied by the AO. However, the CIT(A) later allowed cross-examination, during which Ms. Surana confirmed her earlier statements about facilitating bogus transactions. The appellant argued that the presence of Mr. Dinesh Kumar Surana during the cross-examination rendered the proceedings a 'mockery.' The CIT(A) and ITAT dismissed this argument, stating that the presence of Mr. Surana did not affect the validity of the proceedings and that Ms. Surana's statements were consistent and corroborated by other evidence.4. Condonation of Delay in Filing the Appeal:The appellant filed the appeal with a delay of twenty-six days, attributing the delay to the order being misplaced by the accountant. The ITAT condoned the delay, noting that the Departmental Representative did not object to it. The appeal was admitted for adjudication despite the delay.Conclusion:The ITAT Chennai dismissed the appeal, upholding the disallowance of LTCG on the grounds that the transactions were bogus. The reassessment proceedings were deemed valid, and the procedural fairness in the cross-examination process was affirmed. The delay in filing the appeal was condoned, but the appellant failed to provide sufficient evidence to overturn the findings of the lower authorities.