ANIL RAI,DEORIA vs. INCOME TAX OFFICER, WARD - 3(4),, DEORIA

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ITA 46/VNS/2022Status: DisposedITAT Varanasi20 July 2026AY 2015-20166 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the AO's findings were primarily based on investigation reports without providing the assessee an effective opportunity to confront or rebut the adverse evidence. Therefore, the assessment was set aside for de novo assessment.

What were the facts?

The assessee claimed exempt Long Term Capital Gain (LTCG) on sale of shares. The Assessing Officer (AO) treated these transactions as bogus, alleging artificially inflated prices and a pre-arranged mechanism to route unaccounted money. The AO made additions under Section 68 and for unexplained expenditure.

What were the issues?

Whether the AO was justified in making additions based on investigation reports without affording the assessee an opportunity to cross-examine or rebut the evidence. Whether the transactions were genuine or a sham to claim bogus capital gains.

Which sections of the Income-tax Act were involved?

Section 68,Section 10(38),Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, VARANASI CIRCUIT BENCH, VARANASI

Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA

For Appellant: Shri Rohitas Agarwal, CA
For Respondent: Shri Sudipta Paul, Sr. DR

PER KUL BHARAT, VICE PRESIDENT.:

The present appeal has been filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi dated 06.09.2022, pertaining to the assessment year 2015-16. The assessee has raised the following grounds of appeal: -

“1. Because the CIT (A) has erred in law and on facts in dismissing the Appeal without considering the decisions cited before him. 2. Because the CIT (A) has erred in law and on facts in deciding the appeal on pre ponderance of Probabilities" and ignoring the facts and compliances made as required under the laws of the land. 3 Because in absence of fulfillment of the conditions of Section 68 of the Act, addition made by AO at Rs.87,88,645/- should not be confirmed by CITIA). 4. Because the appellant has complied with all the stipulations for exemption u/s 10(38) of the Act, exemption has necessarily to be granted.

ITA. No. 46/VNS/2022 Page 2 of 6 5 Because the CIT (A) has erred in law and on facts in holding as under 12 So, the Irresistible conclusion in this case is meticulous paper work by the appellant in making investment in unknown stock and then selling the same as per convenience of the broker and entry operator by rigging prices at astronomical rate shows that the AO has been compelled to examine the entire transactions in the light of the surrounding circumstances and has unearthed the bogus transaction of purchase and sale of shares which was not real and appellant has falled to dispel all the quarries raised by the AD to establish that the transaction in question was real and not beyond human probabilities." which is self-contradictory. 6. Because the CIT (A) has erred in law and on facts in dismissing the Ground No. 1 of the appeal and confirming the addition of Rs.87,88,645/- after holding as under: 13 XXX In my opinion, the transaction is stage-managed to get benefit u/s. 10(38) and the same is not permissible under the Act. In the circumstances, the addition made by AD u/s. 68 is hereby confirmed and ground No.1 of appeal is dismissed." 7. Because the CIT(A) has erred in law and on facts in dismissing the Ground No. 2 of the appeal and confirming the addition of Rs.2,63,659/- after holding as under: 14. Ground No. 2 relates to the estimation of expenditure at the rate of 3% of the sale consideration as unexplained expenditure u/s. 69C of the Act. As I have decided ground No. 1 on preponderance of probabilities then taking leaf out of my findings, there is no doubt that such transactions involve certain money paid to the operators/arrangers of such fraudulent capital gains. The AD has reasonably calculated 3% of the sale consideration. Therefore, no interference is called for. Ground No. 2 is accordingly dismissed. 8 Because the CIT (A) has erred in law and on facts in confirming the addition on the basis of Investigation Report of DDIT (Inv.) without producing any direct evidence which establishes any link with the appellant. All the additions have been confirmed mere on circumstantial evidence which has no legal sanctity. 9. Because the Order appealed against in contrary to facts, law and principles of natural justice.” 2. This appeal has been filed by the assessee, beyond time limit prescribed under section 253(3) of Income Tax Act, 1961 (“Act”, for short). The assessee has submitted application, duly supported by an affidavit, for condonation of delay in filing of the appeal and admission of the appeal for decision on merits, pleading that the delay was unintentional and beyond the control of the assessee. The learned Sr. Departmental Representative for

ITA. No. 46/VNS/2022 Page 3 of 6 Revenue opposed the submission. However, looking to the facts of the present case, in view of the foregoing, and in specific facts and circumstances of the present appeal, the delay in filing of this appeal is condoned; and the appeal is admitted for hearing.

3.

The facts giving rise to the present appeal are that the assessee is an individual had filed his return of income on 08.08.2015, declaring total income at Rs.3,19,260/- after availing deduction u/s Chapter VIA of Rs.1,69,361/- and exempt income at Rs.87,88,645/- through electronic mode. Subsequently, the case was selected for complete scrutiny through CASS and in response to the statutory notices, the Ld. Authorized Representative of the assessee attended the proceedings. The Assessing Officer (“AO”, for short) noted that the assessee has claimed exempt income in the form of Long Term Capital Gain (“LTCG”, for short) on sale of shares of M/s. Kappac Pharma Ltd. He further observed that the assessee had purchased 15000 share @ Rs.15/- per share at consideration of Rs.2,25,000/- the shares were purchased off-line and subsequently sold of off-line at Rs.87,88,645/-. The AO considering the investigation carried out by the Kolkata Investigation Wing of the Income Tax Department treated the impugned transactions as a tool for creating on bogus capital gain. Thus, after considering various case laws, the AO came to the conclusion that the shares were purchased at a comparatively lower price and were subsequently sold at artificially inflated prices after a period of one year. According to him, the entire transaction was a pre-arranged and through rigged mechanism adopted for routing the assessee's unaccounted money under the guise of exempt capital gains. Thus, he made addition u/s 68 of the Income Tax Act, 1961

ITA. No. 46/VNS/2022 Page 4 of 6 (“Act”, for short) of Rs.87,88,645/- and commission @ 3% on this transaction of Rs.2,63,659/-. Consequently, the AO assessed the total income at Rs.93,71,560/- as against the returned income of Rs.3,19,260/-. Aggrieved against this, the assessee preferred an appeal before the Ld. CIT(A) who sustained the finding of the Assessing Authority and dismissed the appeal of the assessee. Now, the assessee is in appeal before this Tribunal.

4.

Apropos to the grounds of appeal, the Ld. Counsel for the assessee reiterated the submissions as made in the written submissions and contended that the authorities below failed to appreciate the facts in right perspective. He further contended that the invocation of the provisions u/s 68 of the Act was ex facie bad in law. Further, he contended that the identity of the parties, the genuineness of the transactions, and the creditworthiness of the persons is fully established. He further contended that no defect had been pointed out by the Assessing Officer in the documentary evidence furnished by the assessee. It was further argued that the purchase and sale of shares were carried out through recognized brokers and the sale consideration was received through normal banking channels. The assessee furnished all the requisite details and documentary evidence in support of its claim. Further, he contended that the Assessing Authority did not consider the binding precedent on the issue.

5.

On the other hand, Ld. Departmental Representative for Revenue opposed the submissions and supported the orders of the lower authorities.

6.

We have heard the Ld. Representatives of the parties and perused the material available on records. The solitary question

ITA. No. 46/VNS/2022 Page 5 of 6 that arises for determination is whether the AO is justified in making impugned addition under the facts of the present case. The assessee has taken multiple grounds assailing the impugned additions. One of the grounds of the assessee is that he was not provided adequate opportunity to rebut, the adverse evidence that was used against him. Looking to the facts of the present case, when assessee has stated that the transaction was routed through banking channel and the finding of the AO is based on some investigation carried However, the findings recorded by the AO are primarily founded upon the investigation carried out by the Investigation Wing and the statements/material collected during such investigation, without providing the assessee with an effective opportunity to confront or rebut the same. Accordingly, the assessment is hereby set aside and restored to the file of the Assessing Officer for de novo assessment. The assessee is hereby directed to co-operate in the assessment proceedings and promptly furnish the supporting evidences as called for by the AO for verification. The grounds raised in the appeal are allowed for statistical purposes.

7.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order deemed to be pronounced under Rule 34(4) of IT(AT) Rules on 20/07/2026.

Sd/- Sd/- [ANADEE NATH MISSHRA] [KUL BHARAT] ACCOUNTANT MEMBER VICE PRESIDENT DATED: 20/07/2026 Vijay Pal Singh, Sr. PS

ITA. No. 46/VNS/2022 Page 6 of 6

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