2019 (12) TMI 811 - AT - Income Tax

Bogus LTCG/losses derived from transfer of shares - Unexplained cash credits u/s 68 - Diversified views - HELD THAT - Addition on involving an assessee s profits derived from sale of shares can be declined only in absence of the supportive evidence on record whereas hon ble Bombay high court has gone by circumstantial evidence. Rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax. Hon ble high court s have adopted varying opinions qua correctness of identical long term capital gains. In other words, hon ble Calcutta high court is of the view that such an addition on involving an assessee s profits derived from sale of shares can be declined only in absence of the supportive evidence on record whereas hon ble Bombay high court has gone by circumstantial evidence. We quote hon ble apex court s judgment in CIT vs. Vegetable Products 1973 (1) TMI 1 - SUPREME COURT in these peculiar facts and adopt the view of hon ble Calcutta high court in taxpayer s favour. We further make it clear that hon ble jurisdictional high court has not decided the issue till date. The impugned additions are deleted therefore. - Decided in favour of assessee.

Issues Involved:
1. Treatment of Long-Term Capital Gains (LTCG) as bogus and unexplained cash credits under Section 68 of the Income Tax Act, 1961.
2. Validity of the evidence provided by the assessees to support their LTCG claims.
3. Reliance on general observations and reports versus specific evidence in assessing the genuineness of transactions.
4. Application of principles of natural justice, including the right to cross-examine witnesses.
5. Precedent cases and their applicability to the current case.

Detailed Analysis:

1. Treatment of LTCG as Bogus and Unexplained Cash Credits:
The lower authorities treated the assessees' LTCG derived from the transfer of shares in Essar (India) Ltd. and NCL Research & Financial Services Ltd. as bogus, thereby categorizing them as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) concluded that the shares were part of a stock market price rigging scheme involving various entry operators, and the companies in question did not have a sound financial position to justify the LTCG.

2. Validity of Evidence Provided by Assessees:
The assessees declared LTCG of ?49,17,408 and ?25,02,549, respectively, supported by documentation such as share purchase bills, contract notes, bank statements, demat statements, and broker ledger accounts. The AO, however, relied on general observations and reports without specifically addressing or disproving the evidence provided by the assessees.

3. Reliance on General Observations Versus Specific Evidence:
The Tribunal noted that the AO's conclusions were based on general reports and modus operandi rather than specific evidence against the assessees. The Tribunal emphasized that the evidence provided by the assessees, including transaction records and financial documents, was not directly challenged or disproven by the AO. The Tribunal cited several precedents where similar cases were decided in favor of the assessee due to the lack of specific adverse evidence.

4. Application of Principles of Natural Justice:
The Tribunal highlighted the importance of adhering to principles of natural justice, including the right to cross-examine witnesses. It was noted that the AO did not provide the assessees with the opportunity to cross-examine individuals whose statements were used against them, nor were the assessees confronted with the specific evidence from the investigation report. This lack of procedural fairness was deemed a significant flaw.

5. Precedent Cases:
The Tribunal referred to multiple precedent cases where similar issues were adjudicated in favor of the assessees. Notable cases included:
- Sanjeev Goel (HUF) vs. ITO: The Tribunal found that the AO's reliance on general observations and reports without specific evidence was insufficient to disprove the assessees' claims.
- Gautam Kumar Pincha vs. ITO: The Tribunal emphasized the need for concrete evidence rather than suspicion or preponderance of probabilities.
- CIT vs. Shreyashi Ganguli: The Calcutta High Court upheld the assessee's claim of genuine transactions based on documentary evidence.
- PCIT vs. Teju Rohitkumar Kapadia: The Supreme Court reiterated that transactions supported by documentary evidence should not be dismissed based on suspicion alone.

Conclusion:
The Tribunal allowed the appeals, concluding that the AO's reliance on general reports and observations without specific evidence was insufficient to disprove the assessees' claims of genuine LTCG. The Tribunal emphasized the need for adherence to principles of natural justice and the importance of specific evidence in such cases. The impugned additions under Section 68 were deleted, and the appeals were allowed in favor of the assessees.

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