2018 (11) TMI 1723 - AT - Income Tax

Validity of assessment order - Suspicious Transaction relating to Long Term Capital Gain on Sale of Shares - Assessment was completed relying on the statements of third party (which is not directly connected with the assessee) - opportunity of cross examination not provided to assessee - the assessee had claimed exemption u/s 10(38) of the Act on account of sale of securities - principles of natural justice. HELD THAT - AO has completed the assessment by relying on the statement of Sh. Nikhil Jain recorded during the course of survey proceedings carried out at M/s Abhinandan Stock Broking Pvt. Ltd. by DDIT (Inv.)., Kolkata wherein he has admitted that he is engaged in providing bogus entry through penny stocks including the scrip of M/s Kappac Pharma Ltd. However, neither M/s Abhinandan Stock Broking Pvt. Ltd. nor Sh. Nikhil Jain is directly connected with the assessee as apparent from the documents of purchase and sale of shares - Thus relying on the statement of third party which is not directly connected with the assessee is illegal and bad in law - Further from the assessment order wherein it was stated that assessee has demanded an opportunity to cross examine Sh. Nikhil Jain vide its letter dated 07.12.2016 which was not provided to him, which is against the law settled by the Hon ble Supreme Court of India in the case of Andaman Timber Industries vs. CIT 2015 (10) TMI 442 - SUPREME COURT . Further, even the Ld. CIT(A) in the impugned order has stated that assessee was provided the statement of Nikhil Jain and others, used against him, which is nowhere mentioned in the assessment order and is totally wrong and even otherwise no opportunity of cross examination Sh. Nikhil Jain was provided to the assessee, which fact was not at all considered by the Ld. CIT(A) - further, in the statement of Sh. Narendra Balasia, Director of M/s SMC Global Securities Ltd. through which assessee has opened DMAT account, nowhere the name of assessee is mentioned. AO has stated that an opportunity to cross examine Sh. Narendra Balasia in the office of DDIT (Inv.), Kolkata, at any time on or before 16.12.2016 is provided to assessee but no such communication was received from DDIT (Inv.), Kolkata as to on what date assessee should appear before him for cross examination. In fact the AO has tried to shift his onus for cross examination to DDIT (Inv.), Kolkata which is not tenable under the law as it is the AO who has to decide the case and not DDIT (Inv.), Kolkata. The addition in dispute is deleted - Appeal of the assessee allowed.

Summary

Issues:
Assessment based on third-party statements without opportunity for cross-examination.

Analysis:
The appeal was against the order of the Ld. Commissioner of Income Tax [Appeals] pertaining to the assessment year 2014-15. The case involved the assessee claiming exemption under section 10(38) of the Income Tax Act on the sale of securities. The assessment was completed under section 143(3) of the Act, resulting in an assessed income of &8377; 42,15,180/-. The assessee contended that the assessment was based on the statement of a third party, Sh. Nikhil Jain, without providing an opportunity for cross-examination, which was a violation of natural justice principles. The appellant argued that the AO relied on statements not directly connected to the assessee, making it illegal and against the law. The appellant referenced a similar case before the ITAT, SMC, Delhi Bench, where the addition was deleted due to lack of opportunity for cross-examination, citing a violation of natural justice principles and a Supreme Court decision. The appellant requested to follow the decision in that case and allow the appeal.

The Tribunal noted that the assessment was indeed based on the statement of Sh. Nikhil Jain, recorded during survey proceedings, without providing the assessee an opportunity for cross-examination. The Tribunal found that neither M/s Abhinandan Stock Broking Pvt. Ltd. nor Sh. Nikhil Jain was directly connected to the assessee, rendering the reliance on third-party statements illegal and against the law. The Tribunal emphasized that denying the opportunity for cross-examination was a violation of principles of natural justice, as established by a Supreme Court decision. Additionally, the Tribunal highlighted a similar case before the ITAT, SMC, Delhi Bench, where the addition was deleted due to the same issue of lack of cross-examination opportunity. Following the precedent and legal principles, the Tribunal deleted the addition in dispute and allowed the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the importance of providing an opportunity for cross-examination in assessments based on third-party statements. The decision was based on upholding principles of natural justice and following legal precedents, ultimately leading to the deletion of the disputed addition and allowing the appeal filed by the assessee.