2018 (8) TMI 1759 - AT - Income Tax

Disallowing long term capital gain treating the same as unexplained cash credit u/s 68 - denial of natural justice - denying opportunity of being heard to the assessee - Held that - AO has botched up the enquiry by denying opportunity of being heard to the assessee who has not been allowed to cross examine the witnesses. AO has also not enquired from the Stock Exchange so as to work out if by applying the rule of circuit breaker the appreciation in shares to the tune of 29 times or 40 times in a short period is feasible, rather AO has merely relied upon report of Investigation Wing. No doubt, SEBI has not drawn any adverse inference in case of Unnao Industries Ltd. company but that report is against the company and not the individual who have been instrumental in getting the transactions in question matured, but AO has also not associated any of the brokers involved in the transactions of shares purchased by the assessee and subsequent sale thereof. AO has based the assessment order on preponderance of probabilities by relying upon circumstantial evidence by entirely ignoring direct evidence available in this case. AO has also not made enquiry from the father of the assessee who was Financial Adviser for the sale and purchase of the shares in question by the assessee as disclosed in the statement extracted in the assessment order. AO has also ignored the fact that there cannot be more than 5% increase in the value of shares in a day as per circuit breaker rule - set aside to the AO to decide afresh by providing an opportunity of being heard to the assessee in the light of the observations made herein above. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of long term capital gain as unexplained cash credit under section 68 of the Income Tax Act, 1961.

Analysis:
1. The appellant sought to set aside the order disallowing long term capital gain, alleging it was earned from the sale of penny stock. The CIT(A) confirmed the action without giving the assessee an opportunity to rebut the information. The appellant argued that relevant details were submitted, but not considered. The CIT(A) failed to appreciate that the onus under section 68 was discharged, and no material supported the contention of treating the capital gains as unexplained cash credits.

2. The Assessing Officer disallowed the long term capital gain, treating it as unexplained cash credit due to alleged bogus transactions by the assessee. The AO concluded that the assessee was not a genuine investor, leading to the disallowance of the capital gain and its addition to the total income.

3. The assessee appealed to the CIT(A), who upheld the addition. The matter was then brought before the Tribunal through the present appeal.

4. The Tribunal heard the arguments of both parties, reviewed the documents and orders of the revenue authorities, and considered the facts of the case.

5. The appellant's representative argued that the assessment was solely based on the Investigation Wing's report, without independent inquiry. The appellant purchased shares through banking channels with STT payments, which were not considered. SEBI did not raise concerns about one of the companies involved, and all relevant data was provided but disregarded.

6. The Revenue's representative supported the AO's and CIT(A)'s decision, citing circumstantial evidence indicating suspicious transactions by the assessee.

7. The AO's assessment relied on the Investigation Wing's report, deeming the capital gains as a result of bogus transactions. The AO did not allow the assessee to cross-examine witnesses or conduct a thorough inquiry.

8. The AO failed to conduct a proper investigation, did not inquire with the Stock Exchange, and based the assessment on circumstantial evidence, ignoring direct evidence and not involving key individuals in the transactions.

9. The Tribunal found that the AO's inquiry was flawed, and the case needed to be remanded for a fresh decision, allowing the assessee an opportunity to be heard and considering all observations. The appeal was allowed for statistical purposes.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, the assessment by the revenue authorities, and the Tribunal's decision to remand the case for a fresh assessment.