2020 (4) TMI 160 - AT - Income Tax

Addition u/s 68 on account of bogus long term capital gain - assessee s claim of Long Term Capital Gains (LTCG) on sale of those shares - HELD THAT - On identical facts and circumstances, the assessee s case is covered by the judgment of Co-ordinate Bench of ITAT Kolkata in the case of Sanjib Kumar Patwari(HUF) 2019 (1) TMI 213 - ITAT KOLKATA evidences in support of the assessee s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the AO was not justified in rejecting the assessee s claim of exemption u/s 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. Ld DR for the Revenue has failed to controvert the findings of the Coordinate Bench (supra) therefore, respectfully following the judgment of the Co-ordinate Bench of ITAT, Kolkata (supra), we deleted the addition - Decided in favour of the assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act on account of bogus long-term capital gain.
2. Validity of the transaction of purchase and sale of shares.
3. Reliance on investigation reports and statements without cross-examination.
4. Admissibility of evidence and documents submitted by the assessee.
5. Jurisdictional precedents and their applicability to the case.

Issue-wise Detailed Analysis:

1. Addition under Section 68 on Account of Bogus Long-Term Capital Gain:
The main grievance of the assessee was the addition of ?38,02,285/- made under Section 68 of the Income Tax Act, treating the long-term capital gain on the sale of shares as bogus. The Assessing Officer (AO) observed that the sharp rise in the value of shares within a short period was not normal, especially when the market trend was negative. The AO concluded that the transactions were non-genuine and treated the sale proceeds as unexplained cash credits under Section 68.

2. Validity of the Transaction of Purchase and Sale of Shares:
The assessee provided various documents, including purchase bills, bank statements, share certificates, Demat statements, and contract notes, to support the genuineness of the transactions. The assessee argued that the transactions were conducted through recognized stock exchanges, and all payments were made through account payee cheques. The assessee contended that the rise in share prices was beyond their control and that the transactions met all the conditions for claiming exemption under Section 10(38) of the Act.

3. Reliance on Investigation Reports and Statements Without Cross-Examination:
The Revenue relied on the statement of Shri Pawan Dalmia and judgments from other cases to support their claim of bogus long-term capital gain. However, the Tribunal noted that the AO did not provide the assessee with an opportunity to cross-examine the witnesses whose statements were used against them. This was deemed a serious flaw, making the order nullity, as per the precedent set by the Hon’ble Calcutta High Court in Eastern Commercial Enterprises.

4. Admissibility of Evidence and Documents Submitted by the Assessee:
The Tribunal acknowledged the plethora of documents and evidence submitted by the assessee, including purchase bills, bank statements, share certificates, Demat statements, and contract notes. The Tribunal found that the AO failed to bring any cogent evidence to show that these documents were false or untrue. The transactions were supported by proper documentation, and the AO's conclusions were based on suspicion rather than concrete evidence.

5. Jurisdictional Precedents and Their Applicability to the Case:
The Tribunal referred to several judgments from the Hon’ble Calcutta High Court and other judicial authorities, which held that transactions supported by proper documentation and conducted through recognized stock exchanges should be considered genuine. The Tribunal emphasized that suspicion, however strong, cannot replace legal evidence. The Tribunal also noted that the SEBI had cleared the shares from allegations of market rigging, further supporting the genuineness of the transactions.

Conclusion:
The Tribunal concluded that the addition made by the AO was based on suspicion and not supported by concrete evidence. The transactions were conducted through recognized stock exchanges and supported by proper documentation. The Tribunal deleted the addition of ?38,02,285/- and allowed the appeal of the assessee. The Tribunal's decision was guided by the principles of natural justice and the requirement for concrete evidence to support any adverse findings.