2022 (3) TMI 663 - AT - Income Tax

Addition u/s 68 - Bogus share transaction - Assessee has claimed exemption u/s. 10(38) on the huge long term capital gain from the sale of scrip MJTL - HELD THAT - There is no dispute as far as the claim made by the assessee that assessee has made investment in these shares and subsequently sold the same in the Bombay Stock Exchange through the registered stock broker. It is also fact on record AO and the Ld.CIT(A) has not brought anything on record to link the assessee or his brother in any of the price manipulation taken place in the scrip of MJTL. Even the SEBI has exonerated assessee s brother and his wife from any of the charges of price manipulation. AO has discussed in detail the price manipulation happened in this scrip and various intermediaries were involved and none of the intermediators were anyway connected with the assessee or his family members directly/indirectly. Even AO proceeded to make investigations with the share broker through whom assessee has made the sales. These statements or any of the statements recorded by Shri Vipul Vidur Bhatt or any of the intermediaries were never shared with the assessee. Even Assessing Officer has not extended the opportunity of cross examination to the assessee. From the assessment record that during the assessment proceedings assessee has raised several contentions vide letter dated 22.12.2017, in the contentions No. 12 and 13 in which assessee has demanded cross examination of persons whose statements have been discussed in foregoing paragraphs. The assessee also submitted that they do not know any of the said persons and never had connections with them. From the above paragraph it can be noticed the Assessing Officer expressed in clear term that that assessee has not utilized the opportunity extended by the Assessing Officer on the summons dated 27.12.2017 issued by him for the purpose of cross examination at his office. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE 2015 (10) TMI 442 - SUPREME COURT held that when the assessment was made on the basis of the statements recorded from third parties and those statements were not provided nor cross examination was given to the assessee, the Assessment Order made based on those statements is bad in law. Facts and circumstances being identical respectfully following the decision of the Hon'ble Supreme Court, we hold that the assessment order passed u/s. 143(3) of the Act by the Assessing Officer is bad in law and has to be quashed as the Assessing Officer has failed to provide the copies of statements on which he relied on for making assessments and also for not providing cross examination of those persons inspite of specific request made by the assessee. Thus, we quash the assessment orders passed u/s. 143(3) of the Act on this ground. - Appeal of assessee allowed.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Denial of exemption under Section 10(38) of the Income Tax Act.
3. SEBI report and its implications.
4. Opportunity for cross-examination and procedural fairness.
5. Alleged price manipulation and accommodation entries.
6. Onus of proof and evidentiary requirements.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The Assessing Officer (AO) added ?12,28,62,584/- to the assessee's income under Section 68, citing unexplained cash credits. The AO argued that the Long Term Capital Gains (LTCG) declared by the assessee were not genuine and were part of a scheme to convert unaccounted money into white money through accommodation entries.

2. Denial of exemption under Section 10(38) of the Income Tax Act:
The AO denied the exemption under Section 10(38), which pertains to LTCG from the sale of equity shares. The AO's decision was based on the investigation findings that the transactions were not genuine and were part of a scheme involving price manipulation.

3. SEBI report and its implications:
The SEBI report, which investigated price manipulation in the shares of Maa Jagdambe Trade Links Ltd (MJTL), did not find any direct involvement of the assessee or his family members in the manipulation. The SEBI investigation exonerated the assessee's brother and his wife from any charges of price manipulation. This report was crucial as it contradicted the AO's findings and supported the assessee's claim of genuine transactions.

4. Opportunity for cross-examination and procedural fairness:
The assessee argued that the AO did not provide an opportunity for cross-examination of the individuals whose statements were used against him. The AO issued a summons for the assessee to appear on 27.12.2017, but this did not mention any opportunity for cross-examination. The Tribunal found that the AO's failure to provide this opportunity violated principles of natural justice, making the assessment order null and void as per the precedent set by the Supreme Court in Andaman Timber Industries v. CCE [(2015) 127 DTR 241 (SC)].

5. Alleged price manipulation and accommodation entries:
The AO relied heavily on the findings of the Investigation Wing, Kolkata, which suggested that the assessee's transactions were part of a broader scheme of price manipulation and accommodation entries. However, no direct evidence linked the assessee to these activities. The Tribunal noted that the AO's findings were based on general observations and not on specific evidence against the assessee.

6. Onus of proof and evidentiary requirements:
The Tribunal emphasized that the onus was on the AO to provide concrete evidence to support the allegations of bogus transactions. The AO failed to provide such evidence, and the statements used were not subjected to cross-examination. The Tribunal cited several case laws, including Kishinchand Chellaram v. CIT [(1980) 125 ITR 713 (SC)] and Andaman Timber Industries v. CCE [(2015) 127 DTR 241 (SC)], to highlight the importance of providing the assessee an opportunity to contest the evidence used against him.

Conclusion:
The Tribunal quashed the assessment order, stating that the AO failed to provide necessary procedural fairness by not allowing cross-examination and relying on unverified statements. The SEBI report further supported the assessee's claim of genuine transactions. Consequently, the addition under Section 68 and the denial of exemption under Section 10(38) were not upheld. The appeal filed by the assessee was allowed.