In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the additions related to alleged bogus Long-Term Capital Gains (LTCG) due to procedural lapses and denial of cross-examination rights to the assessee.
In this case, the assessee, Shobit Gupta, challenged the orders of the Commissioner of Income Tax ( Appeals ) [ CIT( A ) ], which upheld the additions made by the Assessing Officer ( AO ).
The assessee had filed his income tax returns for the assessment year ( AY ) declaring a total income of Rs. 13,36,590. The search and seizure operations conducted by the investigation wing, in the case of M/s. Radford Global Group, wherein it was established that shares of M/s. Wagend Infra Venture Ltd. were used as accommodation entries for bogus long-term capital gains.
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Due to the information received from the investigation wing, the AO reopened the assessment and noted that the assessee had purchased shares of M/s. Wagend Infra Venture Ltd. sold them through recognized channels and claimed LTCG exemptions under Section 10(38) of the Income Tax Act, 1961.
The AO, relying on the report of the investigation team, considered the long-term capital gain as part of accommodation entry and made addition of both long-term capital gain income and the cost of acquisition under Section 68 of the Income Tax Act.
It was submitted by the counsel on behalf of the assessee that although the assessee had submitted detailed documentation, including bank statements, demat accounts, and broker transaction details, the AO relied solely on investigative reports and statements without corroborating evidence. It was also submitted that the repeated requests to cross-examine individuals whose statements were used against the assessee were denied.
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The ITAT noted that the AO failed to conduct independent inquiries or bring direct evidence to substantiate the claims. The bench observed that there is no allegation in the assessment order or the order of the CIT(A) that the assessee was involved in any price rigging or price increase.
The bench, comprising Pradip Kumar Kedia ( Accountant Member ) and Yogesh Kumar U.S ( Judicial Member ) was of the opinion that a grave error was committed by the AO in denying the opportunity of cross-examination by the assessee and deleted the addition made by the AO.
The assessee was represented by Mr. Ruchesh Sinha and the respondent by Mr. Satya Prakash Sharm.
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