The Assessing Officer observed that it had been established beyond doubt that unaccounted income had been routed back to the assessee camouflaged as long-term capital gains which had been proven to be bogus. These sums were thus added to the assessee’s income as unexplained cash credits u/s. 68 of the Act. The Assessing Officer also added commission paid in lieu of these allegedly bogus entries on the basis of admissions of various persons.

Held that:

• With respect to the allegedly bogus long-term capital gains, the transactions of purchase and sale undertaken by the assessee had been fully substantiated by the assessee through legally acceptable third party evidence.
• The observations of the Assessing Officer that the transactions were bogus was solely dependent on the report of the Investigation Wing with no specific reference of the assessee’s transactions. The evidence of the assessee was third-party evidence which could not be said to have been manipulated. The Assessing Officer did not state that cash from the assessee was received and routed back to the assessee through the bank account. Under the circumstances, no addition could have been made to the income of the assessee, specifically when the entire basis of the addition was the investigation report, which was never confronted to the assessee, and the statements of persons, who were neither examined by the Assessing Officer nor permitted to be cross-examined by the assessee although a request was made for copies of the report as well as of the statements of those persons.
• The addition of commission paid for the accommodation entries was consequential to the issue of bogus long-term capital gains. Considering that the purchases and sales of shares and the consequential long-term capital gains could not be treated as bogus, the addition on account of notional commission would not be sustainable either ( 2014-15)