2022 (10) TMI 649 - AT - Income Tax

Tribunal dismisses revenue's appeal, upholding CIT(A)'s decision on IT Act Sections 68 & 69C.

The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO under Sections 68 and 69C of the IT Act. The Tribunal found that the AO's ... Assessment under section 153A - statement recorded under section 132(4) of the Act - addition treated as unexplained credit under section 68 - addition as unexplained expenditure under section 69C - requirement of corroborative/incriminating material for search-based additions - right to confront/cross-examine third party statements relied upon by revenue - weight of documentary evidence versus oral statements - application of human probability and circumstantial evidence in tax assessmentsStatement recorded under section 132(4) of the Act - requirement of corroborative/incriminating material for search-based additions - weight of documentary evidence versus oral statements - assessment under section 153A - addition treated as unexplained credit under section 68 - Whether the long term/short term capital gains claimed by the assessee from specified penny stock transactions could be treated as bogus and added back as unexplained credit under section 68 on the basis of third party statements and investigation reports absent incriminating/seized material and without opportunity of cross examination. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the Assessing Officer made the addition principally on third party statements and investigatory information without any incriminating material seized in the search relatable to the assessee's transactions. The assessee had placed contemporaneous documentary proof - contract notes, bank statements showing payments and receipts routed through banking channels, demat statements and ledger entries - which were not disproved or confronted by the AO. The remand report from the AO confirmed that no incriminating material was seized relating to the LTCG/STCG claimed. The CIT(A) correctly applied the settled principle that a statement recorded under section 132(4) by itself does not constitute conclusive incriminating evidence unless corroborated by seized material or subsequent enquiry linking the statement to documents or assets; documentary evidence, if unrebutted, outweighs general third party assertions. The assessee's request for cross examination of the persons whose statements were relied upon was not granted by the AO; the Tribunal held that reliance on such statements without affording opportunity to confront them is legally impermissible and renders the addition unsustainable. The Tribunal considered precedent and local High Court authority favouring the proposition that absent nexus between search material and the impugned entries, additions based on investigation wing information or retracted statements cannot be sustained. On the facts, there was no material to demonstrate that the assessee's banked payments were other than genuine, or that cash had been routed back to the assessee as accommodation entries. Consequently the AO's addition under section 68 was held to be based on suspicion and not on cogent corroborative evidence. [Paras 6, 14]Addition of the claimed capital gains as unexplained credit under section 68 deleted; the CIT(A) order sustaining genuineness of the share transactions is upheld and the revenue's ground dismissed.Addition as unexplained expenditure under section 69C - application of human probability and circumstantial evidence in tax assessments - weight of documentary evidence versus oral statements - application of section 115BBE - Whether the notional commission disallowance treated as unexplained expenditure under section 69C (and the consequential invocation of section 115BBE) could be sustained once the alleged capital gains were held genuine. - HELD THAT: - The notional commission addition under section 69C was consequential to the AO's view that the capital gains were bogus. Having affirmed the CIT(A)'s conclusion that the capital gains were genuine on the basis of unrebutted documentary records and absence of incriminating seized material, the Tribunal found no basis to maintain the consequential disallowance under section 69C. The Tribunal therefore also agreed with the CIT(A)'s direction not to apply section 115BBE in respect of the impugned addition, since the premise for invoking that provision (treatment of the receipts as income from undisclosed sources or deemed income) was rejected. [Paras 15]Addition under section 69C deleted and the consequent invocation of section 115BBE not to be applied; the CIT(A) order is upheld.Final Conclusion: The departmental appeals are dismissed. The Tribunal affirms the Commissioner (Appeals)'s deletions: the capital gains arising from the impugned penny stock transactions are held genuine on the materials produced and in the absence of corroborative incriminating material seized or confronted statements, and the consequential commission disallowance and application of section 115BBE are also deleted. Issues Involved:1. Deletion of addition on account of unexplained credit under Section 68 of the IT Act.2. Non-application of Section 115BBE regarding the addition under Section 69C of the IT Act.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Unexplained Credit under Section 68 of the IT Act:The core issue was whether the CIT(A) was justified in deleting the addition of Rs. 6,25,76,221/- made by the AO under Section 68 of the IT Act, which pertains to unexplained credit. The AO added this amount based on the findings from a search and seizure operation on the Maverick Group, alleging that the long-term capital gains (LTCG) declared by the assessee were bogus and part of a well-planned scheme involving penny stocks.The AO based his findings on statements recorded from entry operators and brokers during the investigation, which indicated that the transactions were pre-arranged to convert unaccounted money into tax-exempt income. The AO relied on the statements of Shri Harshvardhan Kayan and Shri Manoj Kumar Agarwal, who admitted to providing accommodation entries through penny stocks. The AO also referenced SEBI's interim report and the Special Investigation Team (SIT) report on the misuse of LTCG exemptions.The CIT(A) deleted the addition, stating that the AO's reliance on statements without corroborative evidence was insufficient. The CIT(A) emphasized that a statement alone cannot be treated as incriminating material unless it is substantiated by post-search inquiries or linked to material found during the search. The CIT(A) cited several judicial precedents, including decisions from the Rajasthan High Court and the Delhi High Court, which held that mere statements without corroborative evidence cannot justify additions.The CIT(A) also noted that no incriminating material was found during the search to support the AO's allegations. The assessee provided documentary evidence, such as contract notes, bank statements, and demat account statements, to substantiate the transactions. The CIT(A) observed that the AO did not disprove these documents or provide any evidence to suggest that the transactions were not genuine.The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's addition was based on suspicion and surmises without any cogent material. The Tribunal emphasized that the assessee had provided substantial evidence to support the genuineness of the transactions, and the AO failed to prove otherwise.2. Non-application of Section 115BBE regarding the Addition under Section 69C of the IT Act:The second issue was whether the CIT(A) was justified in not applying Section 115BBE regarding the addition of Rs. 37,57,573/- under Section 69C of the IT Act, which pertains to unexplained expenditure. The AO had added this amount as commission allegedly paid for acquiring the bogus LTCG.The CIT(A) deleted this addition as well, stating that since the primary addition under Section 68 was deleted, the consequential addition under Section 69C also could not be sustained. The CIT(A) reasoned that if the LTCG was genuine, there could be no question of unexplained expenditure related to it.The Tribunal upheld the CIT(A)'s decision, noting that the deletion of the primary addition under Section 68 logically led to the deletion of the consequential addition under Section 69C. The Tribunal found no merit in the AO's argument and dismissed the revenue's appeal on this ground as well.Conclusion:The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s decision to delete the additions made by the AO under Sections 68 and 69C of the IT Act. The Tribunal concluded that the AO's additions were based on suspicion and lacked corroborative evidence, while the assessee had provided substantial documentary evidence to support the genuineness of the transactions.