2021 (6) TMI 660 - AT - Income Tax

Addition u/s 68 - unaccounted income - HELD THAT - As relying on SHRI SHASHIKANT B. MHATRE (HUF) VERSUS INCOME TAX OFFICER 4 (4) , THANE 2019 (5) TMI 1846 - ITAT MUMBAI has decided the issue in favour of the assessee and against the Revenue. Respectfully following the above decision, we allow the appeal filed by the assessee.

Issues Involved:
1. Addition under section 68 of the Income Tax Act.
2. Bogus long-term capital gains on the sale of shares.
3. Denial of exemption under section 10(38) of the Income Tax Act.
4. Violation of principles of natural justice.
5. Failure to provide an opportunity for cross-examination.
6. Allegation of unaccounted income.

Detailed Analysis:

1. Addition under section 68 of the Income Tax Act:
The assessee challenged the addition of ?1,20,11,807 made by the Assessing Officer (AO) under section 68 of the Income Tax Act. The AO concluded that the transactions were sham and aimed to bring unaccounted money under the guise of exempted long-term capital gains. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld this addition, citing findings from the Directorate of Investigation, Kolkata, which unearthed an organized racket generating bogus entries of long-term capital gains.

2. Bogus long-term capital gains on the sale of shares:
The AO and CIT(A) both held that the long-term capital gains from the sale of shares of Shree Shaleen Textiles Limited were bogus. The CIT(A) noted that the modus operandi involved rigging the price of penny stocks to create artificial long-term capital gains. The AO referenced detailed findings from the Directorate of Investigation and actions taken by SEBI and BSE against such manipulative practices.

3. Denial of exemption under section 10(38) of the Income Tax Act:
The assessee claimed exemption under section 10(38) for the long-term capital gains. However, the AO and CIT(A) denied this exemption, asserting that the transactions were not genuine. The CIT(A) emphasized that the shares were purchased at a nominal price and sold at an exorbitant profit, which was not consistent with normal market behavior.

4. Violation of principles of natural justice:
The assessee contended that the assessment order violated principles of natural justice, as the AO did not provide documents or statements relied upon for rebuttal. The CIT(A) did not address this contention in detail, focusing instead on the findings from the investigation and the nature of the transactions.

5. Failure to provide an opportunity for cross-examination:
The assessee argued that the AO did not allow the opportunity to cross-examine individuals whose statements were relied upon. This was part of the broader contention regarding the violation of natural justice principles. However, the CIT(A) upheld the AO's decision without addressing this procedural issue explicitly.

6. Allegation of unaccounted income:
The AO alleged that the assessee deliberately concealed unaccounted income. The CIT(A) supported this view, referencing the investigation's findings and the improbability of such high returns from penny stock investments. The CIT(A) cited judicial precedents, including the Supreme Court's decisions in Sumati Dayal vs. CIT and CIT v. Durga Prasad More, to support the conclusion that the transactions were not genuine.

Tribunal's Decision:
The Tribunal considered the rival submissions and material on record. It found that the issue was identical to a case involving the HUF of the assessee's husband, Shashikant B. Mhatre v/s ITO, where the Co-ordinate Bench of the Tribunal decided in favor of the assessee. Respectfully following this decision, the Tribunal allowed the appeal filed by the assessee, overturning the CIT(A)'s order.

Conclusion:
The Tribunal's judgment highlighted the importance of consistency in judicial decisions and the need to respect procedural fairness. The appeal was allowed, and the addition under section 68 was deleted, granting the claimed exemption under section 10(38) of the Act.

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