2022 (8) TMI 21 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - bogus penny stock transaction - suspicion v/s facts - disallowing the exemption u/s 10(38) - HELD THAT - As name of the assessee does not appear anywhere and the AO has simply proceeded to assume that since Shri Ashok Kumar Kayan s name was in the list of entry operators providing entries relating to Long Term Capital Gain/Loss and, further, since the name of M/s. Access Global Limited figured in the list of scrips traded on platform C-Star of Kolkata Stock Exchange and, further, since the assessee had dealings with Shri Ashok Kumar Kayan and the assessee had sold shares of M/s. Access Global Limited, it was indicative that the assessee had earned bogus Long Term Capital Gains. However, in our considered view, suspicion howsoever strong cannot take substitute of facts. The assessee has demonstrated with substantial evidences before the AO that the actual purchase and sale of the shares took place, such shares had distinctive numbers, the transactions were routed through the normal banking channels and the shares had been allotted to the assessee subsequently under an order of amalgamation/merger by the judgment of Hon ble High Court of Kolkata and, therefore, mere reliance on the report of Investigation Wing and statement of Shri Harshvardhan Kayan which do not even mention the name of the assessee, in our considered opinion cannot be upheld. Lower authorities have failed to bring on record any evidence to prove that the transactions carried out by the assessee were not genuine or that these documents furnished in support of the claim of the assessee were not authenticate. It would also not out of place to mention that no specific enquiry or investigation was conducted by the Department in the case of Shri Ashok Kumar Kayan which would lend some credence to the theory which has been advanced by the Department. Therefore, in our considered opinion, the lower authorities had merely acted on surmises and conjectures and had delved on the theory of preponderance of probability even in the face of documentary evidences which were not negated as being false. Therefore, considering the evidences furnished by the assessee, which the AO did not negate with any counter evidence, we are of the considered opinion that the assessee has successfully discharged the onus cast upon him in terms of provisions of section 68 and this discharge of onus is a pure question of fact and, therefore, the various decisions relied upon by the Department on the question of law would not be of any assistance to the Department. Since, in our considered view, on the facts of the case, the assessee has been able to successfully discharge the onus cast upon him, the impugned addition has no feet to stand. - Decided in favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Disallowance of exemption under Section 10(38) of the Income Tax Act, 1961.
3. Denial of cross-examination of witnesses.
4. Reliance on statements recorded under Section 133A of the Income Tax Act, 1961.
5. Application of the principle of human probabilities.
6. Relevance of documentary evidence provided by the assessee.
7. Independent enquiry by the Assessing Officer (AO).

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The Assessing Officer (AO) made an addition of Rs. 2,00,10,326/- under Section 68, concluding that the Long Term Capital Gain (LTCG) claimed by the assessee was bogus. This conclusion was primarily based on a report from the Investigation Wing and statements from certain individuals, including Shri Harshvardhan Kayan. The AO dismissed the documentary evidence provided by the assessee, such as Contract Notes, Demat Account statements, and details of share transactions, and relied on the principle of preponderance of probability.

2. Disallowance of exemption under Section 10(38) of the Income Tax Act, 1961:
The AO disallowed the exemption claimed under Section 10(38) for LTCG, asserting that the gains were not genuine. The assessee had provided substantial documentary evidence, including bank statements showing transactions through account payee cheques and payment of Securities Transaction Tax (STT). However, these were not accepted by the AO or the Commissioner of Income Tax (Appeals) [CIT(A)].

3. Denial of cross-examination of witnesses:
The assessee requested the opportunity to cross-examine Shri Harshvardhan Kayan, whose statement was used against him. This request was denied by the AO, and the CIT(A) upheld this decision. The Tribunal noted that the denial of cross-examination was against the principles laid down by the Hon'ble Supreme Court in the case of Andaman Timber Industries, which states that reliance on statements recorded at the back of the assessee without allowing cross-examination is not permissible.

4. Reliance on statements recorded under Section 133A of the Income Tax Act, 1961:
The statement of Shri Harshvardhan Kayan was recorded under Section 133A, which does not carry evidentiary value as it is not recorded under oath. The Tribunal emphasized that such statements cannot be the sole basis for making additions, especially when the assessee has denied any dealings with the individual and provided substantial documentary evidence.

5. Application of the principle of human probabilities:
The AO and CIT(A) relied on the principle of human probabilities to conclude that the LTCG was bogus. The Tribunal highlighted that this principle cannot override documentary evidence. The Hon'ble Punjab and Haryana High Court in the case of Hitesh Gandhi and the Hon'ble Supreme Court in the case of Daulat Ram Rawatmull have held that documentary evidence cannot be brushed aside merely on suspicion.

6. Relevance of documentary evidence provided by the assessee:
The assessee provided extensive documentary evidence, including Contract Notes, Demat Account statements, bank statements, and a judgment from the Hon'ble Kolkata High Court regarding the amalgamation of companies. The Tribunal noted that the lower authorities did not find any defects in these documents and failed to provide counter-evidence to negate them. The Tribunal concluded that the assessee successfully discharged the onus cast upon him under Section 68.

7. Independent enquiry by the Assessing Officer (AO):
The Tribunal observed that the AO did not conduct any independent enquiry to verify the assessee's involvement in the allegedly bogus LTCG claim. The AO relied solely on the Investigation Wing's report and the statement of Shri Harshvardhan Kayan. The Tribunal emphasized that the AO should have conducted an independent enquiry to substantiate the claims made in the report.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made under Section 68. The Tribunal held that the assessee had provided sufficient documentary evidence to substantiate the genuineness of the LTCG and that the denial of cross-examination and reliance on statements recorded under Section 133A were not justified. The Tribunal also noted that the AO failed to conduct an independent enquiry and relied solely on the Investigation Wing's report and statements, which were not sufficient to make the addition.

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