2011 (7) TMI 1295 - AT - Income Tax

Assessment u/s 153A - Unexplained LTGC - Relying upon the report of SEBI, AO treated the Long Term Capital gain declared by the assessee as income from undisclosed sources - CIT(A) confirmed such order - HELD THAT - Since in our considered opinion the SEBI on which the Revenue placed reliance is not applicable to the facts of the present case. On the other hand, the undisputed facts which was admitted by the Revenue are that the assessee has submitted the requisite details and evidences including copies of contract notes, demat account, bank statements etc. which was filed before the AO to substantiate the genuineness of the Long term capital gain which was dis-regarded by the AO by linking with the SEBI s report. It is further observed that the Revenue has not brought any material on record to the effect that neither the assessee nor the family members of the assessee are responsible for inflation/deflation of the share market which is evident from the share transactions submitted by the assessee. It is further observed that the AO has simply added the long term capital gain and commission ignoring the evidences which was already available with the Revenue authorities. Keeping in view of the above facts we are of the considered view that the ratio laid down by the Hon ble Apex Court in the case of SUMATI DAYAL VERSUS COMMISSIONER OF INCOME-TAX 1995 (3) TMI 3 - SUPREME COURT , on which the Revenue has relied is not at all applicable to the present facts. Therefore, we set aside the orders of the Revenue authorities. Also, the Revenue s presumption is based on suspicion, capricious and probabilities and without any contradictory material against the one submitted by the assessee in respect of genuineness of the transactions - Decision in favour of Assessee.

Issues Involved:
1. Legality of the initiation of proceedings under Section 153A of the Income-tax Act, 1961.
2. Validity of the assessment order passed under Section 153A.
3. Reliance on confessionary statements of third parties without allowing cross-examination.
4. Addition of income as undisclosed income based on alleged bogus long-term capital gains.

Issue-wise Detailed Analysis:

1. Legality of the initiation of proceedings under Section 153A of the Income-tax Act, 1961:
The appellant contended that the initiation of proceedings under Section 153A was erroneous as neither the assessment for the year was pending nor was any material found during the search specific to the appellant that could lead to the conclusion of any under-assessment. The Tribunal found that the search and seizure operation conducted on the Maithan Group, to which the appellant belonged, justified the initiation of proceedings under Section 153A. The discovery of jewelry worth Rs. 12,10,734/- in the appellant's locker further supported the initiation of proceedings.

2. Validity of the assessment order passed under Section 153A:
The appellant argued that the assessment order passed under Section 153A was beyond the jurisdiction of the Assessing Officer (A.O.) and hence illegal and invalid. The Tribunal, however, upheld the validity of the assessment order, noting that the A.O. had followed due process, including issuing notices under Sections 143(2) and 142(1) and considering the appellant's responses and submissions.

3. Reliance on confessionary statements of third parties without allowing cross-examination:
The appellant challenged the A.O.'s reliance on confessionary statements of third parties without affording the appellant the opportunity to examine them. The A.O. had relied on statements from Shri Arun Kumar Khemka and Shri Subhas Chandra Agarwalla, who admitted to providing accommodation entries in the form of bogus long-term capital gains for a commission. The Tribunal noted that these statements were subsequently retracted, and the appellant was not given the opportunity to cross-examine the individuals. The Tribunal emphasized that the evidentiary value of such statements is limited unless corroborated by other documentary evidence, as per CBDT instructions.

4. Addition of income as undisclosed income based on alleged bogus long-term capital gains:
The A.O. had treated the long-term capital gains declared by the appellant as income from undisclosed sources, based on the SEBI report and the statements of third parties. The SEBI report indicated manipulation of share prices by brokers, which led to the suspension of trading in the shares of M/s. Globe Stocks & Securities Ltd. The appellant provided documentary evidence, including contract notes, demat statements, and bank statements, to support the genuineness of the transactions. The Tribunal found that the SEBI report pertained to a period after the appellant's transactions and did not directly implicate the appellant. The Tribunal concluded that the revenue authorities' presumption was based on suspicion and not supported by concrete evidence against the appellant. The Tribunal set aside the orders of the revenue authorities, considering the transactions genuine and supported by documentary evidence.

Conclusion:
The Tribunal allowed the appeals of the assessees, setting aside the orders of the revenue authorities. The Tribunal held that the transactions were genuine and supported by documentary evidence, and the revenue's presumption was based on suspicion without any contradictory material. The Tribunal emphasized the importance of providing the opportunity for cross-examination and corroborating confessionary statements with documentary evidence.

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