2018 (11) TMI 440 - AT - Income Tax

Unexplained cash credit u/s 68 read with section 115BEE - sale of shares - exemption u/s 10(38) claimed - Held that - No hesitation to hold that neither AO nor CIT-A has been able to controvert assessee s copious evidences filed in present case which clearly supports the case of assessee qua LTCG claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Kappac Pharma Limited and so issue framed by me above needs to be answered in favor of appellant /assessee. So addition made on a/c of LTCG /s 68 read with section 115BEE is deleted. So grounds relating to addition u/s 68 are allowed. - Decided in favour of assessee

Issues Involved:
1. Validity of notice under Section 143(2).
2. Transfer of jurisdiction under Section 127.
3. Principles of natural justice and cross-examination.
4. Evidentiary value of statements recorded during survey operations.
5. Burden of proof for bogus transactions.
6. Applicability of Sections 68 and 115BBE to sale of shares.
7. Consistency with previous judicial decisions.

Detailed Analysis:

1. Validity of Notice under Section 143(2):
The assessee challenged the validity of the notice issued under Section 143(2) on the grounds that it was not served on the same day by speed post before the time-barring date. The tribunal found that the notice was indeed issued within the stipulated time frame and thus upheld its validity.

2. Transfer of Jurisdiction under Section 127:
The assessee contended that there was no formal transfer order under Section 127 from ITO Ward 37(1) New Delhi to ITO Ward 3(1) Gurgaon. The tribunal noted that the transfer of jurisdiction was properly executed and the assessment framed was valid.

3. Principles of Natural Justice and Cross-Examination:
The assessee argued that the addition was made violating principles of natural justice as they were not given an opportunity to cross-examine the witnesses whose statements were relied upon by the Assessing Officer (AO). The tribunal emphasized that cross-examination is a part of the principles of natural justice and found merit in the assessee’s argument, indicating that the AO should have provided the opportunity for cross-examination.

4. Evidentiary Value of Statements Recorded During Survey Operations:
The AO relied on statements recorded during survey operations under Sections 133A/131, which the assessee contended have no evidentiary value. The tribunal agreed, noting that such statements are not equivalent to search statements recorded under Section 132(4) and cannot justify adverse inferences without corroborative evidence.

5. Burden of Proof for Bogus Transactions:
The tribunal held that the burden to prove that the transaction is bogus or sham lies with the revenue. The AO and CIT(A) failed to provide substantial evidence to prove that the transactions were not genuine. The tribunal cited several judicial precedents where similar additions were deleted due to lack of evidence.

6. Applicability of Sections 68 and 115BBE to Sale of Shares:
The tribunal examined whether the additions made under Section 68 (unexplained cash credits) and Section 115BBE (tax on income referred to in Section 68) were applicable to the sale of shares. It was concluded that these sections were not applicable as the transactions were genuine and supported by documentary evidence.

7. Consistency with Previous Judicial Decisions:
The tribunal referred to multiple judicial decisions from various High Courts and the Supreme Court, which consistently ruled in favor of the assessee in similar cases. It was noted that the AO’s conclusions were based on suspicion and probabilities rather than concrete evidence. The tribunal emphasized the need for consistency and uniformity in judicial decisions.

Conclusion:
The tribunal allowed the appeals, holding that the transactions in question were genuine and supported by adequate documentary evidence. The additions made under Section 68 were deleted, and the applicability of Section 115BBE was negated. The tribunal also set aside the issues relating to 26AS mismatch and HRA deduction for de novo adjudication by the AO. The decision was based on principles of natural justice, evidentiary requirements, and consistency with previous judicial decisions.

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