2024 (2) TMI 985 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - bogus LTCG - penny Stocks - whether documents found during the course of search were of incriminating nature? - pre-arranged accommodation entry for LTCG which the assessee has taken - certificates found from the locker of family members HELD THAT - Admittedly and undisputedly, the facts and circumstances of the case are identical and the matter is thus squarely covered by the decision of Shri Ashish Jain Others 2014 (1) TMI 1942 - ITAT CHANDIGARH as the copy of share certificates found from the locker of family members and not that of the assessee, corroborate and confirm the disclosed transaction of purchase of shares and cannot be termed as incriminating in nature. The statement of Shri S K. Khemka is availability of other material/documentation which has come in the knowledge and possession of the AO for the first time during the course of reassessment proceedings and the said statement cannot augment/supplement the material found during the course of search in terms of share certificates and therefore cannot be used to turn the share certificates as incriminating in nature. Being a case of completed/unabated assessment, in absence of any incriminating material found during the course of search in case of the assessee, the addition so made cannot be sustained and is hereby directed to be deleted. In the result, the ground of the assessee s appeal is allowed.

Issues Involved:
1. Addition of Rs. 99,16,874/- on account of long-term capital gain (LTCG) on sale of shares.
2. Absence of incriminating evidence found during the search.
3. Reliance on statements recorded by the Investigation Wing.
4. Definition and relevance of 'incriminating material.'
5. Denial of cross-examination opportunity.
6. Previous judgments and documentary evidence supporting the assessee's claim.
7. Assessment under section 153A in absence of incriminating material.

Summary:

Issue 1: Addition of Rs. 99,16,874/- on account of LTCG on Sale of Shares
The assessee filed an appeal against the order confirming the addition of Rs. 99,16,874/- as LTCG on sale of shares, which was claimed to be exempt under section 10(38). The original return of income was filed on 26/07/2013, declaring total income of Rs. 40,93,498/-, including an exemption claim for LTCG. A search under section 132(1) was conducted on 26/02/2016, and the case was centralized with a notice under section 153(A) issued on 28/09/2016. The AO examined seized records and conducted independent investigations, concluding that the LTCG claim was bogus.

Issue 2: Absence of Incriminating Evidence Found During the Search
The assessee argued that no incriminating evidence was found during the search, and therefore, the addition was not justified. The AO contended that the documents seized from a bank locker related to the purchase of shares were incriminating. The CIT(A) upheld the AO's decision, stating that the documents had a direct bearing on the estimation of correct income.

Issue 3: Reliance on Statements Recorded by the Investigation Wing
The AO relied on statements from brokers recorded by the Investigation Wing, Kolkata, which were not recorded during the search of the assessee. The assessee argued that these statements could not be considered incriminating evidence as they were recorded in different proceedings and not during the assessee's search.

Issue 4: Definition and Relevance of 'Incriminating Material'
The CIT(A) referred to an article in Taxman and the Supreme Court decision in PCIT Vs. Abhisar Buildwell Pvt. Ltd., stating that documents used to understate income fell within the definition of incriminating material. The assessee contended that the mere statement could not be held as incriminating material found during the search.

Issue 5: Denial of Cross-Examination Opportunity
The assessee argued that the reliance on statements recorded at the back of the assessee without providing an opportunity for cross-examination was against the principles of natural justice and the Supreme Court's decision in Andaman Timber Industries.

Issue 6: Previous Judgments and Documentary Evidence Supporting the Assessee's Claim
The assessee cited several judgments where similar additions were deleted, arguing that the purchase and sale of shares were genuine and supported by documentary evidence. The AO did not dispute the purchase of shares but questioned their credentials.

Issue 7: Assessment under Section 153A in Absence of Incriminating Material
The Tribunal referred to the Supreme Court's decision in Abhisar Buildwell Pvt. Ltd., which held that in the absence of incriminating material, no addition could be made in respect of completed assessments. The Tribunal found that the documents seized from the locker corroborated the disclosed transaction and could not be termed as incriminating. The statement of the broker was considered other material/documentation but not incriminating material found during the search.

Conclusion:
The Tribunal concluded that the addition of Rs. 99,16,874/- was not based on any incriminating material found during the search. Being a case of completed/unabated assessment, in the absence of any incriminating material, the addition could not be sustained and was directed to be deleted. Other grounds of appeal were dismissed as infructuous. The appeal filed by the assessee was partly allowed.

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