2017 (5) TMI 1777 - AT - Income Tax

Characterization of income - Additions of the amounts of sale proceeds of shares declared as long term capital gain, treated by the AO as unexplained cash credit under section 68 - addition of unexplained money used for payment of commission for obtaining the said long term capital gain - HELD THAT - We find that the assessee had purchased the shares of Robinson Worldwide Trade Limited for which it has submitted the purchase bills ledger account of the purchase broker which clearly reveals that the assessee had earned speculation profit which was used for the purchase of shares of Robinson Worldwide Trade Limited. The said speculation profit and even the purchases have been accepted by the Department while passing the order u/s. 153A r.w.s. 143(3) of the Act for A. Y. 2004-05 and A. Y. 2005-06. Originally, the shares were issued in physical format which got transferred in assessee's name on 14.06.2003 and 20.04.2004. The said fact can be ascertained from the letter received by the assessee from Robinson Worldwide Trade Limited. The shares of the assessee were consolidated and Jumbo share certificate was issued. Thereafter, the said shares were dematerialized to de-mat account of the assessee held with HDFC Bank. Such demated shares were sold through AKD Securities Pvt. Ltd. as can be seen from the sale bills and the payments for the sale of said shares have been received through account payee cheques. Even for assessment years 2004-05, the assessee has submitted various documentary evidences, which have not been considered by the AO. As regards to the reliance placed by the AO on the cross-examination conducted in the case of the assessee, we find that the assessee and the director of the broker DPS Shares Securities Pvt. Ltd. have nowhere specifically stated in their respective statements that they have issued accommodation entries to the assessee. There is no link between the statement and the assessee. They have simply stated that they issued accommodation entries on instructions of certain third parties. Further, no statements of such third parties have been confronted and in such a case, no question of cross-examination of the broker arises when there is no specific statement with regards to the assessee. Even otherwise, the alleged cross-examination as held was not conducted in context of the assessee and during the course of cross-examination proceedings, the purchase documents which have been stated that the accommodation bills pertain to Shri Brijesh D. Shah and which do not belong to the assessee. Thus as per case law of coordinate Bench of Mumbai Tribunal in the case of Late Smt. Kanchanben J. Shah 2016 (2) TMI 1210 - ITAT MUMBAI which is identical on the facts of the present case, respectfully following the same, we allow all these three appeals of the assessee.

Summary

Issues Involved:
1. Legality of additions made by the AO under section 153A read with section 143(3).
2. Treatment of sale proceeds of shares as unexplained cash credit under section 68.
3. Addition of unexplained money used for payment of commission for obtaining long-term capital gain.

Issue-Wise Detailed Analysis:

1. Legality of Additions Made by the AO:
The assessee contested the legality of the additions made by the AO under section 153A read with section 143(3). The AO conducted assessments for AY 2004-05, 2005-06, and 2006-07, treating the long-term capital gains from the sale of shares as artificial and added them as income from undisclosed sources. The AO reasoned that the assessee failed to produce the parties from whom shares were purchased and could not prove the genuineness of the transactions. The CIT(A) confirmed the AO's action.

2. Treatment of Sale Proceeds of Shares as Unexplained Cash Credit:
The AO treated the entire sale proceeds of shares amounting to ?57,71,395/- as unexplained cash credit under section 68 of the IT Act. The AO noted discrepancies in the purchase transactions and stated that the assessee could not provide evidence of physical delivery of shares. The CIT(A) upheld the AO's decision, citing the statement of the broker, who admitted issuing accommodation bills and not conducting actual transactions. The Tribunal found that the assessee provided substantial documentary evidence to support the genuineness of the transactions, such as purchase bills, ledger accounts, share certificates, and demat statements. The Tribunal also noted that the broker's statements were not specifically against the assessee and lacked credibility.

3. Addition of Unexplained Money Used for Payment of Commission:
The AO made an additional 5% commission on the sale proceeds, treating it as unexplained money used for obtaining artificial capital gains. The CIT(A) confirmed this addition. The Tribunal, however, found that the AO's reliance on the broker's statement was not justified as the statements were general and did not directly implicate the assessee. The Tribunal also highlighted that the assessee was not given an opportunity to cross-examine the broker, which violated principles of natural justice.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the AO to accept the long-term capital gains as returned by the assessee. The Tribunal's decision was based on the substantial documentary evidence provided by the assessee and the lack of credible evidence from the AO to prove that the transactions were bogus. The Tribunal also emphasized the importance of cross-examination and the credibility of statements from interested parties.