2018 (4) TMI 1839 - AT - Income Tax

Bogus LTCG - exemption u/s 10(38) - HELD THAT - Shares were allotted in a private placement by the company at par which were dematerialized and thereafter sold by the assessee. The finding of the AO in the case of the assessee is based merely on suspicion and surmises without bringing any cogent material to establish that the assessee has introduced his unaccounted income in the shape of long term capital gain. Transaction in the case is not a trading of the shares through brokers but it was an allotment by the company in a private placement and thereafter the shares were dematerialized and duly reflected in the demat account of the assessee, therefore, the holding of the shares in the demat account and subsequently transfer of the same from the demat account cannot be doubted and consequently the transaction of sale cannot be held as bogus. In the absence of any material to show that the assessee has paid the amount of capital gain as his unaccounted income to convert the same to the exempt income, the entire transaction of sale of shares cannot be held as bogus. This issue in favour of the assessee and allow the claim of the assessee. The orders of the authorities below qua this issue are set aside. - Decided in favour of assessee.

Issues Involved:
1. Addition of ?49,14,686/- as undisclosed income.
2. Denial of opportunity for cross-examination.

Detailed Analysis:

1. Addition of ?49,14,686/- as Undisclosed Income:
The primary issue in this case revolves around the addition of ?49,14,686/- to the assessee's income, which the Assessing Officer (AO) treated as undisclosed income. The assessee had declared this amount as long-term capital gain from the sale of shares, claiming it as exempt under section 10(38) of the Income Tax Act, 1961.

The AO's decision was based on information from the Investigation Wing, Kolkata, which indicated that certain brokers, including one Anand Sharma, were involved in providing accommodation entries for bogus long-term capital gains. The AO specifically noted that the assessee had sold shares of M/s. Luminaire Technologies Ltd., which had amalgamated with M/s. Paridhi Properties Ltd., and that these transactions were suspected to be accommodation entries.

The assessee countered this by providing detailed evidence of the transactions, including bank statements, share certificates, and dematerialization records. The assessee argued that the shares were purchased legitimately and sold through recognized stock exchanges, thereby making the transactions genuine.

The Tribunal considered these submissions and noted that the assessee had provided substantial evidence supporting the purchase and sale of shares. The Tribunal emphasized that the holding of shares in the demat account and the subsequent sale could not be considered bogus. The Tribunal also referenced previous judicial decisions, including those by the Hon’ble Jurisdictional High Court and the Hon’ble Supreme Court, which supported the assessee’s position.

The Tribunal concluded that the AO's addition was based on mere suspicion and surmises without any concrete evidence. Therefore, the addition of ?49,14,686/- as undisclosed income was not sustainable and was deleted.

2. Denial of Opportunity for Cross-Examination:
The second issue was the denial of the opportunity for cross-examination. The AO had relied on the statement of Shri Deepak Patwari, recorded by the Investigation Wing, without allowing the assessee to cross-examine him. The assessee argued that this denial violated the principles of natural justice.

The Tribunal agreed with the assessee, citing the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE, which held that not allowing cross-examination of witnesses whose statements were relied upon for making an assessment was a serious flaw. The Tribunal noted that the AO had failed to provide the opportunity for cross-examination, thereby making the assessment order unsustainable in law.

The Tribunal reiterated that the assessment based on statements without cross-examination violated the principles of natural justice and could not be upheld. Consequently, the Tribunal set aside the orders of the authorities below on this ground as well.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of ?49,14,686/- as undisclosed income and holding that the denial of the opportunity for cross-examination rendered the assessment order unsustainable. The Tribunal's decision was based on the substantial evidence provided by the assessee and the adherence to principles of natural justice.

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