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2022 (2) TMI 691 - AT - Income TaxAssessment u/s 153A - Bogus LTCG - AO disallowed the claim of exemption claimed u/s 10(38) treating the same as a non-genuine gain - Also added as commission at the rate of 6% on the amount of capital gains claimed as exempt by the Assessee - HELD THAT - It is fact on record that whatever addition made by the AO relating to share capital and share premium which are already available on record and assessee has already disclosed the same while filing the return of income and balance sheet. There is nothing on record which shows that new incriminating material was found during search. Therefore, the courts have held that no addition can be made in the case of unabated assessment years without there being incriminating material found during search. We observe from the various decisions and particularly the Hon ble Jurisdictional High Court in the case of Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT which observed that the expression incriminating material would mean any evidence or material found during search which were not submitted or produced in the course of filing return of income / original assessment and any undisclosed income or property discovered during search. But in the given case, we observe that no such material or income was found during search but AO relied completely on the information forwarded by the investigation wing post search. Therefore, the assessments made in A.Y. 2011-12 in the case of Shripal Raj Lodha and in A.Y. 2010-11 in the case of Smt Sarita Lodha , being unabated assesments, and hence no addition towards denial of exemption u/s 10(38) could be done. Accordingly, the additions made thereon are hereby deleted. Allowability of long term capital gain and claimed the exemption u/s. 10(38) - In the given case , it clearly shows that no such opportunity was given to the assessee and further we observe that the Assessing Officer decided to proceed by relying on information contained in the SEBI report without establishing the connection of direct or indirect involvement of the assessee in the tainted transactions and proceed to apply concept of preponderance of human probability. Therefore, in our considered view, assessee has submitted all the information relating to buying and selling of the scrips and the Assessing Officer has not found any discrepancies in the documents submitted by the assessee and it is a case of the AO that assessee is involved in directly or indirectly in manipulation of the prices of the scrips and taken direct or indirect benefit by manipulation of the above said scrips. However, assessing officer has not brought or proved anything on record that the assesse was involved in manipulation of prices or taken benefit by having any relationship with the persons involved in such activities. Even the SEBI order does not mention the name of the assessee to have been involved in the artificial price rigging of shares. Hence the entire addition has been made in the hands of the assessee merely by surmise and conjecture and not backed by any evidence. Therefore, we do not find any reason to sustain the addition made by the Assessing Officer and confirmed by the Ld.CIT(A). Accordingly, the grounds raised by the assessee are allowed
Issues Involved:
1. Legitimacy of the long-term capital gains (LTCG) claimed as exempt under section 10(38) of the Income-tax Act, 1961. 2. The validity of additions made under section 69C for alleged commission expenses. 3. The legality of assessments made for non-abated years without incriminating material found during the search. Issue-wise Detailed Analysis: 1. Legitimacy of the Long-Term Capital Gains (LTCG) Claimed as Exempt under Section 10(38): The Assessee, deriving income from various sources, claimed LTCG exemption under section 10(38) for gains from the sale of shares of Sunrise Asian Ltd. The Assessing Officer (AO) disallowed this exemption, treating the gains as non-genuine based on several factors: - Investigation by the Directorate of Investigation, Kolkata, identified Sunrise Asian Ltd. as a penny stock company. - The AO noted an astronomical increase in the share price of Sunrise Asian Ltd. without any basis. - The AO alleged that the assessee's own cash was introduced and returned as LTCG. - Statements from brokers/entry operators indicated manipulation of share prices. The Ld.CIT(A) upheld the AO’s decision, emphasizing that the Assessee failed to prove the genuineness of the transaction despite submitting documentary evidence. The Ld.CIT(A) also dismissed the Assessee’s request for cross-examination of the brokers/entry operators. The Tribunal noted that the Assessee had provided complete documentary evidence for the purchase and sale of shares, including purchase bills, bank statements, demat account statements, and contract notes. The Tribunal observed that the AO and Ld.CIT(A) did not dispute these documents but relied on external investigations and statements without providing the Assessee an opportunity for cross-examination. The Tribunal emphasized the importance of cross-examination, citing the Supreme Court’s rulings in Dhakeshwari Cotton Mills Ltd. and Andaman Timber Industries Ltd., which mandate that any evidence collected behind the back of the Assessee must be subjected to cross-examination. The Tribunal found that the AO’s reliance on the preponderance of human probability and the SEBI report, which did not name the Assessee, was insufficient to disallow the exemption. Consequently, the Tribunal allowed the Assessee’s claim for exemption under section 10(38). 2. Validity of Additions Made under Section 69C for Alleged Commission Expenses: The AO added an estimated 6% of the total capital gain as commission expenses under section 69C, assuming that the Assessee must have incurred such expenses for the alleged bogus transactions. The Ld.CIT(A) upheld this addition. The Tribunal, however, found no evidence of any commission payment by the Assessee. The Tribunal reiterated that the AO’s addition was based on assumptions and not supported by any concrete evidence. Therefore, the Tribunal deleted the addition made under section 69C. 3. Legality of Assessments Made for Non-Abated Years Without Incriminating Material Found During the Search: For the assessment years 2010-11 and 2011-12, the Tribunal noted that these were non-abated years, and no incriminating material was found during the search. The Tribunal referred to the jurisdictional High Court’s ruling in Continental Warehousing Corporation Ltd., which restricts the AO’s jurisdiction to make additions in non-abated years to issues where incriminating material is found during the search. The Tribunal observed that the additions made by the AO were based on information from the investigation wing and not on any new incriminating material found during the search. Therefore, the Tribunal held that the additions for these non-abated years were not justified and deleted them. Conclusion: The Tribunal allowed the appeals filed by the Assessees, holding that: - The LTCG claimed as exempt under section 10(38) was genuine and supported by documentary evidence. - The additions under section 69C for alleged commission expenses were not substantiated by evidence. - The additions for non-abated years were not permissible in the absence of incriminating material found during the search. The Tribunal’s decision underscores the importance of adhering to principles of natural justice, particularly the right to cross-examination, and the necessity of concrete evidence to support additions in income tax assessments.
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