Income Tax Additions Can't Be Based On Generalised Report By Investigation Wing: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that income tax additions cannot be based on the generalized report given by the Investigation wing.

The bench of Anikesh Banerjee (Judicial Member) and B.R. Baskaran (Accountant Member) has observed that the assessee has purchased the shares from the market in physical form, got it transferred to his name, and later dematerialized the same. The payment for the purchase of shares was made through banking channels. Later, the assessee has sold the shares on the stock exchange platform through a registered broker and received the sale consideration through banking channels. The assessee has furnished a copy of the demat statement, which shows entry and exit of the shares.

The respondent/assessee had filed its original return of income, declaring a total income. During the current year, the assessee had earned a long-term capital gain on the sale of 32,000 shares of M/s. Moryo Industries Limited. The assessee claimed the exemption under Section 10(38) of the Income Tax Act, 1961.

The AO received information that a person named Giriraj Kishore Agarwal was providing accommodation entries by way of bogus long-term capital gains in the shares of M/s. Moryo Industries Limited.

The AO held that the long-term capital gain declared by the assessee is bogus in nature and reopened the assessment of AY 2014-15 by issuing the reassessment notice. The AO relied on the report given by the Investigation Wing and concluded that the long-term capital gain declared by the assessee is bogus in nature. However, he preferred to assess the sale proceeds of Rs. 63,51,287/- as income of the assessee on the presumption that the assessee would have received back this amount.

The CIT(A) deleted the addition on the reasoning that the assessing officer has not found fault with any of the documents furnished by the assessee in support of the purchase and sale of shares. The CIT(A) deleted the addition made by the AO.

The appellant/department has challenged the order passed by the CIT(A).

The tribunal, while dismissing the appeal of the department, noted that the AO has not found fault with any of the documents furnished by the assessee evidencing the purchase and sale of shares. The AO has also not carried out any independent inquiry with regard to the transactions carried on by the assessee, i.e., he has simply relied upon the generalized report given by the Investigation wing.

Counsel For Petitioner: Vishnu Agarwal

Counsel For Respondent: Yogendra T. Wakare

Case Title: ITO Versus Prakashmal Malraj Jain

Case No.: ITA No. 3271/Mum/2023

Click Here To Read The Order