2018 (10) TMI 1969 - AT - Income Tax

Bogus long term capital gain - Addition based on circumstantial evidence and human probabilities - addition of the entire sale proceeds of the shares as income and rejected the claim of exemption made u/s 10(38) - evidence produced by the assessee in support of the genuineness of the transaction was rejected - HELD THAT - The overwhelming evidence filed by the assessee remains unchallenged and uncontroverted. The entire conclusions drawn by the revenue authorities, are based on a common report of the Director of Investigation, Kolkata, which was general in nature and not specific to any assessee. The assessee was not confronted with any statement or material alleged to be the basis of the report of the Investigation Wing of the department and which were the basis on which conclusion were drawn against the assessee. Copy of the report was also not given. Under the circumstances, in a number of cases this bench of the Tribunal has consistently held that decision in all such cases should be based on evidence and not on generalisation, human probabilities, suspicion, conjectures and surmises. Appeal of assessee allowed.

Summary

Issues:
Whether the Assessing Officer rightly rejected the claim of Long Term Capital Gains on shares?
Whether the ld. CIT(A) was correct in upholding the addition based on circumstantial evidence?
Whether the evidence produced by the assessee was properly considered by the revenue authorities?
Whether the decision should be based on evidence rather than generalization, human probabilities, suspicion, conjectures, and surmises?
Whether the case law cited by the assessee is applicable to the present case?

Analysis:
1. The primary issue in this case is whether the Assessing Officer was justified in rejecting the claim of the assessee regarding Long Term Capital Gains on the purchase and sale of shares of M/s. NCL Research & Financial Services Ltd. The AO concluded that the assessee's claim was bogus based on general observations and a common report. The entire sale proceeds were added as income, and the exemption under section 10(38) of the Income Tax Act was denied. The evidence supporting the genuineness of the transaction was dismissed.

2. The second issue pertains to the ld. CIT(A)'s decision to uphold the addition based on circumstantial evidence and human probabilities. The ld. CIT(A) relied on "rules of suspicious transaction" without any direct material to counter the evidence provided by the assessee. The conclusions drawn were primarily based on a general report from the Director of Investigation, Kolkata, which lacked specificity and was not individualized to the assessee.

3. The third issue involves the consideration of evidence by the revenue authorities. The evidence presented by the assessee in support of the transaction's genuineness remained unchallenged and uncontroverted. Despite the lack of direct material contradicting the assessee's evidence, the authorities relied on generalization rather than specific evidence.

4. The fourth issue addresses the importance of basing decisions on evidence rather than generalization, human probabilities, suspicion, conjectures, and surmises. The Tribunal emphasized the need for specific evidence in each case and highlighted the inconsistency in the revenue authorities' approach. Previous case law decisions were cited to support the requirement for evidence-based decisions.

5. The final issue concerns the applicability of case law cited by the assessee to the present case. The Tribunal acknowledged the relevance of the cited decisions from various High Courts and the ITAT. The ld. Departmental Representative failed to counter the applicability of the case law to the current situation.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the need for decisions based on concrete evidence rather than general assumptions. The addition in question was deleted, and both appeals of the assessee were allowed, following the precedent set by previous case law decisions.