2020 (1) TMI 1562 - AT - Income Tax

Assessment u/s 153A - Proof of valid material found in search - HELD THAT - During the search proceedings record relating thereto being in exclusive custody of the searching officers it is their wish and will which prevails during the fateful period. That it is almost impossible for the assessee to adduce demonstrative evidence of exerting such pressure. The co-ordinate bench of the Tribunal SHRI BASANT BANSAL SHRI ROOP BANSAL 2015 (7) TMI 555 - ITAT JAIPUR while holding so apart from relying upon various decisions of the higher courts has also relied upon the decision of the Tribunal in the case of Dy CIT vs. Pramukh Builders 2007 (7) TMI 638 - ITAT AHMEDABAD wherein it has been held that even in the absence of proof of coercion or pressure the statement by itself cannot be taken as conclusive. Therefore merely in the absence of proof of pressure threat coercion or inducement the statement cannot be held as conclusive and additions cannot be made by solely relying on a statement or a letter. CBDT Letter No.286/2/2003-IT(Inv) dated Oct 3 2003 shows that it is in the notice of the statutory controlling body of the Income Tax Authorities that the revenue officials are used to take confessional statements from the person searched under force pressure or threat and that is why they have made it mandatory that additions solely on the basis on such statements should not be made and that corroborative evidences should be collected or obtained before making such additions. The circular of the CBDT is binding on the revenue officials. In the facts and circumstances of this case when seen in the light of above case laws and CBDT circular additions in this case cannot be said to be justifiably made. So far as the legal question raised by way of additional ground regarding contesting of the impugned addition made / despite the income being offered in the return of income is concerned the issue is squarely covered by the decision of the Coordinate Mumbai Bench of the Tribunal in Shri Pandoo P. Naig 2016 (9) TMI 1062 - ITAT MUMBAI - Decided in favour of assessee.

Issues Involved:
1. Legality of the addition based on surrendered capital gains during the search.
2. Validity of the addition made under Section 153A without incriminating material.
3. Disallowance of claim under Section 10(38) despite similar transactions being accepted in other assessments.
4. Consideration of documentary evidence and case laws.
5. Reliance on single-member judgments over two-member judgments.
6. Application of the theory of human probability and preponderance of probability.
7. Legality of the addition under Section 68.
8. Consideration of compensatory payments to brokers.

Detailed Analysis:

1. Legality of the Addition Based on Surrendered Capital Gains During the Search:
The assessee contested the addition on the grounds that the surrender of capital gains during the search was conditional, subject to no penal action, and with the right to contest taxability. The Tribunal noted that the surrender was made under the impression that the shares traded were penny stocks, manipulated to provide bogus long-term capital gains. The Tribunal found that the Assessing Officer (AO) relied on the report of the Investigation Wing, Kolkata, which indicated that the shares were indeed penny stocks. The Tribunal upheld the addition, stating that the assessee's surrender was voluntary and no new development had occurred to contest the taxability.

2. Validity of the Addition Made Under Section 153A Without Incriminating Material:
The assessee argued that no incriminating material was found during the search, and thus, no addition could be made under Section 153A. The Tribunal referred to various judicial decisions, including CIT vs. Kabul Chawla and Principal CIT vs. Meeta Gutgutia, which held that if no incriminating material is found, additions cannot be made in concluded assessments. The Tribunal noted that the AO relied on the preponderance of probabilities and the report of the Investigation Wing, Kolkata, but no direct incriminating evidence was found. Therefore, the Tribunal ruled in favor of the assessee, stating that the addition under Section 153A was not justified.

3. Disallowance of Claim Under Section 10(38) Despite Similar Transactions Being Accepted in Other Assessments:
The assessee claimed that similar transactions of long-term capital gains were accepted as genuine in the cases of his parents. The Tribunal observed that the AO had rejected the claim under Section 10(38) based on the suspicious nature of the transactions and the weak financial position of the companies involved. The Tribunal upheld the AO's decision, stating that the transactions did not pass the test of human probability and were found to be bogus.

4. Consideration of Documentary Evidence and Case Laws:
The assessee argued that the CIT(A) ignored documentary evidence and case laws supporting his claim. The Tribunal noted that the AO had critically examined the documents and found them to be part of a make-believe story to launder unaccounted money. The Tribunal upheld the AO's decision, stating that mere submission of documents was not enough to prove the genuineness of the transactions.

5. Reliance on Single-Member Judgments Over Two-Member Judgments:
The assessee contended that the CIT(A) relied on a single-member judgment of ITAT, Delhi, ignoring two-member judgments. The Tribunal did not find this argument sufficient to overturn the CIT(A)'s decision, as the addition was based on substantial evidence and the preponderance of probabilities.

6. Application of the Theory of Human Probability and Preponderance of Probability:
The CIT(A) upheld the addition based on the theory of human probability and preponderance of probability, stating that the transactions were highly improbable and unrealistic. The Tribunal agreed with this approach, noting that the AO had substantiated his action to the required level of proof, and the transactions did not reflect genuine business activities.

7. Legality of the Addition Under Section 68:
The AO treated the long-term capital gains as unexplained credits under Section 68, given the suspicious nature of the transactions and the weak financials of the companies involved. The Tribunal upheld this addition, stating that the assessee failed to prove the genuineness of the transactions and the identity and creditworthiness of the buyers.

8. Consideration of Compensatory Payments to Brokers:
The assessee argued that the AO did not bring any evidence of compensatory payments made to brokers. The Tribunal found that the AO had provided sufficient evidence to show that the transactions were part of a scheme to launder unaccounted money, and the lack of direct evidence of compensatory payments did not invalidate the addition.

Conclusion:
The Tribunal ruled in favor of the assessee on the issue of addition under Section 153A without incriminating material, but upheld the AO's decision on other grounds, including the disallowance of the claim under Section 10(38), the legality of the addition under Section 68, and the application of the theory of human probability. The Tribunal emphasized the need for corroborative evidence and the preponderance of probabilities in assessing the genuineness of the transactions.

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