2025 (5) TMI 1582 - AT - Income Tax

ITAT remands share trading income addition case due to insufficient evidence and lack of proper verification by assessing officer.

ITAT Mumbai remanded matter to AO after finding insufficient evidence regarding share trading income addition based on AIR details. Despite assessee's ... Addition of share trading income as per details received from AIR - assessee submitted a written submission but did not submit any credible evidences in support of its claim - HELD THAT:- Upon examination of the assessment records and the appellate order, we find no substantive material or evidence indicating the assessee’s involvement in the said transactions. AR contended that the assessee was never served with any documents pertaining to the alleged transactions, nor was any detailed statement in respect thereof furnished to the assessee - From the perusal of the appellate order, it is further evident that the assessee did not file a rejoinder or any conclusive submission before the CIT(A) - we deem it appropriate to remand the matter to the file of the AO for comprehensive verification and clarification regarding the entire transaction and the underlying investigation. Appeal of the assessee is allowed for statistical purpose. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the addition of Rs. 13,335,500/- as share trading income based on Annual Information Report (AIR) data was justified in the absence of credible evidence linking the assessee to the alleged share transactions;(b) Whether the assessee's denial of involvement in the share transactions, supported by claims of no Demat account or bank account related to such transactions, was adequately considered;(c) Whether the Assessing Officer (AO) and the National Faceless Appeal Centre (NFAC) erred in confirming the addition without providing the assessee a fair opportunity to examine the basis of the AIR information and submit conclusive evidence;(d) Whether the matter requires remand for further investigation and verification, ensuring procedural fairness and adherence to principles of natural justice.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Justification for Addition of Share Trading Income Based on AIR DataRelevant Legal Framework and Precedents: The addition was made under section 143(3) read with section 147 of the Income Tax Act, 1961, which empowers the AO to reassess income based on new information such as AIR data. The law requires that the AO must have credible evidence to justify reopening and addition of income. Precedents emphasize that mere reliance on third-party data without corroborative evidence linking the assessee to the transactions is insufficient to sustain an addition.Court's Interpretation and Reasoning: The Tribunal observed that the entire addition was premised solely on AIR data indicating share transactions allegedly carried out in the name of the assessee. However, the AO's reliance on this data was not supported by independent verification or credible evidence establishing that the assessee was the actual beneficiary or participant in these transactions.Key Evidence and Findings: The AO received information from BSE showing purchase and sale entries with significant transaction values. The client name associated with these transactions was 'Virendra Sharadaprasad Pandey' with client code 'BY0021,' not the assessee company. The assessee denied any involvement and stated that Mr. Pandey was not a director during the relevant year.Application of Law to Facts: The Tribunal noted that the AO failed to establish a direct link between the assessee and the transactions beyond the AIR data. The AIR data alone was insufficient to prove that the assessee had earned share trading income, as the transactions were in the name of a third party.Treatment of Competing Arguments: The Revenue argued that the assessee was involved as per AIR data and that the addition was justified. The assessee contended that the transactions were conducted by an unrelated individual and that no Demat or bank accounts were held by the assessee to facilitate such trades. The Tribunal found the assessee's argument credible due to lack of contrary evidence.Conclusion: The addition based solely on AIR data without corroborative evidence linking the assessee to the transactions was not justified.Issue (b): Consideration of Assessee's Denial and Lack of Involvement in TransactionsRelevant Legal Framework and Precedents: The principles of natural justice and fair play require that the assessee be given an opportunity to rebut allegations and produce evidence. The burden lies on the Revenue to prove the correctness of the addition. Denial by the assessee, supported by absence of Demat or bank accounts, must be considered seriously.Court's Interpretation and Reasoning: The Tribunal noted that the assessee denied involvement and submitted written submissions, but did not produce credible documentary evidence such as KYC details or account statements to conclusively prove non-involvement. However, the assessee's claim of no Demat or bank account was not rebutted by the AO.Key Evidence and Findings: The AO's records showed discrepancies in director details and client codes, indicating possible misuse of the assessee's name. The assessee's denial was consistent with the fact that the alleged client code and name were of a third party, not the assessee.Application of Law to Facts: The Tribunal held that the assessee's denial, coupled with lack of evidence from the Revenue to the contrary, raised a reasonable doubt about the correctness of the addition.Treatment of Competing Arguments: The Revenue contended that the assessee's denial was unsubstantiated and that the AIR data was sufficient. The Tribunal found that the Revenue did not discharge its evidentiary burden.Conclusion: The assessee's denial and lack of involvement deserved further inquiry and could not be summarily rejected.Issue (c): Procedural Fairness and Opportunity to Examine AIR InformationRelevant Legal Framework and Precedents: The principles of natural justice mandate that the assessee be furnished with the basis of the addition and allowed to respond effectively. The right to know the evidence and challenge it is fundamental.Court's Interpretation and Reasoning: The Tribunal observed that the AO did not share the KYC details or other documents underlying the AIR information with the assessee, which impeded the assessee's ability to verify and rebut the claims.Key Evidence and Findings: The assessee specifically stated that the KYC details were not provided, and hence it was incapable of verifying the AIR data. The AO's failure to furnish these details was noted as a procedural lapse.Application of Law to Facts: The Tribunal emphasized that the assessee must be given a reasonable opportunity to scrutinize and challenge the evidence, failing which the addition cannot be sustained.Treatment of Competing Arguments: The Revenue did not dispute the non-sharing of KYC details but maintained the addition based on AIR data. The Tribunal found this approach contrary to principles of fair procedure.Conclusion: The procedural lapse warranted remand for fresh verification with due opportunity to the assessee.Issue (d): Necessity of Remand for Further Investigation and VerificationRelevant Legal Framework and Precedents: When facts are disputed and evidence is incomplete or inconclusive, it is appropriate to remit the matter for further inquiry rather than decide on incomplete records.Court's Interpretation and Reasoning: The Tribunal refrained from expressing any opinion on the merits of the case due to lack of conclusive material and procedural deficiencies. It directed remand to the AO for comprehensive verification, ensuring the assessee is heard and allowed to place evidence on record.Key Evidence and Findings: The Tribunal noted absence of substantive material linking the assessee to the transactions and the ongoing investigation context which may have prevented the assessee from filing returns timely.Application of Law to Facts: The remand was ordered to uphold fairness and enable a thorough investigation, consistent with legal principles.Treatment of Competing Arguments: The Revenue's insistence on confirming the addition without further inquiry was rejected in favor of a fair hearing.Conclusion: The matter was remanded for fresh proceedings with directions to afford the assessee reasonable opportunity and to consider all evidence diligently.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'The entire addition has been made solely on the basis of the AIR data. However, there is no substantive material or evidence indicating the assessee's involvement in the said transactions. The assessee was never served with any documents pertaining to the alleged transactions, nor was any detailed statement in respect thereof furnished. The assessee neither held any Demat account nor maintained any bank account through which such transactions could have been routed.''We deem it appropriate to remand the matter to the file of the Ld. Assessing Officer for comprehensive verification and clarification regarding the entire transaction and the underlying investigation. It is, however, directed that the assessee shall be afforded a reasonable opportunity of being heard during the set aside proceedings, and any evidence or submission the assessee wishes to place on record shall be considered in accordance with law.'The core principles established include:(i) AIR data alone cannot form the basis of addition without corroborative evidence linking the assessee to the transactions;(ii) The assessee must be furnished with the basis of the addition and given a fair opportunity to rebut the same;(iii) Procedural fairness and adherence to natural justice are paramount in reassessment proceedings;(iv) Where evidence is inconclusive and procedural lapses exist, remand for further investigation and hearing is appropriate.Accordingly, the Tribunal allowed the appeal for statistical purposes and directed remand to the AO with clear directions to conduct reassessment proceedings in a fair and comprehensive manner.