Rajeev Agarwal & Sons Vs ITO (ITAT Delhi)
ITAT Delhi allowed the appeal of Rajeev Agarwal & Sons, challenging the addition of ₹21,85,891 under section 68 of the Income-tax Act, 1961, which the Assessing Officer (AO) had made by treating long-term capital gains (LTCG) from share sales as unexplained income. The AO considered the transactions sham based on statements from individuals involved in accommodation entries, including the MD of Unno Industries, the company whose shares were sold. Despite the assessee providing documentation of share purchase through a broker, bonus share allotment, dematerialization, amalgamation, and eventual sale via a registered broker with proceeds received through banking channels, the AO disregarded these, citing suspicion and applying the test of human probabilities.
The ITAT found that the AO denied the assessee the opportunity to cross-examine the individuals whose statements were the basis of the suspicion, even though these statements did not directly implicate the assessee. Relying on the Supreme Court’s ruling in Andaman Timber Industries vs. CCE, the Tribunal held that denying the right to cross-examine witnesses whose statements are used against the assessee constitutes a violation of natural justice, rendering the order unsustainable. The ITAT also noted that the shares were traded on the Bombay Stock Exchange, payments were banked, and there were no allegations of manipulation by SEBI or BSE. Consequently, the Tribunal directed the AO to delete the addition, allowing the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
