UDAYLAL NARMAL JAIN,MUMBAI vs. DCIT, MUMBAI

The solitary ground raised by the assessee relates to challenging the order of the Ld. CIT(A) in sustaining the additions of Rs. 25,25,000/- made by the AO under Section 68 of the Act.

Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before the Revenue Authorities and also relied upon the written submissions. On the contrary, the Ld. DR relied on the orders passed by the Revenue Authorities.

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the assessee is an individual and had filed the return of income for the year under consideration on 31.07.2013. During the relevant assessment year, the assessee had offered income from long-term capital gain from the sale of shares of M/s Unisys Software and Holding Ltd. amounting to Rs. 25,25,000, out of which Rs. 21,21,750 was claimed as exempt under Section 10(38) of the Act.

However, the case of the assessee was reopened based on information from the DGIT (Investigation), Kolkata, which had undertaken an investigation into penny stock companies and indicated bogus LTCG/STCG entries claimed by a large number of beneficiaries. Statements of operators of M/s Unisys Software and Holding Ltd. were recorded, wherein they admitted to being bogus entry providers. Accordingly, additions were made in the hands of the assessee under Section 68 of the Act by the AO. The appeal against the said additions was also upheld by the Ld. CIT(A).

Now, the core issue for adjudication before us is whether the LTCG so claimed by the assessee from the sale of shares of M/s Unisys Software and Holding Ltd. is genuine or not, and whether the additions under Section 68 of the Act made by the AO and sustained by the CIT(A) are justified.

To discharge its onus, it was submitted by the assessee that he is a regular investor and had purchased 12,500 shares of M/s Unisys Software and Holding Company for Rs. 15,00,000 through a registered stock broker from the open market. In this regard, a copy of the Report for the year of purchase is enclosed at Paper Book pages 12 to 22. All payments for the purchase of the said shares were made through proper banking channels.

Consequently, the said shares were credited to the assessee’s Demat account with the broker and were ultimately sold through the broker, Ambit Securities Broking Pvt. Ltd., on 17.05.2012. On this transaction, the assessee had already paid STT and service tax, and copies of the sale contract notes have also been placed on record at Paper Book page 14. Therefore, after adjusting the cost of acquisition, the LTCG as per the assessee comes to Rs. 21,21,750.

It was further submitted that the entire sale consideration was also received through banking channels and is reflected in the bank statements. The entire trail through banking channels has already been placed on record. It was contended that once the assessee had discharged its primary onus by placing all documentary evidence on record, the burden shifted upon the department to disprove the same.

From the records, we noticed that the AO, while making the additions, had only relied upon the information of the Investigation Wing, and no independent inquiry was conducted. Even in the assessment order, no defect has been pointed out in the documents relied upon by the assessee. The AO, being both the adjudicator and investigator, could not bring any evidence on record linking the assessee to the alleged

In our view, any material collected by the AO during the investigation cannot be used against the assessee without providing an opportunity for rebuttal, as it violates the basic principles of natural justice. In this regard, reliance is being placed upon the decisions in the cases of:

Moreover, similar additions on identical issues have also been deleted by the jurisdictional Bombay High Court and various Coordinate Benches of ITAT, and the same are mentioned herein below:

Therefore, considering the totality of facts and circumstances, and keeping in view that the assessee has discharged its onus, which has not been rebutted or controverted by the Revenue, and also considering the decisions of the Coordinate Benches of the ITAT wherein identical additions regarding the same scrip have already been deleted, the additions are liable to be deleted. Therefore, we direct the AO to delete the addition made under Section 68 of the Act.

In the result, the appeal filed by the assessee stands allowed with no order as to cost.