2010 (10) TMI 1208 - AT - Income Tax

Summary

Issues Involved:
1. Validity of additions made by the Assessing Officer based on alleged bogus long-term capital gains.
2. Addition of agricultural income as "Income From Undisclosed Sources."
3. Denial of opportunity to cross-examine the broker.

Summary:

1. Validity of Additions Based on Alleged Bogus Long-Term Capital Gains:
The Assessing Officer (AO) observed that the long-term capital gains (LTCG) declared by the assessee and related parties were bogus. The AO noted that the purchase of shares was facilitated through entities controlled by Shri Narendra R. Shah, who admitted that no actual purchases were made. The AO held that the assessee was in possession of unexplained money equivalent to the suppressed gross sale of shares amounting to Rs. 19,39,063. The AO also made an addition of 5% towards service charges for these transactions.

2. Addition of Agricultural Income as "Income From Undisclosed Sources":
The AO added the agricultural income shown by the assessee and related parties as "Income From Undisclosed Sources" due to the failure to establish the performance of agricultural operations and lack of third-party evidence.

3. Denial of Opportunity to Cross-Examine the Broker:
The assessee contended that the additions were made without furnishing the broker's statement and without allowing the opportunity to cross-examine the broker. The CIT(A) dismissed the appeal, stating that adequate opportunity was provided. However, the Tribunal noted that the assessee was not given the opportunity to cross-examine the broker, which is a fundamental principle of natural justice. The Tribunal cited the Supreme Court's decision in Krishnachand Chellaram Vs CIT(A), 125 ITR 713 (SC), emphasizing that the assessee must be allowed to cross-examine third-party evidence used against them.

Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the matter to the AO for denovo adjudication, ensuring the assessee is afforded a reasonable opportunity to cross-examine the share broker. All appeals were allowed for statistical purposes.

Order Pronounced:
The order was pronounced in the open Court on 27.10.2010.