2018 (11) TMI 1625 - AT - Income Tax

Bogus LTCG - denial of exemption claimed by it u/s.10(38) - penny stock purchases - addition as cash credit u/s 68 - opportunity to cross examine the witness - HELD THAT - Though it is stated in the assessment order that assessee was apprised about the Investigation done in Kolkata, it is not clear whether the reports of such investigation and statements recorded from various persons relied on by the Revenue for disbelieving the claim of the sale of shares, were put to the assessee. Undisputedly, the sale of shares were through recognized stock exchange and through a recognized stock broker. Question regarding genuineness of the claim of long term capital gains requires to be restored to the ld. Assessing Officer for reconsideration after granting assessee adequate opportunity to substantiate its case. Revenue has to furnish to the assessee all the statements relied on by them. Hon ble Apex Court in the case of CIT vs. Sunita Dhadda, 2018 (3) TMI 1610 - SC ORDER , has affirmed a judgment of Hon ble Rajasthan High Court in the case of CIT vs.Smt. Sunita Dhadda 2017 (7) TMI 1164 - RAJASTHAN HIGH COURT , where the importance of providing an opportunity to cross examine the witness has been stressed. Their lordship held that this was an important constituent of natural justice. Only after all the steps required under law is complete, it can be ascertained whether claim of capital gains was bogus or not. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the AO for consideration afresh in accordance with law. - Appeal of the assessee is allowed for statistical purpose.

Summary

Issues:
Denial of exemption claimed under section 10(38) of the Income Tax Act on long term capital gains of ?8,74,250 and deeming the consideration received on sale as cash credit under Section 68 of the Act.

Analysis:

1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-2, Chennai, denying exemption under section 10(38) of the Income Tax Act on the long term capital gains from the sale of shares. The assessee claimed to have purchased 25,000 equity shares of a company which were later split, resulting in a sale of 25,000 shares for ?8,76,750. The lower authorities disbelieved the purchase and sale transactions based on statements and investigations, without providing the assessee an opportunity for cross-examination.

2. The Departmental Representative suggested remitting the issue back to the Assessing Officer for due process. The Tribunal considered the contentions and orders of the authorities. The Assessing Officer disallowed the exemption due to suspicions regarding the genuineness of the transactions, relying on statements and investigation reports. The Tribunal noted the lack of evidence provided to the assessee for verification and emphasized the importance of cross-examination for natural justice.

3. Referring to a similar case, the Tribunal highlighted the necessity of facts and evidence to support assessments, rather than mere suspicions. The Tribunal raised questions regarding the purchase, possession, and dematerialization of shares, emphasizing the need for substantiating claims with concrete evidence. The Tribunal concluded that the issue of genuineness required reconsideration by the Assessing Officer, with the assessee given an opportunity to substantiate the transactions.

4. Citing legal precedents emphasizing the right to cross-examination and the importance of following due process, the Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for fresh consideration in accordance with the law. The appeal of the assessee was allowed for statistical purposes.

In conclusion, the judgment focused on the denial of exemption claimed under section 10(38) of the Income Tax Act and the deeming of consideration as cash credit, highlighting the necessity of providing the assessee with an opportunity to substantiate transactions and emphasizing the importance of following due process and natural justice in assessments.