2024 (7) TMI 1227 - AT - Income Tax

AO must conduct thorough investigation before adding bogus long-term capital gains to income

Ashok Onkardas Bissa Versus Income Tax Officer, Ward 41 (4) (1), Mumbai.

The ITAT Mumbai remanded a case involving bogus long-term capital gains back to the AO for fresh determination. The tribunal held that the AO failed to ... Bogus long term capital gain - Assessee has failed to produce any of other parties before AO and also did not represent before CIT (A) - HELD THAT:- AO should have made inquiry [1] from the bankers about whose funds were routed in the bank account of the assessee, [2] from the brokers on stock exchange how did they make transaction on behalf of this person and to whom did they provided exit , [3] from Demat agencies in whose demat accounts such shares were credited and debited, [4] why bankers, Demat agency and brokers did not report such a huge suspicious transaction to RBI and Stock exchanges, [5] How synchronized trade of purchases by the assessee took place and to whom exit was provided , [6] where the shares appearing in Demat account were diverted to, who operated Demat account of this assessee,] should have summoned to Mr. Kamlesh Sanghavi who deposited cross account payee cheques in the bank account of the assessee as alleged by assessee himself. AO should have definitely made a larger inquiry because such a kind of scam cannot happen without connivance of the bankers, demat agencies, brokers [who sold shares on behalf of assessee] on stock exchange platform. After making all these inquires AO should also take necessary action in case of all other persons in accordance with law. Assessee is also duty bound to support his affidavit and produce those persons. AO should also make independent efforts to bring all other person by using the necessary powers bestowed upon him in the act. It is a trite law that real income should be taxed in the hands of right assessee. As the AO has not made any inquiry but made the addition in the hands of the assessee, instead of restoring the matter back to the file of the CIT (A), in the interest of justice and give a fair opportunity to the assessee, we restore it back to the file of AO to decide the issue afresh in the light of above direction. Appeal of assessee allowed. Issues:Appeal against assessment order under Section 143(3) of the Income-tax Act, 1961 for A.Y. 2014-15; Dismissal of appeal by National Faceless Appeal Centre, Delhi; Addition of unexplained cash credit under Section 68 of the IT Act, 1961; Disallowance of capital loss on sale of shares of Sunrise Asian Ltd.Analysis:The appellant filed an appeal against the assessment order passed under Section 143(3) of the Income-tax Act, 1961 for the assessment year 2014-15. The National Faceless Appeal Centre, Delhi dismissed the appeal, leading to the appellant's grievance and subsequent appeal. The appellant raised multiple grounds of appeal, challenging the decision of the Commissioner of Income Tax (Appeals) on various issues. The primary contention was the ex-parte decision by the CIT (A) without receiving a notice for the appeal hearing. Additionally, the appellant disputed the addition of Rs. 4,16,36,800 as unexplained cash credit under Section 68 of the IT Act, 1961, arguing that the assessment was contrary to the findings in the investigation report. The appellant also contested the disallowance of capital loss on the sale of shares of Sunrise Asian Ltd.The brief facts of the case revealed that the appellant, an individual, declared commission income and income from other sources in the return of income filed for the relevant year. The appellant's involvement in purchasing and selling shares of Sunrise Asian Limited raised suspicions due to the nature of the company and the modus operandi of providing bogus long-term capital gains. The appellant's association with hawala operators and admission of receiving commission income led to the addition of unexplained credit under Section 68 of the IT Act, 1961. The appellant's explanations and submissions were considered during the assessment process, culminating in the assessment order determining the total income and making the relevant additions.The appellate tribunal carefully reviewed the contentions of both parties and the orders of the lower authorities. It was noted that the appellant claimed to be an exit provider in a scheme involving bogus long-term capital gains facilitated by certain individuals. The tribunal highlighted the inadequacy of the assessment process, emphasizing the need for a thorough inquiry into the transactions, involvement of other parties, and the overall scheme's mechanics. The tribunal directed the Assessing Officer to conduct a comprehensive investigation, including inquiries with banks, brokers, and other relevant entities, to ascertain the true nature of the transactions and the associated income. In the interest of justice and to provide a fair opportunity to the appellant, the matter was remanded back to the Assessing Officer for fresh consideration.In light of the decision on the primary issue, the tribunal did not adjudicate on the other grounds raised in the appeal, leaving them open for future consideration. Ultimately, the appeal of the appellant was allowed for statistical purposes, and the order was pronounced in the open court on the specified date.