2021 (4) TMI 1014 - AT - Income Tax

Tribunal overturns tax assessments, citing lack of evidence and violation of natural justice.

The Tribunal allowed the appeals, directing the deletion of the additions made by the lower authorities. The Tribunal found that the AO's actions were ... Genuineness of long term capital gains claimed on sale of penny stock scrips - onus under section 68 / section 69 - identity, creditworthiness and genuineness - weight of investigation wing / SEBI material and requirement of corroborative enquiry - admissions made during search / retraction and evidentiary value - presumption under section 292C read with section 132(4) - reliability of seized loose sheets / 'dumb document' as basis for additionGenuineness of long term capital gains claimed on sale of penny stock scrips - onus under section 68 / section 69 - identity, creditworthiness and genuineness - weight of investigation wing / SEBI material and requirement of corroborative enquiry - Deletion of additions treating reported long term capital gains as bogus and assessing them as unexplained income. - HELD THAT: - The Tribunal found that the Assessing Officer and CIT(A) treated the assessees' capital gains as bogus primarily on the basis of investigation wing material and SEBI references without independent, cogent corroboration linking the assessees to accommodation entries. The assessees produced contract notes, bank statements, demat evidence and other documentation showing transactions routed through recognized exchanges and banking channels. SEBI's subsequent order did not support a prima facie finding of manipulation in the relevant scrip. Relying on authorities which hold that once identity, creditworthiness and genuineness are established additions under section 68/69 cannot be sustained, and applying the reasoning in a recent High Court decision which required corroborative enquiry rather than reliance on suspicion, the Tribunal concluded that the lower authorities erred in law and on facts in treating the gains as fictitious. The Tribunal therefore deleted the additions and accepted the capital gains claim. [Paras 3]Additions treating the capital gains as bogus deleted; LTCG accepted.Reliability of seized loose sheets / 'dumb document' as basis for addition - admissions made during search / retraction and evidentiary value - presumption under section 292C read with section 132(4) - Sustainability of additions for alleged 'on money' cash payments based on a seized Excel sheet and third party statements. - HELD THAT: - The Tribunal examined whether the seized loose Excel sheet and associated statements could sustain additions of unexplained cash investments against the assessees. It noted that the seized document did not mention the assessees by name, consisted of rough notings, and was not shown to be part of regular books of account of vendor or vendee. The department relied on third party statements and section 292C presumptions, but the Tribunal observed the department failed to corroborate the document's contents or to establish connection of the assessees to the entries; the father whose name appeared as recipient had not been prosecuted or examined. The Tribunal also noted CBDT guidance diminishing the evidentiary weight of search admissions unless supported by material. Applying authority that loose sheets which lack particulars are 'dumb documents' and cannot alone found additions, the Tribunal held the additions were not sustainable and deleted them. [Paras 13, 14]Additions for on money payments based on the seized Excel sheet and uncorroborated statements deleted.Final Conclusion: Both sets of appeals are allowed: additions disallowing claimed capital gains and additions for alleged on money cash investments (for the specified assessment years) are deleted and the claims accepted as held by the Tribunal. Issues Involved:1. Treatment of Long Term Capital Gain (LTCG) as bogus.2. Addition of unexplained investment in commodities and shares.3. Non-opportunity for cross-examination of witnesses.4. Addition of unexplained cash investment as on-money payment.Detailed Analysis:1. Treatment of Long Term Capital Gain (LTCG) as bogus:The assessee challenged the correctness of the authorities' action treating his LTCG claim of Rs. 73,89,650/- as bogus along with 30% alleged commission charges of Rs. 2,21,690/-. The CIT(A) confirmed the AO's action based on SEBI's findings on manipulation in transactions involving 'Penny Stocks'. The AO's findings were backed by sustained investigation results. The assessee contended that transactions were routed through proper banking channels and traded through recognized stock exchanges. The documents submitted by the assessee were not disproved by the AO, who relied on information from the investigation wing without corroborative evidence. The Tribunal referred to various case laws, including Smt. Sarita Devi vs ITO and Vidhi Malhotra Vs ITO, which supported the assessee's claim of genuine transactions. The Tribunal found that the AO's addition was based on assumptions without material evidence and directed the deletion of the addition.2. Addition of unexplained investment in commodities and shares:The AO made an addition of Rs. 28,48,439/- and Rs. 2,21,690/- towards unexplained investment under section 69 of the Act. The assessee provided evidence of transactions through proper banking channels and registered brokers. The Tribunal referred to case laws, including KLR Industries Limited vs DCIT and Commissioner Of Income Tax Vs Lovely Exports (P) LTD, which held that once the identity, genuineness, and creditworthiness of the creditor are established, no addition under section 68 can be made. The Tribunal found that the AO's addition was not justified and directed the deletion of the addition.3. Non-opportunity for cross-examination of witnesses:The AO did not afford proper opportunity for cross-examination of the person on whose statement the addition was based. The Tribunal referred to the case of Sunitha Daddaa vs. DCIT, which supported the principle of natural justice requiring the opportunity for cross-examination. The Tribunal found that the AO's action was against the principles of natural justice and directed the deletion of the addition.4. Addition of unexplained cash investment as on-money payment:The AO made an addition of Rs. 6.40 Crores each towards unexplained cash investment as on-money payment to M/s. Western Constructions. The CIT(A) confirmed the AO's action, stating that the addition was based on seized material and the appellant's explanation during the search. The assessee retracted the statement given during the search, claiming it was made under pressure and confusion. The Tribunal found that the addition was based on a mere 'dumb' document without corroborative evidence. The Tribunal referred to various case laws, including Nishan Constructions Vs. ACIT and Common Cause, Vs. Union of India, which held that such loose sheets should be treated as dumb documents. The Tribunal directed the deletion of the addition, finding no reason to sustain the impugned addition based on the alleged loose sheet.Conclusion:The Tribunal allowed the appeals, directing the deletion of the additions made by the lower authorities. The Tribunal found that the AO's actions were based on assumptions and uncorroborated evidence, and the principles of natural justice were not followed. The Tribunal emphasized the need for material evidence to support any addition and upheld the assessee's claims of genuine transactions.