2018 (11) TMI 1353 - AT - Income Tax

Bogus long term capital gain - addition u/s 68 - claim of exemption u/s 10(38) rejected - addition on the strength of statement of third party - non providing cross examination - denial of natural justice - Held that - The transactions have been done by BSE through proper banking channels evidenced by supporting documentary evidences. Moreover, securities transactions tax has also been paid. Merely on the strength of statement of third party i.e. Shri Vikrant Kayan cannot justify the impugned additions. Moreso, when specific request was made by the assessee for allowing cross examination was denied by the Assessing Officer. The first appellate authority also did not consider it fit to allow cross-examination. This is in gross violation of the principles of natural justice and against the ratio laid down in the case of Andaman Timber Vs. CIT 2015 (10) TMI 442 - SUPREME COURT) - no merit in the impugned additions. The findings of the CIT(A) are accordingly set aside. The Assessing Officer is directed to allow the claim of exemption u/s 10(38) of the Act.- decided in favour of assessee.

Summary

Issues:
Denial of long term capital gain claim, addition u/s 68 of the Income-tax Act, confirmation of addition u/s 69C of the Act.

Analysis:
The appeal was against the order of the Commissioner of Income Tax [Appeals] regarding the denial of long term capital gain claim and addition u/s 68 of the Income-tax Act. The Assessing Officer observed discrepancies in the claim of long term capital gain from the sale of shares of M/s Trinity Tradelink Ltd. A survey revealed irregularities, leading to suspicion of the capital gain's authenticity. The Assessing Officer disallowed the claim and added the amount to the total income u/s 68 of the Act, along with an additional unexplained expenditure. The CIT(A) upheld these decisions, prompting the appeal.

During the proceedings, the assessee argued that the transactions were supported by documentary evidence and conducted through banking channels. The assessee contended that additions based solely on a third party's statement, without the opportunity for cross-examination, violated principles of natural justice. The Assessing Officer and the CIT(A) defended their findings, emphasizing the evidence presented.

The judge scrutinized the orders and evidence, noting the documentary support for the transactions, including payment records and securities transactions tax payment. The judge highlighted the importance of direct evidence and criticized the lack of opportunity for cross-examination as a violation of natural justice. Citing a Supreme Court case, the judge emphasized the significance of allowing cross-examination when statements impact the outcome. Ultimately, the judge found no merit in the additions, overturning the CIT(A)'s decision and directing the Assessing Officer to allow the claim of exemption u/s 10(38) of the Act.

In conclusion, the appeal was allowed, setting aside the additions made by the Assessing Officer and the CIT(A). The judge's decision was based on the lack of merit in the additions and the violation of principles of natural justice due to the denial of cross-examination.