Tribunal overturns decision on capital gain, citing lack of evidence and denial of cross-examination

The Tribunal allowed the appeal, holding that the long-term capital gain reported by the assessee could not be deemed as bogus solely based on a report without substantial evidence against the assessee. The Tribunal emphasized the lack of direct evidence linking the assessee to fraudulent activities and the denial of an opportunity for cross-examination. Consequently, the Tribunal set aside the CIT(A)'s decision and instructed the AO to remove the addition under section 68 of the Income Tax Act, 1961.

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Issues Involved:
1. Whether the long-term capital gain of Rs. 2,56,90,510/- reported by the assessee should be treated as bogus and taxed as unexplained cash credit under section 68 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Treatment of Long-Term Capital Gain as Bogus:
The primary issue raised by the assessee was that the CIT(A) erred in confirming the AO's order treating the long-term capital gain of Rs. 2,56,90,510/- as bogus and taxing it as unexplained cash credit under section 68 of the Act.

Facts and Arguments:
- The assessee, an individual, claimed long-term capital gains from the sale of shares of two companies, Life Line Drugs Pharma Ltd. and Mahavir Advance Remedies Ltd., purchased offline in cash.
- The AO, based on an investigation report from Kolkata, found that these shares were used for providing bogus long-term capital gains. The AO noted irregularities such as offline purchases, delayed dematerialization, and a significant rise in share prices without corresponding financial performance.
- The assessee argued that price fluctuations in shares are normal and that there was no evidence implicating him or his broker in any price manipulation. The assessee also contended that the statements of third parties were used against him without providing an opportunity for cross-examination.

Findings:
- The AO's conclusion was based on circumstantial evidence, such as the rapid price increase of the shares and the suspension of trading by SEBI. However, no direct evidence was provided linking the assessee to any fraudulent activities.
- The CIT(A) upheld the AO's decision, emphasizing the modus operandi and circumstantial evidence, suggesting that the transactions were not genuine.

Tribunal's Analysis:
- The Tribunal noted that the AO did not conduct an independent inquiry to establish the assessee's involvement in rigging share prices or exchanging cash for accommodation entries.
- The Tribunal highlighted that the assessee provided all necessary documentation, including contract notes and evidence of transactions through banking channels.
- The Tribunal emphasized the importance of providing an opportunity for cross-examination, which was denied in this case.
- The Tribunal referred to the judgment of the Hon’ble Delhi High Court in the case of Pr. CIT vs. Smt. Krishna Devi, which held that suspicion alone cannot justify rejecting an assessee's claim without concrete evidence.

Conclusion:
- The Tribunal concluded that the capital gain earned by the assessee could not be held bogus merely based on some report without cogent material against the particular assessee.
- The Tribunal set aside the CIT(A)'s finding and directed the AO to delete the addition made under section 68 of the Act.

Judgment:
- The appeal of the assessee was allowed, and the order was pronounced on 29/10/2021 at Ahmedabad.

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