2016 (9) TMI 801 - AT - Income Tax

Addition u/s 69 - whether sale of shares was genuine, which was substantiated by bogus documents? - Held that - No contention has been raised that the said Gwalior Tanks & Vessels Ltd was a viable company at the time of sale. This fact itself raises various questions as to who will give such substantial amount for the sale of shares of an allegedly worthless company. Merely because the shares are held by itself do not fit into realities about the sale amount. The Director of M/s. Mahasagar Securities Ltd group himself has accepted that it is a bogus transaction. No director of the main company of a group will give such a statement and without examining the statement, no opinion can be formed. This is evident from the fact that the assessee himself raised this ground before the ld. CIT(A). In the entirety of facts and circumstances, it is satisfied that the relevant facts, surrounding circumstances, human conducts etc., as stipulated by Hon ble Supreme Court in the case of Sumati Dayal vs. CIT, reported in (1995 (3) TMI 3 - SUPREME Court ), have not been followed while awarding the relief by ld. CIT(A). Since the assessee has credited the amount of sale in its books of account which may represent the allegedly bogus sales consideration floated from entity which is floated by the said group, the case may fall within the parameters of Section 68 also. In view of these facts and circumstances, I am inclined to set aside the matter back to the file of ld. Assessing Officer to reexamine the issue, call for the record of M/s. Mahasagar Securities Ltd and alongwith the assessee an opportunity of cross-examination the material which the Assessing Officer proposes against the assessee. - Decided in favour of Revenue for statistical purposes.

Summary

Issues involved:
Validity of addition made under section 69 of the Income Tax Act for a sale transaction, Reopening of assessment, Merits of the addition challenged in the first appeal, Power of the Commissioner of Income Tax (Appeals) to enhance assessment, Opportunity of cross-examination denied to the assessee, Application of section 68 in addition to section 69.

Validity of addition under section 69:
The assessing officer made an addition under section 69 of the Income Tax Act for a sale transaction of shares amounting to ?45,51,396, considering it as a bogus transaction conducted with a briefcase company. The Commissioner of Income Tax (Appeals) upheld the validity of the reopening but deleted the addition on merits. The appellate authority found that the shares were genuinely held by the assessee for about ten years, supported by evidence of purchase, sale, and receipt of bonus shares. The Commissioner concluded that the long-term capital gain accrued to the assessee at the time of sale, establishing the transaction's genuineness.

Reopening of assessment:
The assessing officer reopened the assessment based on information regarding fraudulent billing activities involving the assessee and a group of companies. The officer held that the sale transaction with a specific company was non-genuine, leading to the addition under section 69. The Commissioner upheld the reopening's validity but disagreed with the assessing officer's conclusion on the transaction's genuineness, ultimately deleting the addition.

Power of Commissioner of Income Tax (Appeals) to enhance assessment:
The Revenue contended that the Commissioner of Income Tax (Appeals) had the power to enhance the assessment, which was not exercised in this case. The argument was based on the belief that the assessing officer wrongly applied section 69, and the appellate authority should have corrected this error. The Revenue emphasized the need for verification and scrutiny to ensure the fairness of the transaction, especially regarding the value of allegedly worthless shares sold for a substantial amount.

Opportunity of cross-examination denied to the assessee:
The assessee raised concerns about the denial of an opportunity for cross-examination during the assessment process. The Revenue argued that the Commissioner of Income Tax (Appeals) should have allowed cross-examination, as requested by the assessee, to ensure a fair assessment. The failure to provide this opportunity was seen as a violation of natural justice principles, potentially impacting the validity of the assessment.

Application of section 68 in addition to section 69:
The appellate authority, considering the facts and circumstances of the case, suggested that the matter be sent back to the assessing officer for reexamination. The assessing officer was directed to review the issue, obtain records from the relevant company, and provide the assessee with an opportunity for cross-examination. The decision highlighted the possibility of the case falling within the scope of section 68 in addition to section 69, emphasizing the need for a thorough reassessment based on all available information.