Tribunal overturns CIT(A)'s decision, directs AO to delete Rs. 1,15,49,320 addition under Income Tax Act.

The Tribunal set aside the CIT(A)'s decision and directed the AO to delete the addition of Rs. 1,15,49,320/-, as the assessee provided sufficient documentary evidence supporting the genuineness of the transactions. The Tribunal emphasized that reliance on circumstantial evidence and third-party statements without allowing cross-examination was inadequate to justify the addition under Section 68 of the Income Tax Act, 1961. Consequently, the appeal of the assessee was allowed, and the addition made by the AO was deleted.

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Issues Involved:
1. Addition of Rs. 1,15,49,320/- treating Long Term Capital Gain as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Onus of proof under Section 68 of the Income Tax Act, 1961.
3. Allegation of bogus transaction and pre-arranged scheme.
4. Failure to provide cross-examination opportunity to the assessee.
5. Reliance on circumstantial evidence and human probability.

Detailed Analysis:

1. Addition of Rs. 1,15,49,320/- Treating Long Term Capital Gain as Unexplained Cash Credit under Section 68:
The assessee declared a long-term capital gain of Rs. 1,15,49,320/- from the sale of shares of M/s Comfort Fincap Ltd., claiming it as exempt under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) treated this gain as bogus and added it as unexplained cash credit under Section 68. The AO based this conclusion on the grounds that the company was not well-known at the time of investment, shares were purchased offline, and the share price increased sharply without corresponding financial strength.

2. Onus of Proof under Section 68:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that Section 68 places the onus of proof on the taxpayer to explain the nature and source of any credited sum to the AO's satisfaction. The CIT(A) noted that the assessee failed to rebut the presumption that the transaction was bogus, especially given the statements from key persons involved in Comfort Fincap Ltd. admitting to providing accommodation entries for Long Term Capital Gains (LTCG).

3. Allegation of Bogus Transaction and Pre-arranged Scheme:
The AO and CIT(A) both highlighted several factors casting doubt on the genuineness of the transaction:
- The company had nominal business activity and financial strength.
- The share price increased dramatically and then fell sharply.
- Statements from key individuals and brokers involved in the company suggested a scheme of pre-arranged transactions to generate bogus LTCG.

4. Failure to Provide Cross-examination Opportunity:
The assessee argued that they were not provided with the investigation report or statements from key individuals for rebuttal and cross-examination. The Tribunal found merit in this argument, noting that the AO did not provide these crucial documents, which could have allowed the assessee to challenge the allegations effectively.

5. Reliance on Circumstantial Evidence and Human Probability:
The Tribunal observed that the AO relied heavily on circumstantial evidence and the principle of human probability without conducting an independent inquiry or providing concrete evidence linking the assessee to the alleged bogus transactions. The Tribunal emphasized that mere suspicion or modus operandi cannot substitute for solid evidence.

Tribunal's Conclusion:
The Tribunal concluded that:
- The assessee had provided sufficient documentary evidence to support the genuineness of the transactions, including payment through banking channels, dematerialization of shares, and sale through the stock exchange.
- The AO's reliance on circumstantial evidence and statements from third parties without providing an opportunity for cross-examination was insufficient to justify the addition under Section 68.
- The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of Rs. 1,15,49,320/-, allowing the assessee's appeal.

Final Order:
The appeal of the assessee was allowed, and the addition made by the AO was deleted. This Order was pronounced in Open Court on 26/08/2022.

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