Failure of AO to conduct an Independent Investigation: ITAT deletes Addition u/s 68 made on Presumptions and Conjectures [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition under Section 68 of the Income Tax Act, 1961 made on presumptions and conjectures and also the failure of the Assessing Officer to conduct an independent investigation.

The assessee is engaged in the business of share trading and also earns commission income. The Assessing Officer (AO) has received information from the Deputy Director of Income Tax (DDIT) Mumbai that the assessee has entered into share transactions of M/s Rockon Fintech Ltd of Rs.4,28,690/- and M/s Vax Housing Finance Corp Ltd of Rs. 4,77,941/-.

The AO found that the assessee has not filed the return of income and therefore has a reason to believe that the income has escaped assessment and issued a notice under Section 148 of the Income Tax Act.

It was observed that the assessee has obtained bogus short-term capital gains/losses on the share transactions. The return of income was filed by the assessee in compliance with a notice under Section 148 of the Income Tax Act disclosing a gross total income of Rs.154,741/- and after claiming the deduction under Section Chapter VIA of Rs. 99,696/- and the total income was determined of Rs.55,050/-.

Therefore, the AO came to a unilateral conclusion that transactions were not genuine and made an addition of short-term capital gains as unexplained cash credit under Section 68 of the Income Tax Act of Rs.73,586/- and rejected the short-term loss earned of Rs.42,138/- and assessed the total income of Rs.1,70,774/-and passed the order under Section 143(3) read with Section 147 of the Income Tax Act.

The Commissioner of Income Tax (Appeal) [CIT(A)] has considered the grounds of appeal, submissions of the assessee, statement of facts, and findings of the AO and dealt with the information/ submissions and deleted the addition and partly allowed the assessee appeal.

The Departmental Representative emphasized that the shares were purchased and sold with the intention of claiming the accommodation entry benefit supported the order of the AO and prayed for allowing the revenue appeal.

The Authorized Representative submitted that the assessee has not claimed the exemption under Section 10(38) of the Income Tax Act and has offered profit on the sale of shares as business income and the assessee has incurred loss in trading of other shares and has set off against the profit and the balance profit was offered for taxation.

The Single-member bench comprising of Pavan Kumar Gadale (Judicial member) held that “the AO has not conducted any independent investigation and made additions on presumptions and conjectures”. Therefore, there was no infirmity in the order of the CIT(A). Thus, the appeal of the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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