2023 (3) TMI 1560 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - assessee failed to discharge the onus cast upon it to prove that the LTCG claimed as exempt u/s 10(38) was genuine - abnormal rise in the price of shares of scrip Wagend Infra venture Ltd. which against the human probability in view of the fact that the company was neither making any profit nor declared dividend -CIT(A) deleted addition - HELD THAT - AO has not conducted any investigation or enquiry in respect of the information submitted by the assessee and relied on the information of the third party whose statement was not cross examined. CIT(A) has considered the detailed facts submissions and the financial transactions and catena of judicial decisions to test check the creditworthiness and identity of the investee company. The CIT(A) has also observed that the assessee has discharged its burden on submitting the information in the proceedings. Further in the case of the assessee s father case the long term capital gains on sale of same scrip/shares was accepted as dealt in the above paragraphs and the CIT(A) opined that there cannot be two different actions by the revenue in respect of same scrip/ shares. AO has failed to make further enquiries/investigations and relied on the statement of third party. CIT(A) has dealt on the facts and provisions of law and judicial decisions and the applied the ratio of decisions to the present case and deleted the addition. DR could not controvert the findings of the CIT(A) with any new cogent material or information to take different view. Decided against revenue.

Summary

The judgment involves an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) (CIT(A)), which deleted an addition made by the Assessing Officer (AO) concerning unexplained cash credit under Section 68 of the Income Tax Act, 1961. The primary issue revolves around the genuineness of long-term capital gains (LTCG) claimed by the assessee on the sale of shares, which the AO had treated as bogus.

Issues Presented and Considered:

The core legal issues considered in this case include:

• Whether the CIT(A) erred in deleting the addition of Rs. 4,33,71,468 made by the AO under Section 68 of the Income Tax Act, 1961, on account of unexplained cash credit.
• Whether the LTCG claimed as exempt under Section 10(38) was genuine, given the abnormal rise in the share price of M/s Wagend Infra Ventures Ltd.
• Whether the AO's reliance on the principle of preponderance of human probabilities was justified in treating the LTCG as non-genuine.
• Whether the principles of natural justice were violated due to the lack of opportunity for cross-examination of third-party statements relied upon by the AO.

Issue-wise Detailed Analysis:

1. Genuineness of LTCG and Application of Section 68:

• Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, placing the onus on the assessee to prove the genuineness of the credit. The exemption under Section 10(38) pertains to LTCG from the sale of equity shares subject to certain conditions.
• Court's Interpretation and Reasoning: The Tribunal examined whether the assessee had discharged the onus of proving the genuineness of the LTCG. It considered the evidence provided by the assessee, including share application forms, bank statements, demat account statements, and broker records.
• Key Evidence and Findings: The assessee provided documentation showing the purchase and sale of shares through recognized stock exchanges, payment through banking channels, and the levy of Securities Transaction Tax (STT). The Tribunal noted that the AO did not provide any contrary evidence.
• Application of Law to Facts: The Tribunal found that the assessee had adequately demonstrated the genuineness of the transactions and that the AO's addition under Section 68 was based on suspicion and conjecture without concrete evidence.
• Treatment of Competing Arguments: The Tribunal considered the revenue's argument that the share price rise was beyond human probability and examined the AO's reliance on third-party statements. It concluded that the AO failed to provide the assessee an opportunity for cross-examination, violating principles of natural justice.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, finding that the AO's conclusions were based on mere suspicion without substantive evidence.

2. Principles of Natural Justice and Cross-Examination:

• Legal Framework and Precedents: The principles of natural justice require that an assessee be given an opportunity to rebut evidence and cross-examine witnesses whose statements are used against them.
• Court's Interpretation and Reasoning: The Tribunal emphasized the importance of cross-examination as part of the natural justice process, citing relevant case law.
• Key Evidence and Findings: The AO relied on statements from third parties without allowing the assessee to cross-examine these individuals, which was deemed a violation of natural justice.
• Application of Law to Facts: The Tribunal found that the lack of cross-examination opportunity rendered the AO's findings unsustainable.
• Treatment of Competing Arguments: The Tribunal rejected the revenue's reliance on third-party statements as the sole basis for the addition, given the procedural lapses.
• Conclusions: The Tribunal concluded that the AO's failure to provide cross-examination opportunities invalidated the reliance on those statements.

Significant Holdings:

• The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, emphasizing the lack of incriminating evidence against the assessee.
• The Tribunal reinforced the principle that additions cannot be made based on suspicion or conjecture without concrete evidence.
• It reiterated the necessity of adhering to principles of natural justice, particularly the right to cross-examine witnesses whose statements are used against the assessee.
• The Tribunal noted that the AO's reliance on third-party statements without allowing cross-examination was a serious procedural flaw.
• It highlighted the importance of examining each case on its merits and evidence, rather than relying on generalizations or assumptions.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order and emphasizing the need for substantive evidence and adherence to procedural fairness in tax assessments.