2018 (9) TMI 1233 - AT - Income Tax

Addition on account of unexplained cash credit U/s 68 r.w.s. 115BBE - Held that - AO has not brought any material on record to controvert the fact duly established by the supporting evidence of purchase bills, payment of consideration through bank, dematerialization of shares in the DEMAT account, allotment of the shares amalgamated new entity in lieu of the earlier two companies of equal number of shares. Sale of shares from the DEMAT account through stock exchange and at the prevailing price as on the date of sale and further payment of STT on the transaction of sale has been duly established. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing, Kolkata is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the share of long term capital gain even otherwise the reliance of the statements recorded by the Investigation Wing, Kolkata wherein without giving an opportunity of cross examination is a complete violation of principles of natural justice as held by the Hon'ble Supreme Court in the case of CCE Vs Andaman Timber Industries 2005 (3) TMI 763 - SUPREME COURT . The Coordinate Bench has also followed the decision of the Hon ble Jurisdictional High Court in the case of CIT Vs. Pooja Agarwal 2017 (9) TMI 1104 - RAJASTHAN HIGH COURT wherein duly considered the fact that the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Accordingly, in view of above facts and circumstances, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue. Hence, this ground of revenue s appeal is dismissed. Unexplained commission expenses U/s 69C - Held that - We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. This is a consequential issue to the addition made by the Assessing Officer U/s 68 treating long term capital gain as accommodation entries for bogus claim of exempt income and consequently the Assessing Officer has also made an addition on account of expenditure being unexplained commission expenses on such transaction of accommodation entries.

Summary

Issues Involved:
1. Addition on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Addition on account of unexplained commission expenses under Section 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition on account of unexplained cash credit under Section 68:

The appeal by the revenue concerns the deletion of an addition of ?2,60,17,995/- made by the Assessing Officer (A.O.) on account of unexplained cash credit under Section 68, read with Section 115BE of the Income Tax Act, 1961. The assessee, an individual deriving income from various sources, filed a return declaring total income after claiming long-term capital gain on the sale of shares as exempt under Section 10(38) of the Act. The A.O. proposed to treat the transaction of long-term capital gain as accommodation entries and not genuine, referencing an investigation by the Directorate of Investigation (DIT), Kolkata, which unearthed a racket generating bogus long-term capital gains through penny stocks. The A.O. referred to statements from brokers admitting to providing accommodation entries, concluding that the assessee's claim was unaccounted income camouflaged as long-term capital gain.

The assessee challenged this, providing documentary evidence such as bank statements, purchase bills, and dematerialization records. The CIT(A) considered these and various judicial precedents, concluding that the share transactions were genuine and subject to Section 10(38). The CIT(A) deleted the addition, finding no specific evidence linking the assessee to the alleged bogus transactions.

The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of direct evidence against the assessee and the failure to provide an opportunity for cross-examination of the brokers whose statements were used against the assessee. The Tribunal noted that the assessee had provided all necessary documentation to prove the genuineness of the transactions, and the A.O.'s conclusions were based on suspicion rather than concrete evidence.

2. Addition on account of unexplained commission expenses under Section 69C:

The A.O. also made an addition of ?10,68,720/- on account of unexplained commission expenses, assuming such expenses were incurred to arrange accommodation entries. This was a consequential addition to the primary addition under Section 68.

The CIT(A) deleted this addition as well, reasoning that since the primary addition was deleted, there was no basis for the commission expenses. The Tribunal upheld this decision, noting that the deletion of the primary addition under Section 68 logically led to the deletion of the consequential addition under Section 69C.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order that the share transactions were genuine and the additions made by the A.O. were not justified. The Tribunal emphasized the importance of concrete evidence and the opportunity for cross-examination in upholding the principles of natural justice.