2015 (3) TMI 1338 - AT - Income Tax

Bogus share transaction - Unexplained cash credit for Capital Gains - correct head of income - treatment of gain arising on the transaction of sale purchase of shares - to be assessed under the head income from long term capital gains as per the assessee or income from other sources as determined by the authorities below - Addition on the basis statement of third party and evidence collected by the department - non giving opportunity of being heard as well as cross examining the person concerned - Held that - As decided in case of Smt. Smita P. Patil & Ors. Vs. ACIT 2013 (7) TMI 950 - ITAT PUNE the transaction was with regard to purchase of shares of M/s. Fast Track Entertainment Ltd. which in turn were purchased through the share broker M/s. DPS Shares and Securities Ltd. and the Tribunal had accepted the said transaction as genuine. The transaction of purchase and sale of shares of M/s. Fast Track Entertainment Ltd. was a genuine transaction and the claim of long term capital gain was allowed in the hands of the assessee therein. In the totality of the above we direct the Assessing Officer to compute the income in the hands of the assessee under the head income from long term capital gains . - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 21,96,546/- as unexplained cash credit.
2. Opportunity of being heard and cross-examination.

Issue-wise Detailed Analysis:

1. Addition of Rs. 21,96,546/- as unexplained cash credit:
The main issue in the appeal was the addition of Rs. 21,96,546/- made by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO's addition was based on information received from the Investigation Wing about manipulations in the purchase and sale of shares of Robinson Worldwide Ltd. The AO noted that the assessee purchased 25,000 shares of Robinson Worldwide Ltd. from G.R. Pandya Share Broking Ltd., Mumbai, for Rs. 98,781/- and sold them for Rs. 41,11,565/-, claiming exemption from long-term capital gains under Section 10(38). The AO found discrepancies such as delayed dematerialization of shares and cash payments for purchases, concluding that the transactions were not genuine and represented the introduction of unaccounted money. Consequently, the AO added Rs. 41,11,565/- as unexplained cash credit.

2. Opportunity of being heard and cross-examination:
The assessee argued that the AO erred in making the addition based on third-party statements and evidence collected by the department without providing an opportunity for the assessee to be heard or to cross-examine the concerned person. The assessee contended that the transactions were genuine, supported by documents such as the share certificate, purchase vouchers, and market value evidence. The assessee also highlighted that the investment was reflected in the balance sheet for the assessment year 2004-05 and that the sale proceeds were received through cheques, deposited in the Standard Chartered Bank account.

Judgment Analysis:

CIT(A) Findings:
The CIT(A) upheld the AO's addition, relying on the Mumbai Bench of the Tribunal's decision in Arvind M. Kariya Vs. ACIT. The CIT(A) noted that the appellant failed to rebut the broker's statement about accommodation entries. The CIT(A) found that the delayed dematerialization of shares and cash purchases indicated manipulation, agreeing with the AO that the transactions were not genuine. The CIT(A) also distinguished the appellant's case from other cases cited by the appellant, such as Mukesh Marolia's case, and concluded that the transactions were arranged to launder unaccounted income.

Tribunal's Decision:
The Tribunal reversed the CIT(A)'s order and allowed the assessee's appeal. The Tribunal observed that the assessee provided complete evidence of the purchase and sale of shares, including contract notes, share certificates, and bank confirmations. The Tribunal found that the AO's reliance on third-party statements without establishing a direct connection to the assessee was insufficient. The Tribunal emphasized that the assessee's transactions were recorded in the books of account and supported by documentary evidence. The Tribunal also referred to the Bombay High Court's decision in CIT Vs. Shri Mukesh Ratilal Marolia, which held that genuine purchase and sale transactions recorded in the books could not be treated as unexplained investments. The Tribunal concluded that the gains from the sale of shares should be assessed as long-term capital gains and not as unexplained cash credit.

Conclusion:
The Tribunal directed the AO to compute the income as long-term capital gains, allowing the assessee's appeal. The judgment highlighted the importance of providing an opportunity for cross-examination and the necessity of direct evidence linking the assessee to alleged manipulations. The Tribunal's decision was based on the preponderance of probabilities and the documentary evidence provided by the assessee.