2018 (12) TMI 1560 - AT - Income Tax

Unexplained cash credits u/s 68 - bogus Long Term Capital Gains - share price rigging - Held that - We afforded sufficient opportunity to the Revenue for indicating any material on record indicating the assessee s nexus with the alleged share price rigging or her name having specifically mentioned in any search statement. There is no such material forthcoming from the case file. We therefore adopt the detailed reasoning in SMT. NALINI BOTHRA C/O S.L. KOCHAR VERSUS INCOME TAX OFFICER, WARD-35 (3) , KOLKATA 2018 (11) TMI 870 - ITAT KOLKATA mutatis mutandis to delete the impugned addition of unexplained LTCG. We adopt the above detailed reasoning mutatis mutandis to conclude that CIT(A) has rightly reversed assessment findings treating the assessee s impugned LTCG to be unexplained cash credits - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the CIT(A) erred in reversing the Assessing Officer's action treating the assessee's Long Term Capital Gains (LTCG) as bogus and unexplained cash credits under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Reversal of Assessing Officer's Decision on LTCG

The Revenue's sole substantive ground in this appeal is that the CIT(A) erred in reversing the Assessing Officer's (AO) action of treating the assessee's alleged LTCG of ?3,84,74,960 as bogus and unexplained cash credits under Section 68 of the Income Tax Act, 1961. The CIT(A)'s detailed discussion on the issue includes the following key points:

1. Assessment and Documentation: The AO, during the scrutiny assessment, required the assessee to justify the LTCG claim under Section 10(38). The assessee provided complete details, including allotment advice, share application form, bank statements, and Demat account statements. Despite this, the AO issued a show-cause letter proposing to add the sale of shares as unexplained cash credits.

2. Lack of Evidence from AO: The CIT(A) noted that the AO did not bring any cogent evidence to prove that there was no actual purchase and sale of shares. The transactions were conducted through an online trading system and registered share brokers, with proper documentation and banking channels. The AO's addition was based on a general report from the Investigation Wing, Kolkata, without specific evidence against the assessee.

3. Principles of Natural Justice: The CIT(A) emphasized that the AO violated principles of natural justice by not providing the assessee with documentary evidence from SEBI or allowing cross-examination of witnesses whose statements were relied upon. This was deemed a clear violation of the principles of natural justice.

4. Judicial Precedents: The CIT(A) referred to several judicial precedents, including the Calcutta High Court's decision in CIT Vs. Eastern Commercial Enterprises, which upheld the right to cross-examine witnesses as an indispensable right. Other cases cited include CIT Vs Arun Kumar Agarwal (HUF) and CIT Vs Bhagwati Prasad Agarwal, which supported the assessee's position that transactions were genuine and documented.

5. Absence of Specific Evidence: The CIT(A) found that the AO's findings were based on suspicion and general reports without specific evidence linking the assessee to any bogus transactions. The AO failed to establish any collusion or manipulation by the assessee in the share transactions.

6. Tribunal's Consistent Stance: The ITAT Kolkata has consistently held that decisions should be based on evidence and not on generalizations, suspicion, or conjectures. The tribunal's decisions in similar cases, such as D.D. Agarwal (HUF) vs. ITO and Smt. Nalini Bothra vs. ITO, supported the assessee's claim of genuine LTCG.

7. Human Probabilities and Legal Evidence: The tribunal emphasized that any explanation in income tax proceedings should be appreciated in light of human probabilities and legal evidence. The AO's reliance on human probabilities and general reports without concrete evidence was not sufficient to disallow the assessee's claim.

8. Final Decision: The tribunal concluded that the CIT(A) was correct in reversing the AO's decision and directed the deletion of the addition of ?3,84,74,960 as unexplained cash credits. The Revenue's appeal was dismissed.

Conclusion:
The ITAT Kolkata upheld the CIT(A)'s decision to reverse the AO's action of treating the assessee's LTCG as bogus and unexplained cash credits under Section 68. The tribunal emphasized the importance of specific evidence, adherence to principles of natural justice, and reliance on judicial precedents, thereby dismissing the Revenue's appeal.