2021 (10) TMI 792 - AT - Income Tax

Bogus LTCG - Violation of principles of natural justice - assessee was subjected to search u/s 132 - addition in the hands of assessee were not supplied to the assessee nor any opportunity was provided to cross verify the persons whose statement were utilized against the assessee - HELD THAT - Nowhere in the assessment order any detail of alleged report of the Investigation wing is available nor copy of the same has been filed before us. It is also not proved that in which statement the name of assessee was taken by so-called brokers engaged in providing accommodation entry. There is also no whisper that whether the assessee was provided an opportunity to go through material gathered by the revenue authorities. Nor any opportunity seems to have been provided to cross examine those persons whose statements were used to make addition in the hands of assessee. There seems to be a clear violation of principles of natural justices and it is judicially settled that in case any addition is made in the hands of assessee on the basis of any material gathered behind the assessee in the form of documentary material or statement of any 3rd party then before making addition in the hands of assessee proper opportunity of cross examining and opportunity to reply to such material gathered behind the assessee is mandatory before taking any adverse view or making any addition in the hands of assessee - additions for the alleged bogus LTCG and unexplained expenditure are unjustified and liable to be deleted. Bogus LTCG - Whether no incriminating material pertaining to these additions were found during the course of search and the additions are based purely on the statement given during the course of search which was subsequently retracted? - HELD THAT - No merit in the contention of ssessee that the alleged addition is purely based on the statement recorded during the course of search. Ld. AO has extensively dealt with the issue by referring to various material gathered before the search, though not specifically related to the assessee but related to such type of transaction carried out in some other cases and in the statement during the course of search assessee has clearly spelt out to have accepted the accommodation entry and further ld. AO made enquiries about the purchasers of the equity shares, their bank accounts and other details as mentioned in the assessment order. Therefore, since addition is not based purely on the statement recorded during the course of search, this legal issue raised in ground stands dismissed. Whether earning Long Term Capital Gain is genuine and condition of section 10(38) of the Act are fulfilled and the addition for commission payment is not based on any evidences? - From perusal of the above finding of the Coordinate Bench of Mumbai in the case of Amit Mafatlal Shah 2020 (4) TMI 894 - ITAT MUMBAI we find that this decision is squarely applicable on the facts of the instant appeal and we thus have no hesitation to hold that the assessee has rightly claimed the exemption u/s 10(38) of the Act from sale of equity shares of PCSL and also addition for unexplained expenditure is uncalled for.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Non-supply of material used for addition.
3. Reliance on retracted statements and the validity of such statements.
4. Legitimacy of additions based on statements and lack of supporting evidence.
5. Compliance with Section 142(3) of the Income Tax Act.
6. Genuine nature of long-term capital gains and their exemption under Section 10(38).
7. Lack of evidence for bogus share transactions.
8. Unsubstantiated commission payments.
9. Levy of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

Violation of Principles of Natural Justice:
The assessee argued that the addition of ?2,85,12,276 was made in violation of the principles of natural justice as the material used for the addition was not provided, nor was any opportunity given to cross-examine the persons whose statements were used against the assessee. The Tribunal found that the assessee was not given an opportunity to go through the material gathered by the revenue authorities or to cross-examine the individuals whose statements were used. This constituted a clear violation of principles of natural justice, supported by various judicial precedents. The Tribunal held that the additions for the alleged bogus LTCG and unexplained expenditure were unjustified and liable to be deleted.

Non-supply of Material Used for Addition:
The assessee contended that the lower authorities did not supply the material despite requests, which was used to make the addition of ?2,85,12,276. The Tribunal noted that the details of the alleged report of the Investigation Wing were not available in the assessment order, nor was any such report filed before the Tribunal. This non-supply of material led to the conclusion that the additions were unjustified.

Reliance on Retracted Statements and Validity:
The assessee argued that the additions were based on statements recorded during the search, which were later retracted. The Tribunal observed that the retraction of the statement within five months indicated that the statement might have been made under coercion. The Tribunal found that the addition was not solely based on the statement recorded during the search but also on other material gathered during the assessment.

Legitimacy of Additions Based on Statements and Lack of Supporting Evidence:
The assessee claimed that the additions were made without any incriminating material found during the search and were based purely on statements. The Tribunal found that the Ld. AO had made independent inquiries and referred to various materials, though not specifically related to the assessee, which indicated that the transactions were not genuine. However, the Tribunal noted that the Ld. AO did not provide any direct nexus of the assessee with the alleged investigation reports.

Compliance with Section 142(3) of the Income Tax Act:
The assessee argued that the addition was made in violation of sub-section (3) of section 142 of the Act. The Tribunal found that the Ld. AO did not provide the material gathered during the inquiry under sections 142(2) or 142(2A) to the assessee, nor was any opportunity given as provided under section 142(3). This non-compliance led to the conclusion that the additions were unjustified.

Genuine Nature of Long-term Capital Gains and Their Exemption Under Section 10(38):
The assessee contended that the income from long-term capital gains was genuine and exempt under section 10(38). The Tribunal observed that the shares were purchased through account payee cheque, held in a Demat account for more than a year, sold through a recognized stock exchange, and the sale consideration was directly credited to the assessee’s bank account. The Tribunal found that all conditions of section 10(38) were fulfilled, and thus, the alleged transactions were genuine.

Lack of Evidence for Bogus Share Transactions:
The assessee argued that no material or evidence was found during the search suggesting that the share transactions were bogus. The Tribunal noted that the Ld. AO had referred to reports of the Investigation Wing, Kolkata, and other materials, but no direct evidence was provided to establish that the transactions were bogus.

Unsubstantiated Commission Payments:
The assessee claimed that no payment of commission of ?8,00,000 was made, and no evidence was found suggesting such payment. The Tribunal found that the addition for unexplained expenditure was uncalled for as no positive material was brought on record regarding the alleged expenditure.

Levy of Interest Under Sections 234A, 234B, and 234C:
The assessee argued that the levy of interest under sections 234A, 234B, and 234C was contrary to the provisions of law. The Tribunal did not specifically address this issue in the detailed analysis.

Conclusion:
The Tribunal allowed the appeal partly, deleting the additions of ?2,85,12,276 and ?8,00,000, holding that the principles of natural justice were violated, and the alleged transactions were genuine and fulfilled the conditions of section 10(38). The Tribunal dismissed the grounds related to the statement-based additions, finding that the Ld. AO had made independent inquiries. The appeal was partly allowed as per the terms indicated.