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2021 (7) TMI 210 - AT - Income TaxBogus LTCG - Addition u/s 68 - penny stock purchases - denying the exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of shares adding estimate brokerage expenses - HELD THAT - We note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of ₹ 1,50,000/- . 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 6000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months since purchased on 22.10.2011, assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through 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 provided 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. Prime facie, all the conditions provided u/s 10(38) of the Act seems to have been fulfilled by the assessee. Whether assessee was not provided opportunity of cross examination? - A.O has referred to some investigation carried out by the Department in the case of some brokers and other assessee(s) located at Kolkata and other places and there is a reference of the company M/s SAL. As 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 or connected to 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. Thus claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect - transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended - also no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT that not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected . - Decided in favour of assessee.
Issues Involved:
1. Genuineness of Long Term Capital Gain (LTCG) from sale of equity shares claimed exempt under Section 10(38) of the Income Tax Act, 1961. 2. Addition under Section 68 of the Income Tax Act for unexplained cash credits. 3. Addition of estimated brokerage expenses under Section 69C of the Income Tax Act. 4. Violation of principles of natural justice due to lack of opportunity for cross-examination. 5. Reopening of assessment under Sections 147/148. Detailed Analysis: 1. Genuineness of Long Term Capital Gain (LTCG) from Sale of Equity Shares: The Tribunal examined whether the LTCG claimed exempt under Section 10(38) of the Income Tax Act, 1961 was genuine. The assessee(s) purchased shares of companies like Sunrise Asian Limited, Conart Traders Ltd, and Turbotech, which later saw a significant price increase. The transactions were executed through recognized stock exchanges, and all payments were made through banking channels. The Tribunal found that: - The shares were purchased and sold through recognized stock exchanges. - The transactions were supported by documentary evidence such as Demat account statements, bank statements, and contract notes. - The companies involved were not marked as shell companies by SEBI at the time of transactions. The Tribunal concluded that the conditions under Section 10(38) were met, and the LTCG claimed by the assessee(s) was genuine. 2. Addition under Section 68 for Unexplained Cash Credits: The Revenue argued that the LTCG was bogus and added the amounts under Section 68 as unexplained cash credits. The Tribunal noted: - The Assessing Officer (AO) relied on statements from third parties and general reports of investigations without providing specific evidence linking the assessee(s) to any bogus transactions. - The AO did not provide an opportunity for cross-examination of the third parties whose statements were used against the assessee(s). The Tribunal held that the addition under Section 68 was not justified as the Revenue failed to provide concrete evidence linking the assessee(s) to any bogus transactions. 3. Addition of Estimated Brokerage Expenses under Section 69C: The AO made additions for estimated brokerage expenses, assuming that the assessee(s) paid commissions to arrange bogus LTCG. The Tribunal found: - There was no evidence to support the claim that the assessee(s) paid any commission for arranging the LTCG. - The addition was based on mere suspicion without any corroborative evidence. The Tribunal deleted the additions made under Section 69C for estimated brokerage expenses. 4. Violation of Principles of Natural Justice: The assessee(s) contended that the additions were made without providing an opportunity for cross-examination of the third parties whose statements were used against them. The Tribunal observed: - The AO did not allow cross-examination, violating the principles of natural justice. - The reliance on third-party statements without cross-examination was a serious flaw. The Tribunal cited the Supreme Court's decision in *Andaman Timber Industries vs. CCE*, which held that not allowing cross-examination makes the order null and void. Consequently, the additions were deleted. 5. Reopening of Assessment under Sections 147/148: In the case of Darshan Kumar Pahwa, the assessment was reopened under Sections 147/148 on the grounds of earning suspicious LTCG. The Tribunal found: - The reopening was based on general information without specific evidence against the assessee. - The AO did not provide any material evidence to support the claim that the assessee earned bogus LTCG. The Tribunal held that the reopening of the assessment was unjustified and deleted the additions made. Conclusion: The Tribunal allowed the appeals of the assessee(s), concluding that the LTCG claimed under Section 10(38) was genuine, and the additions under Sections 68 and 69C were not justified. The Tribunal also emphasized the violation of principles of natural justice due to the lack of opportunity for cross-examination. The reopening of assessments under Sections 147/148 was found to be unjustified.
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