2024 (7) TMI 709 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - penny stock transaction - reopening as initiated only on the basis of information from the Investigation Department - reliance on indirect evidences - non independent application of mind by AO - HELD THAT - The Directors of the company were duly verified by the Revenue authority. The statements are recorded. But the assessee was not able to get a link of those persons related to sale of shares. AR submitted all relevant documents, i.e. the register, bank statement, demat account, bill copies before the authorities. But the veracity of the document has never been in question. There is no nexus of price rigged by the assessee himself. The money trail of the assessee and the broker is not in evidence. The entire addition was made on report of investigation wing. The evidence which is supplied by the assessee is duly bypassed and the ld. AO is only accepted the indirect evidence in the form of repost of the Investigation wind. We relied on order of ITAT Jaipur in Purushotam Soni 2018 (4) TMI 1839 - ITAT JAIPUR and Pramod Jain 2018 (2) TMI 300 - ITAT JAIPUR In the impugned orders, the theory propounded by the ld. AO suggests large scale generation investment of unaccounted monies took place, but even after conducting an invasive search action, no evidence to support such addition was unearthed. As per the ld. AO, the assessee had earned routed unrecorded income. If that were so, it would have certainly reflected in the investigated documents. The documents in the form of undisclosed sales or bogus expenses etc. AO has however not been able to bring on record any material or evidence unearthed during search/ investigation which would reveal as to from which income earning activity did the assessee derive such unaccounted monies to support his theory that he had routed such unaccounted monies in the guise of bogus capital gains. The addition was fully dependent on indirect evidence and statement of different persons. The relevant documents in support of claims of transactions are submitted by the assessee was never been rejected by the revenue . We respectfully relied on the orders Mukesh Ratilal Marolia 2011 (9) TMI 919 - BOMBAY HIGH COURT and Ziauddin A. Siddiquie 2022 (3) TMI 1437 - BOMBAY HIGH COURT . The view was taken in favour of assessee by the Coordinate bench of the ITAT Mumbai in the case of Yogesh P Thakkar(supra) cannot be circumvented. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under section 68 of the Income-tax Act, 1961.
2. Addition under section 69C of the Income-tax Act, 1961.
3. Reassessment proceedings under section 148 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition under section 68 of the Income-tax Act, 1961:
The assessee challenged the addition of Rs. 2,54,98,050/- under section 68, arguing that the transactions were genuine, conducted through a recognized stock broker, and payments were made via banking channels. The assessee claimed long-term capital gains exemption under section 10(38) of the Act. The Revenue authorities, however, treated the transactions as sham, relying on statements from third parties without providing copies or opportunities for cross-examination, thereby violating principles of Natural Justice (Audi Alteram Partem). The Tribunal found that the assessee had submitted all relevant documents, including bank transactions, share transaction copies, and demat account statements, which were not disputed by the Revenue. The Tribunal relied on various judicial precedents, including CIT vs. Jamnadevi Agrawal [2010] 328 ITR 656 (Bom) and CIT vs Shyam R Pawar [2015] 54 taxmann.com 108 (Bom), which supported the genuineness of the transactions when all documentary evidence was in order. The Tribunal concluded that the addition under section 68 was based on mere suspicion and conjecture without any cogent material evidence, and thus, the addition was quashed.

2. Addition under section 69C of the Income-tax Act, 1961:
The assessee also challenged the addition of Rs. 7,50,772/- under section 69C as an alleged commission paid to entry and exit providers. The Revenue authorities upheld the addition based on statements without providing the assessee an opportunity for cross-examination. The Tribunal noted that the Revenue failed to provide any evidence of such payments and relied solely on statements without corroborating evidence. The Tribunal referred to judicial precedents, including Pramod Jain & Ors vs. DCIT ITA 368-372/JP/2017, which emphasized the necessity of providing an opportunity for cross-examination when statements are the basis for addition. The Tribunal found that the addition was made on indirect evidence and statements without any direct link to the assessee, and thus, the addition under section 69C was also quashed.

3. Reassessment proceedings under section 148 of the Income-tax Act, 1961:
The reassessment proceedings were initiated due to the earning of capital gains of Rs. 2,54,98,050/- during the assessment year. The Tribunal observed that the reopening was based solely on information from the Investigation Department without any independent verification. The Tribunal emphasized that the Revenue must conduct independent verification and provide direct evidence linking the assessee to any alleged bogus transactions. The Tribunal concluded that the reassessment proceedings were not justified as the Revenue failed to follow due process and provide necessary evidence.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the additions under sections 68 and 69C, and found the reassessment proceedings under section 148 to be unjustified. The Tribunal emphasized the necessity of direct evidence and adherence to principles of Natural Justice in making additions and conducting reassessment proceedings.