2022 (11) TMI 1332 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - receipt of sale consideration of sale of listed shares unexplained - unexplained commission expenditure u/s 69C - HELD THAT - In the instant case, a specific request was made for a copy of investigation report as well as copies of statements recorded of different persons. The assessee is noted to have rebutted whatever details were provided by the AO and had sought cross-examination as well. Hence, the facts involved in the present case are noted to be distinguishable from the above case. Further, in respect of the circumstantial evidences the Hon ble Calcutta High Court in Swati Bajaj case 2022 (6) TMI 670 - CALCUTTA HIGH COURT has not disturbed the settled position of law that circumstantial evidences can be looked into only when direct evidences are not available. In the instant case, direct irrefutable evidences were made available to the AO and, therefore, ignoring the direct evidences and jumping to circumstantial evidences is not justified even if one refers to the decision of Hon ble Calcutta High Court. Moreover, as noted by us earlier, this issue at hand is squarely covered by the binding judgments of the Hon ble jurisdictional High Court, in favour of the assessee, and, therefore following the judicial discipline, the order of the Ld. CIT(A) does not require any interference since we have the benefit of guidance on this subject by the Hon‟ble jurisdictional High Court, which is binding upon us. As decided by Ripu Sudan Kundra 2021 (11) TMI 77 - ITAT MUMBAI additions made by the AO was purely based only on suspicion, surmises and conjectures without there being any tangible evidence on record against the assessee and, therefore deleted the same. No infirmity in the order of the Ld. CIT(A) deleting the additions made u/s 68 of the Act and the consequent addition of unexplained commission expenditure made u/s 69 of the Act and uphold to the same. AO has noted that the primary sources of income of the assessee were salary, rental income, other sources and capital gains. The AO has however not been able to bring on record any material or evidence unearthed during search which would reveal as to from which income-earning activity did the assessee derive such unaccounted monies to support his theory that he had routed such unaccounted monies in the guise of bogus capital gains. Before us, the assessee has placed on record copies of the panchnamas, details of cash valuables found, details of documents impounded etc. and the Revenue was unable to point to any specific item or evidence which would lend credence to their case. Although these aspects are not sufficient to draw definite conclusions but coupled with the facts and circumstances discussed in the foregoing, it does lend persuasive value to the case of the assessee. For the above reasons therefore, we do not see any reason to interfere with the order of the Ld. CIT(A) deleting the additions made by the AO u/s 68 69C. Decided in favour of assessee.

Issues Involved:
1. Validity of additions made under sections 68 and 69C of the Income Tax Act, 1961, in the absence of incriminating material.
2. Legitimacy of long-term and short-term capital gains derived from the sale of shares.
3. The relevance and impact of third-party statements and SEBI orders on the assessment.
4. The procedural fairness in the assessment, including the right to cross-examine witnesses.

Detailed Analysis:

1. Validity of Additions under Sections 68 and 69C in Absence of Incriminating Material:

The Tribunal noted that the additions made by the Assessing Officer (AO) for AYs 2012-13 and 2013-14 were not based on any incriminating material found during the search. The AO relied on third-party statements recorded in other proceedings, which were not directly linked to the assessee. The Tribunal emphasized that for unabated assessment years, the AO can reassess income only based on incriminating material found during the search. The Tribunal cited the Hon'ble Delhi High Court's decision in CIT vs Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material unearthed during the search.

2. Legitimacy of Long-Term and Short-Term Capital Gains:

The Tribunal examined the transactions in the shares of various companies and noted that the assessee had furnished all relevant contemporaneous evidence, such as purchase invoices, bank statements, demat accounts, and broker ledgers. The AO's addition of sale proceeds as unexplained cash credit under section 68 and the estimation of unexplained expenditure as commission under section 69C were found to be unsupported by any direct evidence. The Tribunal observed that the AO's reliance on price movements and financial performance of the companies was not sufficient to discredit the transactions, as the assessee had provided legitimate documentation.

3. Relevance and Impact of Third-Party Statements and SEBI Orders:

The Tribunal found that the third-party statements relied upon by the AO did not incriminate the assessee directly, and no opportunity for cross-examination was provided to the assessee. The Tribunal cited the Hon'ble Supreme Court's decision in Andaman Timber Industries, which held that not allowing cross-examination violates the principles of natural justice. Additionally, the SEBI's interim orders, which initially suggested manipulation, were later revoked, and the assessee was exonerated. This subsequent development undermined the basis of the AO's additions.

4. Procedural Fairness in the Assessment:

The Tribunal highlighted the importance of procedural fairness, noting that the AO did not provide the assessee with the opportunity to cross-examine the third-party witnesses whose statements were used against the assessee. The Tribunal reiterated that any adverse material must be confronted with the assessee, and the assessee must be given a chance to rebut the evidence. The Tribunal also noted that no incriminating documents or unaccounted assets were found during the search, which further weakened the AO's case.

Conclusion:

The Tribunal allowed the cross-objections for AYs 2012-13 and 2013-14, holding that the additions made by the AO under sections 68 and 69C were unsustainable in the absence of incriminating material. The appeals of the Revenue for these years were dismissed as infructuous. For AYs 2014-15 and 2015-16, the Tribunal upheld the Ld. CIT(A)'s order deleting the additions, as the assessee had provided sufficient evidence to substantiate the transactions, and the AO's reliance on third-party statements and SEBI's interim orders was found to be flawed. The appeals of the Revenue for these years were also dismissed.

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