2024 (1) TMI 1329 - AT - Income Tax

Unexplained credit u/s 68 - Bogus LTCG accommodation entry of stock company - addition of commission payment u/s 69C - HELD THAT - In the present case, the appellant entered into the transactions of purchase and sales duly supported by the documents which have not disproved by the authorities below. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee (s) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI nor the trading of these scrips were suspended. In the present case, the appellant has entered into the transactions of purchase and sales of shares, duly supported by the documents which have not been rebutted either by the AO or by the LD. DR and therefore, in our considered view, since the conditions provided u/s 10(38) have been fulfilled by the assessee (s) and hence, the issues raised in the instant appeal by department regarding the bogus claim of Long Term Capital Gain would be liable to be rejected. Denial of natural justice - Assessee deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT that not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected . Thus, the order of the ld. CIT(A) in deleting the addition on account of disallowance of claim of exemption on long term capital gains on sale of shares u/s 68 and commission payment u/s 69C of the Act is held to be justified, and as such, the same is upheld. Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition made by the Assessing Officer (AO) for unexplained credit under Section 68 of the Income Tax Act, 1961, regarding Long Term Capital Gains (LTCG) from shares of M/s Sunrise Asian Ltd.
2. Deletion of addition made under Section 69C of the Income Tax Act for commission payment related to the alleged bogus LTCG transactions.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The primary issue revolves around the AO's addition of Rs. 1,13,66,376/- as unexplained credit under Section 68, concerning LTCG from shares of M/s Sunrise Asian Ltd. The AO contended that the transactions were sham, part of a scheme to convert unaccounted money into tax-exempt income, and were supported by accommodation entries. The CIT(A) deleted the addition, observing that the appellant provided comprehensive documentary evidence, including demat account statements, broker notes, and bank details, to substantiate the genuineness of the transactions. The AO failed to furnish any evidence proving that the appellant introduced unaccounted money through these transactions. The CIT(A) relied on various judicial precedents, including the jurisdictional ITAT Jaipur's decisions, which established that additions based on suspicion or doubt without concrete evidence cannot be sustained. The Tribunal upheld the CIT(A)'s findings, emphasizing that the appellant fulfilled all conditions under Section 10(38) for exemption of LTCG, and the AO's suspicions were unsupported by tangible evidence.

2. Deletion of Addition under Section 69C:

The AO also made an addition of Rs. 2,27,328/- under Section 69C for commission payments allegedly related to the bogus LTCG transactions. The CIT(A) deleted this addition as well, reasoning that since the primary addition under Section 68 was deleted, the related commission payment addition could not stand. The Tribunal agreed with this rationale, noting that the AO did not provide any evidence of commission payments made by the appellant to brokers or entry providers. The Tribunal reiterated that the burden of proving a transaction to be bogus lies with the revenue authorities, and in the absence of substantial evidence, the addition under Section 69C was unsustainable.

In conclusion, the Tribunal dismissed the department's appeal, affirming the CIT(A)'s decision to delete the additions under Sections 68 and 69C. The Tribunal highlighted the importance of evidence over suspicion and upheld the principle of natural justice, emphasizing the necessity of providing an opportunity for cross-examination when statements are used as a basis for additions. The judgment reinforced that mere allegations of accommodation entries without corroborative evidence cannot justify additions under the Income Tax Act.