2019 (3) TMI 1590 - AT - Income Tax

Bogus LTCG - Addition u/s. 68 - penny stock - benami transactions - sale proceeds of equity shares - exemption u/s10(38) denied - HELD THAT - There can hardly be any dispute that assessee have placed on record their identical paper book(s) comprising of relevant purchased bills of shares allotment certified copies contract notes brokerage details etc. As put up a specific query as to whether any of entry operators searched or survey has quoted these assessee s names or not before the Departmental Authorities. There is no such material in the case file indicating search as statement. I find that this co-ordinate bench s decision in Smt. Sangita Jhunjhunwala vs. ITO 2019 (1) TMI 298 - ITAT KOLKATA has deleted similar bogus LTCG Coming to brokers statement recorded in presence of the assessee find that the said broker nowhere supported the Revenue s case alleging any cash component in the relevant transactions. So is the outcome of Revenue s latter appeals alleging assessees concession as the Assessing Officer took recourse to a detailed adjudication in support of the impugned addition(s). This tribunal s co-ordinate bench s decision in Canara Bank vs. JCIT 2017 (11) TMI 1425 - ITAT BANGALORE holds that the estopple principle does not apply in income tax proceedings. I therefore reject Revenue s arguments in support of impugned addition(s) - Decided in favour of assessee.

Issues Involved:
1. Genuineness and creditworthiness of assessees' Long Term Capital Gains (LTCG) claims as exempt under Section 10(38) of the Income Tax Act.
2. Treatment of LTCG as bogus unexplained cash credits under Section 68 of the Income Tax Act.
3. Adherence to principles of natural justice and opportunity for cross-examination.
4. Consideration of documentary evidence and circumstantial evidence in supporting or refuting the claims.

Detailed Analysis:

1. Genuineness and Creditworthiness of Assessees' LTCG Claims:
The primary issue in all the appeals was the genuineness and creditworthiness of the assessees' claims of LTCG as exempt under Section 10(38) of the Income Tax Act. The assessees had claimed to have derived LTCG from the transfer of shares held in various scripts, supported by documentary evidence such as bank statements, ledger accounts, broker’s details, and particulars of the concerned scripts. However, the Assessing Officer (AO) treated these claims as unexplained cash credits under Section 68, citing lack of genuineness and creditworthiness. The AO's conclusion was based on the performance of the scripts during the holding period, business activities of the companies, balance sheets, profit and loss accounts, and script price movements, suggesting collusion with entry operators to claim bogus LTCG as exempt.

2. Treatment of LTCG as Bogus Unexplained Cash Credits:
The AO's decision to treat the LTCG as bogus unexplained cash credits under Section 68 was upheld by the Commissioner of Income-tax (Appeals) [CIT(A)], who noted that the transactions were merely accommodation entries for bogus LTCG. The CIT(A) emphasized the lack of business activity in the companies whose shares were traded, the artificial rise and fall in share prices, and the findings of the SEBI investigation into abnormal price increases and trading suspensions. The CIT(A) relied on various judicial precedents, including the Supreme Court's decisions in CIT vs. P Mohankala and Sumati Dayal vs. CIT, which highlighted the importance of human probabilities and surrounding circumstances in assessing the genuineness of transactions.

3. Adherence to Principles of Natural Justice and Opportunity for Cross-Examination:
The assessees contended that the AO's conclusions violated the principles of natural justice as they were not given an opportunity for cross-examination. The Tribunal acknowledged this contention, noting that evidence collected from third parties cannot be used against an assessee without providing an opportunity for cross-examination. The Tribunal emphasized that the AO must confront the assessee with any material or evidence relied upon for making additions and allow the assessee to rebut the same.

4. Consideration of Documentary Evidence and Circumstantial Evidence:
The Tribunal found that the assessees had placed sufficient documentary evidence on record, including purchase bills, allotment certificates, contract notes, brokerage details, and demat statements, to support their LTCG claims. The Tribunal noted that the AO had not brought any specific evidence to prove that the transactions were collusive or that the assessees were involved in any manipulation. The Tribunal referred to various judicial precedents, including decisions of the Calcutta High Court and other High Courts, which held that suspicion, however strong, cannot replace concrete evidence. The Tribunal concluded that the documentary evidence provided by the assessees was sufficient to establish the genuineness of the transactions, and the AO's reliance on general observations and suspicion was not justified.

Conclusion:
The Tribunal allowed the appeals, deleting the additions made by the AO under Section 68 and holding that the assessees' LTCG claims were genuine and supported by sufficient documentary evidence. The Tribunal emphasized the importance of adhering to principles of natural justice and providing an opportunity for cross-examination. The Tribunal's decision was based on a detailed analysis of the documentary evidence and judicial precedents, rejecting the AO's conclusions based on suspicion and general observations.

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