2018 (12) TMI 519 - AT - Income Tax

Unexplained cash credits u/s 68 - bogus long term capital gain - exempt u/s 10(38) denied - Held that - Taking into consideration the facts and circumstances of the case and the circumstances that the assessee specifically requested for cross-examination of the deponents whose statements were the basis of addition by the AO and also the report of the Investigation Directorate, Kolkata for rebuttal; from the judicial decisions cited, we find that the issue for consideration is squarely covered by the orders of the Bengaluru ITAT in the cases of Arvind Kumar Moolchand 2017 (5) TMI 1643 - ITAT BANGALORE and Pukhraj Hasmuchlal 2018 (1) TMI 1406 - ITAT BANGALORE Following the aforesaid orders (supra), we set aside the orders of the AO and restore the matter of treatment of profit declared on sale of shares, claimed as exempt u/s 10(38) of the Act, to the file of the AO to re-adjudicate the issue afresh; after making available to the assessee for rebuttal all documents; including Statements, Investigation Reports, etc., relied upon by Revenue for making the additions/disallowances and providing adequate opportunity to the assessee for cross-examination of persons whose statements are being relied upon. It is accordingly ordered. Consequently, ground No. 2 is disposed off as above.

Issues:
1. Assessment of unexplained cash credits under section 68 of the Income-tax Act, 1961.
2. Violation of principles of natural justice in assessment proceedings.
3. Treatment of income from sale of shares claimed as exempt under section 10(38) of the Act.
4. Liability to pay interest under sections 234B and 234C of the Act.

Assessment of unexplained cash credits under section 68:
The assessee declared income from various sources for the assessment year 2014-15, including Long Term Capital Gains (LTCG) from the sale of shares claimed as exempt under section 10(38) of the Act. However, the Assessing Officer determined the income at a higher amount due to the sale consideration of shares being treated as unexplained cash credits under section 68. The CIT(A) upheld this addition. The assessee challenged this decision, arguing that the provisions of section 68 were wrongly applied as the credit was duly explained. The ITAT considered similar cases and observed that the addition was made without proper basis or opportunity for rebuttal. Consequently, the ITAT set aside the orders of the lower authorities and directed the matter to be re-adjudicated by the Assessing Officer, allowing the assessee to rebut the documents and statements relied upon for the addition.

Violation of principles of natural justice:
The assessee contended that the assessment proceedings were conducted in violation of the principles of natural justice, specifically due to the absence of cross-examination of persons whose statements were used against the assessee. The ITAT acknowledged this argument and emphasized the importance of providing the assessee with an opportunity for rebuttal and cross-examination. The ITAT referred to previous decisions where similar issues were addressed by restoring the matters to the Assessing Officer for proper adjudication, ensuring the assessee's rights to a fair hearing.

Treatment of income from sale of shares claimed as exempt:
The ITAT considered the case in light of similar precedents and found that the issue of treatment of profit from the sale of shares claimed as exempt under section 10(38) was covered by previous decisions. The ITAT relied on judgments where matters were remanded to the Assessing Officer for reevaluation, allowing the assessee to challenge the documents and reports used against them. Consequently, the ITAT set aside the orders of the lower authorities and directed a fresh adjudication by the Assessing Officer, ensuring the assessee's right to rebut the evidence presented.

Liability to pay interest under sections 234B and 234C:
The assessee also raised a ground denying liability to pay interest under sections 234B and 234C of the Act. However, this issue was not specifically addressed in the detailed analysis of the judgment. The ITAT allowed the appeal for the assessment year 2014-15 on procedural grounds, rendering the other grounds raised on merits as academic and not requiring adjudication at that juncture.

This comprehensive analysis highlights the key issues addressed in the legal judgment delivered by the ITAT Bangalore, emphasizing the importance of procedural fairness, proper application of tax provisions, and the right of the assessee to challenge and rebut adverse findings during assessment proceedings.

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