2020 (8) TMI 405 - AT - Income Tax

Unaccounted/Unexplained Income - bogus LTCG - onus of proving the genuineness of the transactions - HELD THAT - There is nothing on record which establishes the fact that the assessee was acquainted with Shri Vipul Bhat or any of his entities and secondly, the onus casted upon assessee to prove the genuineness of the transactions was already discharged by the assessee. Shri Vipul Bhat, in his statement, stated that one Shri Sandeep Maroo acted as intermediary who introduced Vardhan family to him. No further investigations have been carried out to establish this vital link between the assessee and Shri Vipul Bhat. We do not find any independent investigations by Ld. AO to bring on record any tangible material to corroborate the same - No evident or even allegation of any cash exchange between the assessee and group entities of Shri Vipul Bhat. This is further evidenced by the fact that no substantial incriminating material / wealth of that magnitude has been found during the course of search operations on assessee which would corroborate such presumption and prove that the transactions were sham transactions, in any manner. Assessee could not produce the concerned person of M/s SAL was rightly controverted by submitting that the aforesaid entity was not under the control of the assessee and the assessee was under no obligation to do so. The existence of M/s SAL is beyond doubt since it was a listed corporate entity and secondly, it was subject matter of scheme of amalgamation u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner. In share sale transactions through online mode, the identity of the buyer of the shares would not be known to the assessee. Therefore, the adverse conclusion drawn by Ld. AO merely on the basis of the fact that the buyer of the shares were group entities of Shri Vipul Bhat, could not be sustained. The fact that there were independent buyers also would rebut the same and weaken the conclusion drawn by Ld. AO. We are not inclined to accept the stand of Ld.CIT(A) in sustaining the impugned additions in the hands of the assessee. Resultantly, the addition on account of alleged Long-Term Capital Gains as well as estimated commission against the same, stands deleted. The grounds of appeal of assessee allowed.

Issues Involved:
1. Addition as Unaccounted/Unexplained Income by treating Long Term Capital Gain as Manipulated Transaction.
2. Addition of 2% as commission on the alleged manipulated transactions.
3. Validity of assessment orders based on assumption, presumptions, surmises, and conjectures.
4. Violation of the principle of natural justice.
5. Validity of additions in the absence of incriminating material found during search operations.

Issue-wise Detailed Analysis:

1. Addition as Unaccounted/Unexplained Income by treating Long Term Capital Gain as Manipulated Transaction:
The primary issue was the addition of ?2,99,76,550/- to the assessee's income by treating the Long Term Capital Gain (LTCG) as a manipulated transaction. The Assessing Officer (AO) relied on a third-party statement without establishing a direct connection between the assessee and the third party. The AO also disregarded the documentary evidence provided by the assessee, which included contract notes, demat statements, and bank statements, supporting the genuineness of the transactions. The assessee's LTCG was derived from the sale of shares of Santoshima Tradelink Ltd. (STL), which later merged with Sunrise Asian Ltd. (SAL). The shares were sold through a recognized stock exchange, and the sale proceeds were received through banking channels.

2. Addition of 2% as commission on the alleged manipulated transactions:
The AO estimated a 2% commission on the alleged manipulated transactions, adding it to the total income. This estimation was based on the assumption that commission is usually paid for such transactions. However, there was no evidence of any cash exchange or payment of commission by the assessee. The assessee denied any connection with Shri Vipul Bhat, who was alleged to have manipulated the share prices of SAL.

3. Validity of assessment orders based on assumption, presumptions, surmises, and conjectures:
The assessee contended that the assessment orders were based on assumptions, presumptions, surmises, and conjectures without any cogent material or evidence. The AO's findings were based on the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities, including SAL. However, there was no substantial evidence linking the assessee to Shri Vipul Bhat or his entities. The assessee's transactions were genuine and supported by documentary evidence, which the AO failed to rebut with contrary evidence.

4. Violation of the principle of natural justice:
The assessee argued that the principle of natural justice was violated as the statement of Shri Vipul Bhat was never confronted to the assessee, and no opportunity for cross-examination was provided. The Tribunal agreed with this contention, citing the Hon'ble Supreme Court's decision in Andaman Timber Industries Ltd. v. CCE, which held that not allowing cross-examination of witnesses whose statements were relied upon is a serious flaw, making the order nullity.

5. Validity of additions in the absence of incriminating material found during search operations:
The assessee raised a plea that no incriminating material was found during the search operations to justify the additions. The Tribunal noted that the search was conducted on 05/11/2014, and the return of income for AY 2014-15 was already filed by that date. The return was selected for scrutiny through CASS for examining exempt LTCG. Therefore, the contention that no addition based on material other than incriminating material would be justified was not accepted.

Conclusion:
The Tribunal found that the assessee had discharged the onus of proving the genuineness of the transactions. The AO's additions were based on third-party statements without any tangible material or evidence linking the assessee to the alleged manipulation. The principle of natural justice was violated, and the AO failed to provide any independent investigation or corroborative evidence. Consequently, the additions on account of LTCG and estimated commission were deleted. The appeals were partly allowed, with the grounds relating to levy of interest and initiation of penalty being consequential in nature and not requiring specific adjudication.

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