2022 (8) TMI 1520 - AT - Income Tax

Bogus long term capital gain - Addition u/s 68 - exemption u/s 10(38) denied - report finding unearthed in case of third party/parties - allegation as implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. HELD THAT - The allegation that cash had changed hands, has to be brought on record by the Revenue but we find that there is no such whisper in the order of the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the onus imposed u/s 68 of the Act by furnishing the necessary documentary evidence in support of the identity, genuineness of transaction and creditworthiness of the parties. Therefore the same cannot be made subject to tax under the provisions of section 68 of the Act. The conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand. Income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. Whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided u/s 10(38) in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties? - The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of SRK Industries Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. Thus as following caselaw Smt. Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s SRK Industries is concern. No Opportunity for cross-examination and principles of natural justice denied - As addition was made by the AO based on the statements/information received from the 3rd party but no opportunity was afforded by the revenue for the cross-examination which is against the principles of natural justice as held by the Hon ble Apex Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT Thus we hold that the capital gain earned by the assessee cannot be held bogus merely on the basis of some report finding unearthed in case of third party/parties unless cogent material is brought against particular assessee on record. Therefore, we don t find any reason to disturb the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of Revenue s appeal are dismissed.

Summary

Issues Involved:

1. Deletion of addition on account of bogus long-term capital gain.
2. Addition of commission expenses for accommodation entry.
3. Opportunity for cross-examination and principles of natural justice.

Summary:

1. Deletion of Addition on Account of Bogus Long-Term Capital Gain:

The Revenue contested the deletion of Rs. 1,04,55,043/- added by the AO on account of bogus long-term capital gain. The assessee bought 13,000 shares of M/s Transcend Com Pvt Ltd, which later amalgamated with M/s SRK Industries Ltd, resulting in 57,720 shares. These shares were sold for Rs. 1,05,90,173/-, and the gain was claimed as exempt u/s 10(38) of the Act. The AO, based on an investigation by the Directorate of Investigation Kolkata, alleged the shares were part of a racket for generating bogus long-term capital gains. However, the CIT(A) observed that the AO did not provide concrete evidence against the assessee, nor was the investigation report made available for cross-examination. The CIT(A) held that the transactions were genuine, supported by documentary evidence, and the addition was based on mere assumptions without corroborative evidence.

2. Addition of Commission Expenses for Accommodation Entry:

The AO also added Rs. 2,09,100/- as commission expenses for obtaining accommodation entries. The CIT(A) deleted this addition, noting that the AO failed to substantiate the claim with evidence. The CIT(A) emphasized that any evidence collected behind the back of the appellant without an opportunity for cross-examination could not be used against the appellant, citing various judicial precedents.

3. Opportunity for Cross-Examination and Principles of Natural Justice:

The CIT(A) highlighted the violation of principles of natural justice, as the assessee was not given the opportunity to cross-examine the witnesses whose statements were used against him. The CIT(A) referenced several judgments, including those from the Hon'ble Gujarat High Court and the Supreme Court, which established that statements recorded behind the back of the assessee without cross-examination could not be relied upon for making additions.

Conclusion:

The Tribunal upheld the CIT(A)'s order, emphasizing the lack of specific evidence against the assessee and the necessity of adhering to principles of natural justice. The appeal of the Revenue was dismissed, affirming the deletion of the additions made by the AO.