2012 (8) TMI 968 - AT - Income Tax

Addition u/s. 68 as income from undisclosed sources on account of sale of shares - Held that - We have noticed that the assessee had shown the investment in shares in the balancesheet of the earlier assessment year and her return of income was accepted by the Department. We are of the opinion that once sales/purchase of shares is accompanied by this kind of evidences the genuineness of the said transactions cannot be doubted. Non-payment of STT cannot be and should not be basis for making addition of the section 68 of the Act. FAA has categorically held that all the necessary details about purchase and sale of shares were made available to the AO during assessment proceedings. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961, as income from undisclosed sources on account of sale of shares.
2. Non-payment of Securities Transaction Tax (STT) on the sale of shares.
3. Validity of off-market transactions.
4. Non-availability of proof of purchase and dematerialization of shares.
5. Opportunity for cross-examination of the broker.

Detailed Analysis:

1. Deletion of addition made under Section 68 of the Income Tax Act, 1961, as income from undisclosed sources on account of sale of shares:

The Assessing Officer (AO) made additions under Section 68, treating the income from the sale of shares as unexplained cash credits. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, affirming that the transactions were genuine. The ITAT upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence, including broker's notes, payment details through banking channels, and demat account statements. The Tribunal found that the AO had not sufficiently disproved the genuineness of the transactions.

2. Non-payment of Securities Transaction Tax (STT) on the sale of shares:

The AO argued that the transactions were not genuine because the broker did not pay STT. The Tribunal rejected this argument, stating that non-payment of STT alone cannot be the basis for treating the transactions as non-genuine. The Tribunal emphasized that the assessee had shown the investment in shares in the balance sheet of the earlier assessment year, and the return of income was accepted by the Department.

3. Validity of off-market transactions:

The AO contended that the shares were sold off-market, which should be considered unaccounted. The Tribunal, referring to the Bombay High Court's decisions in similar cases, held that off-market transactions are not illegal and can be considered genuine if supported by proper documentation. The Tribunal found that the assessee had provided all necessary details about the purchase and sale of shares, including confirmations from the Bombay Stock Exchange.

4. Non-availability of proof of purchase and dematerialization of shares:

The AO raised concerns about the lack of proof of purchase and the dematerialization of shares. The Tribunal noted that the assessee had provided sufficient evidence, including demat account statements and broker's notes, to prove the purchase and subsequent sale of shares. The Tribunal also observed that the shares were transferred to the assessee's demat account a few days before the sale, which is a common practice in the stock market.

5. Opportunity for cross-examination of the broker:

The AO relied on the statement of the broker, Mukesh Choksi, who allegedly provided accommodation entries. The Tribunal found that the AO did not give the assessee an opportunity to cross-examine the broker. Moreover, the broker did not specifically name the assessee as a beneficiary of bogus entries. The Tribunal emphasized that the right to cross-examine is a fundamental aspect of the principles of natural justice, and the AO's failure to provide this opportunity weakened the case against the assessee.

Conclusion:

The Tribunal dismissed the appeals filed by the AO, upholding the CIT(A)'s orders. The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the share transactions. The Tribunal also emphasized that non-payment of STT and off-market transactions cannot be the sole basis for treating the transactions as non-genuine. The Tribunal's decision relied heavily on the principles of natural justice and the need for the AO to provide concrete evidence to disprove the assessee's claims.

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