2018 (3) TMI 1639 - AT - Income Tax

Addition u/s 68 - long term capital gain claimed as exempt income u/s 10(38) was a bogus accommodation entry - Held that - Assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. The holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. The order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account. Addition u/s 69C - addition on account of notional commission which is consequential to the issue of treatment of long term capital gain as bogus - Held that - nce, we have reversed the finding of the AO on the issue of treatment of long term capital gain as bogus then, the consequent addition made by the AO on notional commission is not sustainable. Accordingly, the same is deleted. Surrender of undisclosed income from business and profession - treated by the AO as income from other sources - Held that - It is pertinent to note that this treatment of income as income from other sources instead of business income is Revenue neutral as there was no issue of any loss to be carried forward. AO has accepted this income as business income for the assessment year 2012-13 & 2013-14 the AO is not permitted to take a different and contrary decision which is against the rule of consistency. Since this action of the AO is not having any Revenue effect, therefore, in the facts and circumstances of the case when the AO has accepted the nature of income as business income in all the earlier assessment years passed u/s 143(3) r.w.s. 153A. AO cannot take a different and contrary stand for the assessment year under consideration. Hence, in view of the rule of consistency we direct the AO to treat the income offered by the assessee as business income. - Decided in favour of assessee.

Issues Involved:
1. Addition of ?1,32,56,113/- u/s 68 of the I.T. Act, 1961.
2. Denial of opportunity for cross-examination.
3. Reliance on retracted statements.
4. Reliance on SEBI report without opportunity of being heard.
5. Observations on procedural and documentary discrepancies.
6. Addition of ?2,65,122/- u/s 69C of the I.T. Act, 1961.
7. Treatment of additional business income as "Income from other sources".

Detailed Analysis:

1. Addition of ?1,32,56,113/- u/s 68 of the I.T. Act, 1961:
The assessee declared long-term capital gain (LTCG) of ?1,32,56,113/- from the sale of shares of M/s Rutron International Ltd. and claimed it as exempt income u/s 10(38). The AO treated this LTCG as bogus based on the statement of Shri Anil Agarwal, who was accused of providing bogus LTCG entries. The assessee provided evidence of the purchase and sale of shares, including bank statements, allotment letters, and dematerialization records, which were not disputed by the AO. The Tribunal found that the shares were allotted directly by the company and not through any intermediary, thus ruling out the possibility of manipulation. The Tribunal held that the AO's addition was based on mere suspicion and surmises without any corroborative evidence and deleted the addition.

2. Denial of Opportunity for Cross-Examination:
The assessee requested the cross-examination of Shri Anil Agarwal, whose statement was the basis for the AO's addition. The AO denied this request. The Tribunal, citing the Supreme Court's decision in CCE vs. Andaman Timber Industries, held that not allowing cross-examination violated the principles of natural justice, rendering the AO's order unsustainable.

3. Reliance on Retracted Statements:
The Tribunal noted that Shri Anil Agarwal had retracted his statement, and the assessee had provided an affidavit to this effect. The Tribunal emphasized that the AO's reliance on a retracted statement without any corroborative evidence was insufficient to justify the addition.

4. Reliance on SEBI Report Without Opportunity of Being Heard:
The CIT(A) relied on a SEBI report, which was not discussed during the assessment proceedings, and the assessee was not given an opportunity to respond. The Tribunal held that this reliance without providing the assessee an opportunity to be heard was bad in law.

5. Observations on Procedural and Documentary Discrepancies:
The CIT(A) made several observations regarding procedural and documentary discrepancies, such as the absence of distinctive numbers on the share allotment letter and delays in crediting shares to the DMAT account. The Tribunal found that these observations did not negate the genuineness of the transactions, as the assessee had provided substantial evidence to support the purchase and sale of shares.

6. Addition of ?2,65,122/- u/s 69C of the I.T. Act, 1961:
The AO made an addition of ?2,65,122/- on the assumption that the assessee paid a commission to the entry provider. The Tribunal, having found the LTCG to be genuine, held that the consequential addition of notional commission was also unsustainable and deleted it.

7. Treatment of Additional Business Income as "Income from Other Sources":
For the assessment year 2014-15, the AO treated the additional business income declared by the assessee as "Income from other sources" instead of business income. The Tribunal noted that the AO had accepted this income as business income for the previous assessment years 2012-13 and 2013-14. Applying the rule of consistency, the Tribunal directed the AO to treat the income as business income for the assessment year 2014-15 as well.

Conclusion:
The Tribunal allowed both appeals of the assessee, deleting the additions made by the AO and directing the AO to treat the additional business income as business income. The Tribunal emphasized the importance of corroborative evidence and adherence to principles of natural justice in assessment proceedings.

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