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2024 (3) TMI 1433 - HC - Income TaxAddition u/s 68 - bogus LTCG on sale receipt of shares - HELD THAT - No irregularity was highlighted by the Securities and Exchange Board of India pertaining to the transaction of the scrips of the Company would lead us to the conclusion that there is nothing adverse against the respondent-assessee which could establish a fictitious LTCG to claim exemption at the behest of the respondent-assessee. Rather the arguments put forth by the Revenue are mere findings of fact. The issues raised by the Revenue in the present appeals already stand covered by the decision of this Court in the case of PCIT v. Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT wherein under similar facts and circumstances it was held that the preponderance of probabilities cannot be a ground to reject the evidence put forth by the parties. ITAT correctly deleted addition - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The case revolves around the interpretation and application of Section 68 of the Income Tax Act, which deals with unexplained cash credits, and Section 10(38), which provides exemptions for LTCG. The court also referenced precedents such as PCIT v. Krishna Devi and PCIT v. Karuna Garg, which discuss the burden of proof and the role of human probabilities in tax assessments. Court's Interpretation and Reasoning The court noted that the AO's conclusions were based on the preponderance of probabilities and the assumption of human behavior, rather than concrete evidence. The ITAT found that the AO and CIT (A) failed to provide substantial evidence linking the respondent-assessee to any fraudulent transactions. The court emphasized that suspicion alone cannot justify the rejection of evidence presented by the respondent-assessee. Key Evidence and Findings The AO relied on the astronomical increase in share prices and statements from unrelated parties to support the claim of bogus transactions. However, the ITAT found no direct or indirect evidence implicating the respondent-assessee in fraudulent activities. The ITAT also noted the lack of opportunity for the respondent-assessee to cross-examine witnesses whose statements were used against him. Application of Law to Facts The court applied the principles established in previous cases, emphasizing the need for concrete evidence rather than assumptions based on probabilities. The court found that the ITAT correctly assessed the evidence and concluded that the AO's findings were unsupported by the record. Treatment of Competing Arguments The Revenue argued that the transactions were part of a scheme to convert unaccounted income into LTCG. The respondent-assessee countered that the transactions were genuine and that the Revenue's case was based on assumptions and unrelated evidence. The court found the respondent-assessee's arguments more convincing, given the lack of substantial evidence from the Revenue. Conclusions The court concluded that the ITAT's decision to delete the additions made by the AO was justified, as the Revenue failed to provide substantial evidence of fraudulent activity. The court also determined that the appeal did not raise any substantial question of law. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning The court reiterated the principle that "the theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent." It emphasized that decisions must be based on evidence and proof, not mere suspicion. Core Principles Established The judgment reinforced the principle that tax authorities must base their conclusions on concrete evidence rather than assumptions or probabilities. It also highlighted the importance of allowing taxpayers the opportunity to challenge evidence used against them. Final Determinations on Each Issue The court upheld the ITAT's decision to delete the additions made by the AO, finding that the Revenue's case was unsupported by substantial evidence. The court dismissed the appeals, concluding that they did not raise any substantial question of law.
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