2019 (1) TMI 698 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 bogus LTCG and alleged unaccounted commission expenses - addition based on the statement of Shri R.K. Kedia (alleged entry provider), Manish Arora (employee of Sri R.K. Kedia), alleged exit operators, directors of penny stock companies etc. recorded by various officers of the Department - Held that:- AO was having reasonable evidences but has unnecessarily took the burden on him of proving that long term capital gain earned by the assessee is bogus instead of first asking assessee to prove that the above income is exempt u/s. 10(38) of the Act. After granting full opportunity to the assessee to adduce as many evidence as assessee could have produce and then should have carried out vast powers bestowed upon him under the Income Tax Act, 1961 of examining the details furnished by the assessee. AO could have also asked the assessee to produce all the persons whose statement AO was relying upon.

AO has unnecessarily taken the onus of proving long-term capital gain as bogus instead of first asking assessee to prove that the long-term capital gain is genuine. AO should have first put the burden to put prima facie case in respect of cash credit on assessee as to how it was introduced in the books of the assessee. However, from the first paragraph of the assessment order itself the AO alleged that assessee has entered into a scam and they by walked into the trap of section 110 of the evidence act on him to prove that the long-term capital gain earned by the assessee is bogus. AO after that could not substantiate his allegations by granting cross-examination to the assessee of various persons. It is fatal to the case, as the assessment strategy adopted by the AO could not prove his allegation.

Therefore, in view of overwhelming decisions of the various high courts and coordinate benches produced before us and which came to our knowledge. Even on the merit, we hold that the long-term capital gain earned by the assessee cannot be charged to tax under section 68 of the act. Therefore, we reverse the finding of the lower authorities and direct the AO to grant the benefit of section 10 (38) of the act on the long-term capital gain earned by the assessee on sale of shares. Accordingly as a natural corollary, we also delete the addition of 6 % unaccounted commission expenditure also. Accordingly, ground of the assessee are allowed.