2010 (12) TMI 840 - HC - Income Tax

Exemption u/s 54F - Bogus transaction - specific records maintained by the company and stock exchange showing the claimed transaction of shares having not taken place - Held that - It is well settled that burden of proving genuineness of a transaction of receipt of income by him from a claimed source particularly income on the basis of which exemption of tax is claimed is on the assessee - The said burden can be discharged by him either by leading evidence or from the circumstances on record. - In absence of positive evidence of the assessee, the Assessing Officer, by applying test of human probabilities can draw an inference of money being undisclosed income of the assessee - the burden on the assessee which he failed to discharge and, therefore, test of human probabilities could be relied upon to reject the claim of the assessee that income was generated from the source of sale of shares which was exempted from tax under section 54F of the Act. - Decded against the assessee

Summary

Issues:
1. Whether the deletion of addition by the ITAT was justified based on lack of opportunity for cross-examination?
2. Whether the burden of proving the genuineness of the transaction lies on the revenue or the assessee?
3. Whether the circumstances presented were sufficient to establish that the transaction was not genuine?

Analysis:

Issue 1:
The appeal was filed by the revenue against the ITAT's order deleting an addition, questioning the genuineness of share transactions due to lack of cross-examination of the alleged broker. The CIT(A) set aside the addition, emphasizing the importance of cross-examination. The Tribunal upheld this decision, citing various legal precedents emphasizing the right to cross-examine. The Tribunal concluded that the Assessing Officer's denial of cross-examination violated natural justice principles. The Tribunal's decision was based on the principle that the burden of proof lies with the party making the claim, and denial of cross-examination was a violation of natural justice.

Issue 2:
The revenue contended that the burden of proving the transaction's genuineness rested on the assessee, as the claim for tax exemption was based on the transaction of capital gains. The revenue argued that the assessee failed to substantiate the genuineness of the transaction, leading to the addition of undisclosed income. The Assessing Officer applied the test of human probabilities to assess the genuineness of the transaction. The revenue asserted that the failure to produce the alleged broker for cross-examination did not negate the need for the assessee to prove the transaction's genuineness.

Issue 3:
The Assessing Officer relied on various circumstances to question the genuineness of the transaction, such as the solitary nature of the transaction, lack of registration of the broker with the stock exchange, and contradictory information from the company. These circumstances placed the burden on the assessee to prove the transaction's genuineness. The Tribunal and CIT(A) erred in holding that the burden solely lay on the revenue. The circumstances presented were deemed sufficient to reject the claim of tax exemption under section 54F of the Act. The court ruled in favor of the revenue, emphasizing the failure of the assessee to discharge the burden of proof regarding the transaction's genuineness.

In conclusion, the court allowed the appeal, emphasizing the importance of the burden of proof lying with the party making the claim and the significance of providing an opportunity for cross-examination to ensure natural justice principles are upheld in legal proceedings.