2018 (11) TMI 1626 - AT - Income Tax

Bogus LTCG - Denial of exemption u/s.10(38) - penny stock transactions - Long Term Capital Gains in respect of the sale of the shares - HELD THAT - A perusal of assessee s case shows that it is similar to the facts in the case of Shri Heerachand Kanunga 2018 (6) TMI 1329 - ITAT CHENNAI wherein held that statement given by Shri Ashok Kumar Kayan cannot be the foundation for the purpose of assessment in so far as Shri Ashok Kumar Kayan has not been provided to the assessee for cross-examination. In the absence of opportunity of cross-examination the statement remains mere information and such information cannot be foundation for assessment. Assessee in good faith has purchased the shares of M/s.BPL from a sub-broker in his friends circle. What is the true nature of the transaction? From whom did the assessee actually purchase the shares? Did the assessee take possession of the shares in its physical form? - the assessee is an investor and has been regularly trading in shares. If this is so does the demat account show such transactions being done by the assessee or is this the only one of transaction. Thus clearly the facts required for adjudicating the appeals are not forthcoming - we are of the view that the issues in this appeal must be restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case and we do so. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
Appeal against CIT(A) order for assessment year 2010-11 regarding treatment of purchase and sale of shares as penny stock transactions and claim of exemption u/s. 10(38) of the Act on long term capital gains.

Analysis:

Issue 1: Treatment of Purchase and Sale of Shares as Penny Stock Transactions
The appeal was against the action of the Ld.CIT(A) in confirming the addition made by the Assessing Officer in treating the purchase and sale of shares by the assessee in M/s.Bakra Pratisthan Ltd. as penny stock transactions. The appellant sought the claim of exemption u/s.10(38) of the Act on the long term capital gains on the sale of shares. The Departmental Representative argued that the issue was similar to a previous decision of the Tribunal in the case of Shri Heerachand Kanunga, where the issue was restored to the file of the Assessing Officer with certain directions. The Tribunal noted that the facts in the present case gave room for suspicion but assessments cannot be based solely on suspicion. The Tribunal emphasized the importance of supporting facts and the need for evidence in assessments. The Tribunal highlighted the lack of evidence in the Assessment Order, the order of the Ld.CIT(A), and from the side of the assessee. The Tribunal pointed out various discrepancies and unanswered questions regarding the purchase and sale of shares, the demat process, possession of shares, cash transactions, and other relevant details. The Tribunal concluded that the issue needed to be restored to the file of the Assessing Officer for re-adjudication after granting the assessee an opportunity to substantiate its case.

Issue 2: Claim of Exemption u/s. 10(38) of the Act
The Tribunal emphasized the need for the assessee to prove the transaction of Long Term Capital Gains for which the exemption u/s.10(38) was claimed. The Tribunal directed the assessee to provide all necessary evidence to substantiate the claim and produce individuals involved in the transaction, such as the sub-broker, friend, and broker, for examination by the Assessing Officer. The Tribunal highlighted the importance of providing adequate evidence to support the claim of exemption and stressed the need for transparency and clarity in the transaction details. The Tribunal relied on a previous decision of the Co-ordinate Bench of the Tribunal and restored the issue to the file of the Assessing Officer for re-adjudication based on similar directions given in the previous case.

In conclusion, the appeal of the assessee was partly allowed for statistical purposes, and the issue was restored to the file of the Assessing Officer for re-adjudication based on the directions provided in a previous case. The Tribunal emphasized the importance of evidence, transparency, and providing necessary details to support claims in such cases.