2022 (12) TMI 243 - AT - Income Tax

Addition u/s 68 - Bogus Long Term Capital Gain on the scrip - Exemption u/s 10(38) denied - HELD THAT - Where the assessees have filed all documentary evidences which have not been adversely commented by the authorities below, coupled with the fact that the authorities below have made and sustained the additions on the basis of statements of third parties which has not been made available to the assessees for cross examination despite the assessees specific request for the same, the addition sustained is not justified. Above all, similar additions on the same scrip, which were made in the hands of Smt. Anita Singhania, on the basis of statements of certain persons, have been deleted by Kolkata Tribunal. Therefore, in view of the above, we hold that assessees are eligible for exemption of Long Term Capital Gain u/s 10(38) of the Act and we direct the Assessing Officer to allow the same and also direct Assessing Officer to delete the assumed commission, the addition of which has been made on presumptions only and therefore, ground of assessee are allowed.

Issues Involved:

1. Reopening of assessment under Section 147 of the IT Act, 1961.
2. Reassessment based on borrowed information without independent application of mind.
3. Jurisdiction of the Assessing Officer under Section 148 of the IT Act, 1961.
4. Validity of reassessment order without providing reasons to believe.
5. Addition on account of alleged bogus long-term capital gain under Section 69A of the IT Act, 1961.
6. Claim of gain from sale of securities as long-term capital gain under Section 10(38) of the IT Act, 1961.
7. Taxation of alleged bogus share transactions under Section 69A.
8. Burden of proof regarding the gain from the sale of securities.
9. Establishment of nexus or material evidence by the Assessing Officer.
10. Validity of transactions when purchase and sale of shares are disclosed and not barred by SEBI.
11. Preconceived conclusions by the Assessing Officer and CIT(A) based on investigation reports.
12. Addition of estimated commission on an ad hoc basis.
13. Violation of principles of natural justice due to lack of cross-examination.
14. Arbitrary, prejudicial, and unlawful assessment.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessees did not press the grounds related to legal issues, including the reopening of assessment under Section 147, as they focused on the merits of the case.

2. Reassessment Based on Borrowed Information:
Similarly, the issue of reassessment based on borrowed information without independent application of mind was not pressed by the assessees.

3. Jurisdiction under Section 148:
The jurisdictional issue under Section 148 was also not pressed by the assessees.

4. Validity of Reassessment Order:
The validity of the reassessment order without providing reasons to believe was not argued by the assessees.

5. Addition on Alleged Bogus Long-term Capital Gain:
The assessees argued that the addition made by the Assessing Officer on account of alleged bogus long-term capital gain under Section 69A was not justified. They provided documentary evidence of purchase and sale transactions and argued that these transactions were genuine and conducted at prevailing market rates on the stock exchange. The Tribunal noted that similar additions were deleted by the Kolkata Bench of the Tribunal in the cases of Anita Singhania and Soumitra Chaudhary, where the transactions were also related to the same scrip, Twenty First Century (India) Ltd.

6. Claim of Gain from Sale of Securities:
The assessees claimed that the gain from the sale of securities should be treated as long-term capital gain under Section 10(38) of the IT Act, 1961. They provided evidence of purchase and sale transactions, DEMAT accounts, and bank statements to support their claim. The Tribunal found that the assessees had discharged their onus of proving the genuineness of the transactions.

7. Taxation of Alleged Bogus Share Transactions:
The Tribunal held that the alleged bogus share transactions could not be taxed under Section 69A as the assessees had provided sufficient documentary evidence to support the transactions. The Tribunal relied on various case laws where similar additions were deleted, including the decisions of the Kolkata Bench of the Tribunal and the Hon'ble Delhi High Court in the case of Smt. Krishna Devi & Ors.

8. Burden of Proof:
The Tribunal noted that the assessees had provided all necessary documents to prove the genuineness of the transactions, including purchase and sale bills, DEMAT account statements, and bank statements. The Assessing Officer did not provide any adverse comments on these documents. Therefore, the burden of proof was discharged by the assessees.

9. Establishment of Nexus or Material Evidence:
The Tribunal found that the Assessing Officer and CIT(A) failed to establish any nexus or material evidence to prove that the transactions were pre-arranged or involved collusion between the assessees and brokers. The addition was made based on presumptions and statements recorded at the back of the assessees without providing an opportunity for cross-examination.

10. Validity of Transactions:
The Tribunal held that the transactions could not be doubted as the assessees had disclosed the purchase and sale of shares, which were traded on the stock exchange at prevailing market rates. There was no evidence of collusion or any bar by SEBI on these transactions.

11. Preconceived Conclusions:
The Tribunal noted that the Assessing Officer and CIT(A) had made additions based on preconceived conclusions and investigation reports without bringing any material evidence on record to establish the involvement of the assessees in bogus transactions.

12. Addition of Estimated Commission:
The Tribunal found that the addition of estimated commission on an ad hoc basis was not justified as it was made without any basis or evidence.

13. Violation of Principles of Natural Justice:
The Tribunal held that the principles of natural justice were violated as the statements of third parties, on which the Assessing Officer relied, were not provided to the assessees for cross-examination. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries, which emphasized the importance of cross-examination.

14. Arbitrary, Prejudicial, and Unlawful Assessment:
The Tribunal concluded that the assessment completed by the Assessing Officer and confirmed by the CIT(A) was arbitrary, prejudicial, and unlawful. The Tribunal directed the Assessing Officer to allow the exemption of long-term capital gain under Section 10(38) and delete the addition of assumed commission.

Conclusion:
The Tribunal allowed the appeals of the assessees, holding that the additions made by the Assessing Officer were not justified. The Tribunal emphasized the importance of providing an opportunity for cross-examination and relying on documentary evidence rather than presumptions and investigation reports. The Tribunal directed the Assessing Officer to allow the exemption of long-term capital gain under Section 10(38) and delete the addition of estimated commission.

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