2021 (6) TMI 967 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - exemption u/s 10(38) on sale of shares - HELD THAT - There is no restriction under the law to purchase equity shares on off line mode. Vide order dated 22.3.2013 of the Hon ble Mumbai High Court M/s Conart Traders Limited was merged with M/s SAL and in lieu there of 10000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through Indira Securities which is a registered broker and all the transactions of sale of shares took place on the recognised stock exchange. Sale consideration was received in the bank account attached with the Demat account. The detail of the persons purchasing the shares is not available on the portal of SEBI and all the transactions of purchase and sale took place on the portal through registered brokers under the control of SEBI. M/s SAL has not been striked off as a shell company. Trading of shares of M/s SAL was permitted by SEBI. All the conditions provided u/s 10(38) of the Act prima facie seems to have been fulfilled by the assessee. Assessee was not provided opportunity of cross examination - A.O has referred to some investigation reports carried out in the case of some brokers and other assessee(s) and there is a reference of the company M/s SAL, however it is not disputed that name of the assessee is not appearing in such report nor any evidence was found by the Ld. A.O which could indicate that assessee was also a part of the alleged racket of providing accommodation entry of bogus LTCG nor any proof of any agreement between the assessee and other persons mentioned in the report has been found. So the basis of addition is primarily on the statement of third party as well as the information gathered from other sources. Perusal of the records shows that the assessee has not been provided any access to such report nor any opportunity was provided to cross examine those persons who accepted to have provided accommodation entries for the bogus LTCG to the assessee. See DIPESH RAMESH VARDHAN, RAMESH BABULAL VARDHAN, MANJU RAMESH VARDHAN, VISHAL RAMESH VARDHAN, RAJESH BABULAL VARDHAN 2020 (8) TMI 405 - ITAT MUMBAI As relying on SMT. KRISHNA DEVI, HARDEV SAHAI GUPTA (GARG) , SMT. BINDU GARG 2021 (1) TMI 1008 - DELHI HIGH COURT we are of the considered view that the case of the assessee is squarely covered by the above stated judgments and we being bound to follow the judicial precedence are inclined to hold that the claim of LTCG made by the assessee is genuine and is eligible for exemption u/s 10(38) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Genuineness of Long Term Capital Gain (LTCG) from the sale of equity shares of M/s Sunrise Asian Limited (SAL) claimed exempt under section 10(38) of the Income Tax Act.
2. Whether the assessment proceedings are liable to be quashed for not providing the opportunity of cross-examination to the assessee, thereby violating the principles of natural justice.

Detailed Analysis:

1. Genuineness of Long Term Capital Gain:
The primary issue revolves around the genuineness of the LTCG claimed by the assessee from the sale of shares in M/s Sunrise Asian Limited (SAL), which was treated as bogus by the Assessing Officer (A.O.) and added as unaccounted cash credit under section 68 of the Income Tax Act. The A.O. and the Commissioner of Income Tax (Appeals) [CIT(A)] based their conclusions on the abnormal increase in share prices and the financials of SAL, which they deemed insufficient to justify such a rise. They referenced various investigations and statements from third parties indicating bogus transactions to convert unaccounted cash into accounted money.

The Tribunal observed that the assessee had purchased shares through legitimate channels, held them for more than 12 months, and sold them on a recognized stock exchange through a registered broker. The transactions were supported by documentary evidence such as Demat account statements, bank statements, and contract notes. The Tribunal found that the assessee had fulfilled all conditions under section 10(38) of the Act.

The Tribunal relied on the decision of the Co-ordinate Bench, Mumbai in the case of Dipesh Ramesh Vardhan Vs DCIT, which dealt with similar issues and concluded that the onus was on the revenue to rebut the documentary evidence provided by the assessee. The Tribunal noted that the revenue failed to establish any link between the assessee and the alleged accommodation entry providers. The Tribunal also referenced the Hon’ble Delhi High Court's judgment in PCIT V/s Krishna Devi & Others, which emphasized that suspicion alone could not justify the addition without cogent material evidence.

2. Violation of Principles of Natural Justice:
The second issue was whether the assessment proceedings were liable to be quashed due to the A.O. not providing the opportunity for cross-examination of third parties whose statements were used against the assessee. The Tribunal noted that the assessee was not given access to investigation reports or the opportunity to cross-examine the individuals who allegedly provided accommodation entries for bogus LTCG. This was contrary to the principles of natural justice as established by the Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE, which held that not allowing cross-examination of witnesses whose statements were the basis of the order rendered the order null and void.

The Tribunal found that the revenue’s reliance on third-party statements without providing an opportunity for cross-examination was a serious flaw. The Tribunal cited the decision of the Co-ordinate Bench, Mumbai in Dipesh Ramesh Vardhan Vs DCIT, which emphasized that additions based on suspicion, conjectures, or surmises could not be sustained in law.

Conclusion:
The Tribunal allowed the appeals of both assessees, Smt. Shweta Agrawal and M/s Sanjay Onkarmal Agrawal (HUF), holding that the LTCG claimed was genuine and eligible for exemption under section 10(38) of the Act. The Tribunal also quashed the assessment proceedings for violating the principles of natural justice by not providing an opportunity for cross-examination. The Tribunal's decision was based on judicial precedents, including the Co-ordinate Bench, Mumbai, and the Hon’ble Delhi High Court.