2023 (4) TMI 1401 - AT - Income Tax

Assessee wins appeal as addition under Section 68 deleted due to lack of evidence and procedural lapses

ITAT Mumbai allowed the assessee's appeal against addition of long term capital gains under section 68. The tribunal found that AO relied solely on ... Addition of Long term capital gain arising on sale of shares u/s 68 - HELD THAT:- AO has simply relied upon the report of the investigation department and held that the long term capital gains declared by the assessee are not genuine. No other material was brought on record by the AO to prove that the assessee has indeed availed only accommodation entries. We noticed that the assessee has furnished all documents relating to purchase and sale of securities. The shares have entered and exited his demat account. The purchase and sale transactions have been routed through the bank accounts of the assessee. All these documentary evidences produced by the assessee have not been disproved. We also notice that the assessee has asked for opportunity of cross examination of the parties, whose statements were relied upon by the AO, but same was not provided. Hence the AO could not have placed reliance on those statements. On the conspectus of the matter, we are of the view that the decision in the above said case of Shyam R Pawar [2014 (12) TMI 977 - BOMBAY HIGH COURT] and Ziauddin A Siddique [2022 (3) TMI 1437 - BOMBAY HIGH COURT] are squarely applicable to the facts of the present case. Accordingly, we set the order passed by CIT(A) on the grounds raised on merits and direct the AO to delete the addition of long term capital gains. Appeal filed by the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:The validity of the reopening of the assessment under Section 148 of the Income Tax Act.The genuineness of the long-term capital gains declared by the assessee on the sale of shares, assessed under Section 68 of the Income Tax Act.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening of AssessmentRelevant Legal Framework and Precedents: The reopening of assessments is governed by Section 148 of the Income Tax Act, which allows the Assessing Officer (AO) to reassess income if there is reason to believe that income has escaped assessment. The precedents cited include PCIT Vs. Shodiman Investments (P) Ltd., CIT Vs. Sfil Stock Broking Ltd., Inventors Industrial Corporation Ltd. Vs. CIT, and Coronation Agro Industries Ltd. Vs. DCIT, which emphasize the requirement of a 'reason to believe' rather than mere suspicion.Court's Interpretation and Reasoning: The Tribunal noted that the AO reopened the assessment based on information received from the investigation department, which the assessee argued was a case of 'borrowed satisfaction.' The Tribunal considered whether the AO had independently verified the information or merely acted on third-party data without forming an independent belief.Key Evidence and Findings: The reopening was challenged on the grounds that the AO relied on inaccurate particulars and did not form a prima facie belief of income escapement. The Tribunal found that the AO's reasons for reopening were based on general information without specific evidence against the assessee.Application of Law to Facts: The Tribunal found that the AO's reliance on borrowed satisfaction without independent verification rendered the reopening questionable.Treatment of Competing Arguments: The Department argued that the reopening was justified based on the investigation department's information. However, the Tribunal found the assessee's argument of lack of independent verification more compelling.Conclusions: The Tribunal did not conclusively rule on the validity of reopening, as it became academic after deciding the merits of the case in favor of the assessee.2. Genuineness of Long-term Capital GainsRelevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, and its application requires the AO to establish that the income declared is non-genuine. The Tribunal referenced cases such as Mr. Ripu Sudan Kundra Vs. ITO and PCIT Vs. Ziyauddin A. Siddique, which emphasize the need for concrete evidence to declare gains as non-genuine.Court's Interpretation and Reasoning: The Tribunal analyzed whether the AO provided sufficient evidence to classify the capital gains as accommodation entries. The Tribunal noted that the AO's conclusions were based on general reports without specific evidence against the assessee.Key Evidence and Findings: The assessee provided documentation for the purchase and sale of shares, including demat account statements and bank transaction records. The AO did not disprove these documents or provide evidence of the assessee's involvement in price rigging.Application of Law to Facts: The Tribunal found that the AO's reliance on investigation reports without direct evidence against the assessee was insufficient to declare the gains non-genuine.Treatment of Competing Arguments: The Department relied on the investigation's findings, while the assessee argued that the transactions were genuine and supported by documentation. The Tribunal favored the assessee's argument due to the lack of direct evidence from the Department.Conclusions: The Tribunal directed the AO to delete the addition of long-term capital gains, finding the transactions genuine based on the evidence provided by the assessee.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies.'Core Principles Established: The Tribunal emphasized the necessity for the AO to provide specific evidence against an assessee when alleging non-genuine transactions, rather than relying on general reports or third-party information.Final Determinations on Each Issue: The Tribunal allowed the appeal, directing the deletion of the addition of long-term capital gains. The issue of reopening was left open, as the decision on merits rendered it academic.