2021 (10) TMI 77 - AT - Income Tax

Tribunal allows appeals, emphasizes natural justice & evidence requirements. Section 68 & 69C additions deleted.

Shri Sanjay Singal, Smt. Aarti Singal, Shri Aniket Singhal, Shri Sanjay Singhal (HUF) Versus DCIT, Cent. Cir. 1, Chandigarh

Shri Sanjay Singal, Smt. Aarti Singal, Shri Aniket Singhal, Shri Sanjay Singhal (HUF) Versus DCIT, Cent. Cir. 1, Chandigarh - [2021] 92 ITR (Trib) 214 ... Issues Involved:1. Validity of proceedings under section 153A of the Income Tax Act.2. Treatment of Long Term Capital Gains (LTCG) as bogus.3. Addition under section 68 for unexplained cash credits.4. Addition under section 69C for alleged commission expenses.5. Reliance on third-party statements without cross-examination.6. Evidentiary value of third-party documents.7. Admission under section 132(4) and its implications.8. Role of SEBI and stock exchange in validating transactions.9. Preponderance of probabilities in determining the genuineness of transactions.Detailed Analysis:1. Validity of Proceedings under Section 153A:The Tribunal noted that the assessments for the years under consideration were abated, meaning they were pending on the date of the search. The Tribunal emphasized that additions under section 153A could only be made based on incriminating material found during the search. It was observed that no such incriminating material was found directly from the premises of the assessees.2. Treatment of LTCG as Bogus:The Revenue alleged that the LTCG claimed by the assessees was bogus, based on the statements of third parties and documents found during searches at the premises of alleged entry operators. The Tribunal, however, found that the transactions were conducted through recognized stock exchanges, and the sale proceeds were received through banking channels. The Tribunal held that merely because the shares were of penny stock companies does not automatically render the transactions bogus.3. Addition under Section 68 for Unexplained Cash Credits:The Tribunal observed that the assessees had provided all necessary documentary evidence, such as purchase bills, DEMAT accounts, contract notes, and bank statements, to substantiate the LTCG. The Tribunal held that the primary onus to explain the nature and source of credits was discharged by the assessees, and the burden shifted to the Revenue to disprove the same. The Tribunal found that the Revenue failed to bring any conclusive evidence to rebut the assessees' claims.4. Addition under Section 69C for Alleged Commission Expenses:The Revenue made additions under section 69C for alleged commission expenses paid by the assessees to arrange the bogus LTCG. The Tribunal, however, found no concrete evidence to support this claim. The Tribunal held that the addition under section 69C was consequential to the main addition under section 68, which was deleted.5. Reliance on Third-Party Statements without Cross-Examination:The Tribunal emphasized the principles of natural justice, stating that no adverse inference could be drawn against the assessees without providing an opportunity to cross-examine the persons whose statements were used against them. The Tribunal relied on the judgment of the Hon'ble Supreme Court in the case of Andaman Timber Industries, which held that not allowing cross-examination is a serious flaw that makes the order null and void.6. Evidentiary Value of Third-Party Documents:The Tribunal noted that the documents found from the premises of third parties, such as the 'Kedia-2' sheet and 'cash and cheque sheet,' did not directly implicate the assessees. The Tribunal held that the presumption under section 132(4A) and section 292C applies only to the person from whose possession the documents are seized, and not to third parties.7. Admission under Section 132(4) and its Implications:The Tribunal acknowledged that the admission made under section 132(4) is a relevant piece of evidence but not conclusive. The Tribunal noted that the assessees retracted their statements and provided explanations supported by documentary evidence. The Tribunal held that the admission alone, without corroborative evidence, could not be the sole basis for making additions.8. Role of SEBI and Stock Exchange in Validating Transactions:The Tribunal observed that the transactions were conducted through recognized stock exchanges and were subject to regulatory oversight by SEBI. The Tribunal noted that SEBI had not found any wrongdoing on the part of the assessees in its investigation. The Tribunal held that the regulatory framework provided additional credibility to the transactions.9. Preponderance of Probabilities in Determining the Genuineness of Transactions:The Tribunal applied the principle of preponderance of probabilities, weighing the evidence presented by both sides. The Tribunal found that the assessees had provided overwhelming evidence to support the genuineness of the transactions. The Tribunal held that the Revenue's reliance on the theory of preponderance of probabilities, without concrete evidence, was not sufficient to sustain the additions.Conclusion:The Tribunal allowed all the appeals of the assessees, deleting the additions made under sections 68 and 69C. The Tribunal emphasized the importance of adhering to principles of natural justice and the need for concrete evidence to support allegations of bogus transactions. The Tribunal's decision was based on a thorough analysis of the facts, evidence, and applicable legal principles.