2020 (3) TMI 1169 - AT - Income Tax

Tribunal upholds unexplained cash credits & treats gains as income; Assessee fails to provide satisfactory explanations

Bhagwatiben Vinodkumar Surani Versus The Income Tax Officer Ward-5 (2) (1) Ahmedabad

The Tribunal dismissed the appeal, upholding the addition of Rs. 15,06,889/- as unexplained cash credits under Section 68 and treating long-term capital ... Unexplained cash credits u/s.68 - Penny stock purchases - HELD THAT:- Additions made by Assessing Officer on account of detailed enquiries being carried out by Kolkata Investigation Directorate with regard to 84 penny stocks company as well as SEBI. The modus operandi involving operators, intermediaries and the beneficiaries have already been detailed in the investigation report prepared and disseminated by the Kolkata Investigation Directorate. Similar investigations were also conducted by the Directorate of Investigation at Mumbai and Ahmedabad. After thorough investigation, the Assessing Officer concluded in his order at paragraph Nos.4.8 and 4.9. Even before us, no new facts or circumstances have been placed on record and the orders passed by the revenue authorities have also gone unrebutted, therefore, we find no reason to interfere into or to deviate from such findings of the authorities below and we uphold the findings of the Ld.CIT(A) and reject the ground raised by the Assessee. Issues Involved:1. Addition of Rs. 15,06,889/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961.2. Treatment of long-term capital gains from the sale of shares as income from other sources.3. Alleged violation of principles of natural justice by not providing copies of statements and materials relied upon by the Assessing Officer.4. Denial of the opportunity for cross-examination of persons whose statements were used as the basis for the addition.Issue-wise Detailed Analysis:1. Addition of Rs. 15,06,889/- as Unexplained Cash Credits under Section 68:The primary issue in the appeal was the addition of Rs. 15,06,889/- made by the Assessing Officer (AO) treating the long-term capital gain on the sale of shares of Alang Gases Ltd. as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessee claimed exemption under Section 10(38) for the long-term capital gain on the sale of shares, arguing that the transactions were supported by documentary evidence such as purchase bills, payment receipts, sale bills, consideration received through cheque, and DEMAT statements. However, the AO, supported by the findings of the Kolkata Investigation Directorate and SEBI, concluded that the transactions were bogus and the shares were penny stocks used for providing bogus long-term capital gains. The Tribunal upheld the AO's decision, noting that the assessee failed to explain the impugned cash credits despite numerous opportunities.2. Treatment of Long-term Capital Gains as Income from Other Sources:The second issue was the treatment of long-term capital gains from the sale of shares as income from other sources. The AO and the CIT(A) found that the shares in question were part of a scheme involving penny stocks, where prices were artificially inflated to facilitate bogus gains. The Tribunal supported this conclusion, citing detailed investigations by the Kolkata Directorate and SEBI, which revealed the modus operandi involving operators, intermediaries, and beneficiaries. The Tribunal noted that the financial data of the company and the nature of the transactions indicated that the gains were not genuine.3. Alleged Violation of Principles of Natural Justice:The assessee contended that the assessment was completed without providing copies of the statements and materials relied upon by the AO, thus violating the principles of natural justice. The Tribunal observed that the assessee was given numerous opportunities to explain the cash credits but failed to do so. The Tribunal found no merit in the argument that the principles of natural justice were violated, as the assessee had not shown any interest in pursuing the appeal or attending the hearing.4. Denial of Opportunity for Cross-Examination:The fourth issue was the denial of the opportunity for cross-examination of persons whose statements were used as the basis for the addition. The Tribunal noted that the assessee did not appear for the hearing despite being duly served with a notice. The Tribunal held that the assessee's failure to attend the hearing indicated a lack of interest in pursuing the appeal. Consequently, the Tribunal decided the appeal on merits ex-parte, finding no reason to interfere with the findings of the revenue authorities.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the addition of Rs. 15,06,889/- as unexplained cash credits under Section 68 and the treatment of long-term capital gains as income from other sources. The Tribunal found that the assessee failed to provide satisfactory explanations for the impugned cash credits and did not demonstrate any violation of the principles of natural justice. The decision was based on detailed investigations and the preponderance of probabilities, supporting the conclusion that the transactions were part of a scheme involving bogus gains from penny stocks.