Addition under Section 68 for bogus LTCG deleted where AO relied only on Investigation Wing report without independent inquiry

ITAT Mumbai held that addition under section 68 for bogus LTCG cannot be sustained where AO relied solely on Investigation Wing report and price-volume analysis without conducting independent inquiry. The tribunal found AO's conclusions based on conjecture without direct or circumstantial evidence. Assessee had offered short-term capital gains to tax in subsequent year, held unsold shares, and provided proper documentation. AO failed to identify specific defects in assessee's explanation or evidence of unaccounted income. Addition deleted in assessee's favor.

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Issues Involved:

1. Validity of the order passed in the name of a deceased person.
2. Validity of the reopening of the assessment under Section 148.
3. Legitimacy of the addition under Section 68 for the sale of shares and the alleged bogus nature of the transaction.

Summary:

Issue 1: Validity of the order passed in the name of a deceased person
The appellant argued that the CIT(A)-NFAC erred in passing the order under Section 250 of the Income Tax Act, 1961, in the name of a deceased person, making the order void and against the provisions of law. The appellant had informed the authorities about the reassessment proceedings being conducted on the legal representative.

Issue 2: Validity of the reopening of the assessment under Section 148
The appellant contended that the CIT(A)-NFAC erred in confirming the validity of the notice issued under Section 148 and the order passed under Section 143(3) read with Section 147. The reopening was argued to be illegal, void, and against the principles of natural justice. The appellant had disclosed all material facts necessary for the assessment during the first assessment.

Issue 3: Legitimacy of the addition under Section 68 for the sale of shares and the alleged bogus nature of the transaction
The appellant challenged the addition of INR 16,09,340/- under Section 68, arguing that the transaction of purchase and sale of shares was genuine and not bogus as alleged. It was asserted that the appellant was not confronted with the material evidence relied upon by the AO, and the assessment was framed in breach of natural justice principles. The AO had relied on irrelevant facts, conjectures, and assumptions without conclusive evidence proving the transaction as bogus.

Findings:

1. Order Passed in the Name of Deceased Person:
- The issue was not pursued further by the appellant during the hearing.

2. Reopening of Assessment:
- The issue was also not pursued further by the appellant during the hearing.

3. Addition under Section 68:
- The Tribunal found that the AO's findings were contrary to the material on record. The appellant had undertaken multiple purchase/sale transactions in shares, and the short-term capital gains were accepted in previous assessments without any doubts about the genuineness of the transactions.
- The AO did not conduct any independent inquiry and relied on the general modus operandi stated in the Investigation Wing, Kolkata's report without specific reference to the appellant's case.
- The shares were purchased and sold through the stock exchange, and the sale proceeds were received through banking channels. The AO failed to point out any defect or infirmity in the documents/explanation given by the appellant.
- The AO's conclusion that the transactions were sham and a colorable device to evade taxes was based on conjecture and surmises without any direct or circumstantial evidence.
- The Tribunal held that the addition of INR 16,09,340/- under Section 68 could not be sustained and was deleted. The appellant's grounds related to this issue were allowed.

Conclusion:
The appeal was partly allowed, with the addition under Section 68 being deleted. The Tribunal emphasized that judicial precedents should not be invoked without factual support and that the theory of human behavior and preponderance of probabilities cannot override the evidence produced by an assessee.

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