2021 (1) TMI 839 - AT - Income Tax

Tribunal dismisses revenue's appeals, upholds deletion of additions, citing lack of evidence and due process

Income tax Officer-4 (3) (3), Mumbai Versus Shri Sajjan Kumar Bajoria, Smt. Sushila Devi Bajoria

The Tribunal dismissed the revenue's appeals for both assessment years, affirming the CIT(A)'s decision to delete the additions. The Tribunal found that ... Bogus LTCG - Addition u/s 68 - exemption claimed u/s 10(38) was denied and sale proceeds of shares were considered as unexplained cash credit - CIT-A deleted the addition - HELD THAT:- Onus casted upon Ld. AO to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said parties. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. We are of the considered opinion that the additions thus made by Ld. AO had no legs to stand and therefore, the same has rightly been deleted by Ld. CIT(A). Finding no reason to interfere in the impugned order, we dismiss the appeal. Issues Involved:1. Legitimacy of Long-Term Capital Gain (LTCG) on sale of shares.2. Addition under Section 68 as unexplained cash credit.3. Denial of exemption under Section 10(38).4. Validity of assessment based on third-party statements without cross-examination.Issue-wise Detailed Analysis:1. Legitimacy of Long-Term Capital Gain (LTCG) on Sale of Shares:The assessee reported LTCG on the sale of shares of M/s Quest Financial Services Limited (QFSL), which was declared as bogus by the Assessing Officer (AO). The shares were purchased from M/s Fairdeal Vincom Private Limited and later exchanged with QFSL shares after a merger approved by the Calcutta High Court. The sale was conducted through a recognized stock exchange, and the proceeds were received through banking channels. The assessee provided documentary evidence, including purchase bills, bank statements, demat statements, and sale contract notes, to substantiate the transactions. The AO, however, alleged that the transactions were camouflaged as LTCG to introduce the assessee's own money.2. Addition under Section 68 as Unexplained Cash Credit:The AO added the sale proceeds as unexplained cash credit under Section 68, based on findings from an investigation involving Shri Prakash Jajodia, who allegedly provided bogus LTCG through dummy entities. The AO issued a show-cause notice to the assessee, who denied any involvement with Shri Prakash Jajodia and requested cross-examination of the persons making adverse statements. The assessee argued that the transactions were genuine and fulfilled all conditions under Section 10(38).3. Denial of Exemption under Section 10(38):The AO denied the exemption claimed under Section 10(38) for LTCG, treating the transactions as bogus. The assessee contended that all prescribed conditions were met, including the sale through a recognized stock exchange and receipt of proceeds through banking channels. The CIT(A) observed that the assessee was a regular investor in the equity market, and the transactions were backed by documentary evidence. The CIT(A) noted that the AO ignored the detailed statement on oath from the assessee and failed to disprove the assessee's contentions.4. Validity of Assessment Based on Third-Party Statements without Cross-Examination:The CIT(A) highlighted that the investigation report and statements from Shri Prakash Jajodia did not specifically name the assessee. The AO did not conduct independent investigations to find defects in the assessee's evidence. The CIT(A) emphasized that statements made under Section 133A during survey operations have no evidentiary value unless corroborated with material evidence. The assessee was not given the opportunity to cross-examine the persons making adverse statements, violating the principles of natural justice. The Tribunal upheld these views, stating that additions based on suspicion, conjectures, or surmises could not be sustained without corroborative material.Conclusion:The Tribunal dismissed the revenue's appeals for both assessment years, affirming the CIT(A)'s decision to delete the additions. The Tribunal found that the assessee's transactions were genuine, supported by documentary evidence, and that the AO failed to provide any corroborative material to sustain the additions. The Tribunal also noted that the assessee was not named in the investigation report, and no opportunity for cross-examination was provided, rendering the additions unsustainable.