2023 (12) TMI 758 - AT - Income Tax

Section 153A disallowance of bogus LTCG fails without incriminating documents despite accommodation entry admissions

ITAT Kolkata held that disallowance of bogus Long Term Capital Gain under section 153A was not sustainable as no incriminating documents were available ... Assessment u/s 153A - disallowance of bogus Long Term Capital Gain - whether any incriminating documents is available with department to make the addition? - as per DR entry operator and the directors of shell companies themselves have accepted under Oath that they are involved in providing accommodation entries during various departmental investigations which is incriminating in itself - HELD THAT:- Ideally when we explore the scope of section 153A and addition is not sustainable on legal ground, then, the inquiry on factual aspect is not required to be made. In case, a specific ground is being raised in an appeal or C.O. that has to be adjudicated. Earlier this approach was being taken on the ground that Higher Appellate Authority may concur or not with the view of the ITAT on the legal ground and in that situation, adjudication of the issue on merit would be required. But now the Hon’ble Supreme Court has silenced the controversy in the case of PCIT vs. Abhisar Buildwell Pvt. Limited [2023 (4) TMI 1056 - SUPREME COURT] and there is no scope of disagreement on the scope of section 153A in further appeal unless Hon’ble Supreme Court took a different view later on. In five scrutiny cases of the sale of shares, i.e. TFCIL, gain earned by the assessee was accepted as a genuine by the Department itself. Out of these five cases, two are in the re-assessment u/s 147 and these assessment orders have been framed after more than one year of the search. Therefore, Department was not doubting the genuineness of the transactions. It is also obsesrved that apart from Hon’ble Calcutta High Court in the case of Swati Bajaj [2022 (6) TMI 670 - CALCUTTA HIGH COURT] the other Hon’ble High Courts have accepted the claim of these alleged bogus long-term capital gains and assessee drew our attention towards the decision of Smt. Pushpa Malpani [2010 (11) TMI 799 - RAJASTHAN HIGH COURT], Krishna Devi [2021 (1) TMI 1008 - DELHI HIGH COURT] The ld. Counsel for the assessee has also drew our attention on the tabulated details submitted in his submission and pointed out how certain companies have performed so well and the change was 449% to 312%, whereas certain companies has performed very badly. Therefore, we have made analysis of these break-up in the light of the large number of decisions, namely 21 in number compiled in the written submission. We are of the view that the Department was not possessing any details, which authorize it to doubt the claim made by the assessee. Therefore, even otherwise on merit also, no addition is sustainable. - Decided in favour of assessee. Issues Involved:1. Legality of additions made under section 153A in absence of incriminating material.2. Validity of additions under section 68 for alleged bogus Long-Term Capital Gains (LTCG).3. Impact of statements and reports from Investigation Wing without cross-examination.4. Treatment of completed assessments and reassessments under section 153A.5. Specific case of Vishal Bamalwa regarding the absence of search.Summary:1. Legality of Additions under Section 153A:The Tribunal examined whether additions under section 153A could be made in the absence of incriminating material found during the search. It was noted that the Assessing Officer (AO) did not possess any specific material discovered during the search. The AO relied on general reports from the Investigation Wing, which were not directly related to the assessees. The Tribunal emphasized that, as per the Supreme Court's decision in PCIT vs. Abhisar Buildwell Pvt. Limited, no additions can be made under section 153A for completed/unabated assessments unless incriminating material is found during the search. The Tribunal upheld the CIT(A)'s decision to delete the additions on this ground.2. Validity of Additions under Section 68:The Tribunal analyzed whether the additions under section 68 for alleged bogus LTCG were justified. The assessees provided detailed documentary evidence to support their claim, including computation of income, balance sheets, bank statements, demat transaction statements, and contract notes. The AO failed to provide any material evidence to disprove these transactions. The Tribunal noted that the AO's reliance on the Investigation Wing's reports and statements without cross-examination was insufficient. The Tribunal concluded that the assessees had discharged their onus under section 68, and the AO did not bring any cogent evidence to rebut the assessees' claims. Therefore, the additions under section 68 were not sustainable on merits.3. Impact of Statements and Reports from Investigation Wing:The Tribunal highlighted that the AO relied on statements from third parties recorded by the Investigation Wing without providing the assessees an opportunity for cross-examination. The Tribunal referred to the Supreme Court's decision in Andaman Timber Industries v. CCE, stating that evidence obtained without cross-examination cannot be used against the assessees. The Tribunal found that the AO's reliance on these statements and reports without cross-examination violated principles of natural justice and could not be the basis for additions.4. Treatment of Completed Assessments and Reassessments under Section 153A:The Tribunal noted that several assessees had already undergone scrutiny assessments where their LTCG claims were accepted. For instance, in the case of Bajrang Lal Bamalwa, the AO had accepted the LTCG claim in scrutiny assessments for A.Y. 2010-11 and 2012-13. The Tribunal emphasized that the AO's inconsistent approach in accepting similar claims in some cases while rejecting them in others was not justified. The Tribunal reiterated that completed assessments could only be disturbed if incriminating material was found during the search, which was not the case here.5. Specific Case of Vishal Bamalwa:The Tribunal addressed the specific issue of Vishal Bamalwa, where no search was conducted under section 132. The Tribunal referred to the Panchnama and found that Vishal Bamalwa's name was not included, indicating no search was conducted on him. The Tribunal concluded that in the absence of a valid search, the assessment order under section 153A was not sustainable and quashed the assessment.Conclusion:The Tribunal dismissed all the Revenue's appeals and allowed the assessees' cross-objections, upholding the CIT(A)'s decision to delete the additions made under section 153A in the absence of incriminating material and finding that the additions under section 68 were not sustainable on merits.