2019 (11) TMI 1561 - AT - Income Tax

Bogus LTCG - penny stock transactions of shares - unexplained credit u/s.68 - exemption claimed u/s.10(38) denied - HELD THAT - As noticed that the assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made primarily, based on the evidences collected by the Revenue in the course of the investigation conducted by them on the brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the genuineness of the transactions require readjudication. Since, the right to exemption must be established by those who seek it, the onus therefore lies on the assessee. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper materials which would enable them to come to a conclusion. AO must keep in mind that the onus of proving the exemption rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. we deem it fit to remit the issue of exemption in this appeal back to the file of the Assessing Officer for readjudication on the lines indicated above. Therefore, the Assessing Officer shall require the assessee; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply with the Assessing Officer s requirements as per law. AO shall also bring on record the role of the assessee in promoting the company and relationship of the assessee with other promoters, role of the assessee in inflating the price of shares, etc. as had been held by the Co-ordinate Bench of this Tribunal in the case of Kanhaiyalal Sons (HUF) 2019 (2) TMI 1640 - ITAT CHENNAI - Appeal filed by the assessee is treated as partly allowed for statistical purposes.

Summary

Issues involved:
Appeal against order of Commissioner of Income Tax regarding Long Term Capital Gain transactions.

Detailed Analysis:
1. The assessee appealed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2014-15, where the Assessing Officer concluded that the Long Term Capital Gains claimed were sham transactions aimed at bringing unaccounted money in the guise of exempted gains. The CIT(A) dismissed the appeal, leading to the current appeal (Para 2).

2. The main issue in this appeal was the treatment of the purchase and sale of shares by the assessee as penny stock transactions. The Assessing Officer disallowed the exemption claimed under Section 10(38) due to lack of proof of genuineness. The case was compared to previous tribunal decisions for reference (Para 3).

3. The ITAT Chennai noted that the assessee was not given a fair opportunity to prove the genuineness of the transactions, and the assessment was based primarily on evidence collected by the Revenue during investigations. The tribunal emphasized that the onus of proving exemption lies on the assessee, and the AO must provide evidence for any contrary claims. The issue of genuineness required re-adjudication for natural justice (Para 4).

4. Referring to previous tribunal decisions, the tribunal highlighted the need for proper substantiation of claims, especially in cases involving penny stocks and Long Term Capital Gains. The case was compared to similar instances where lack of evidence led to remittal for further examination by the Assessing Officer (Para 5).

5. Consequently, the tribunal decided to remit the issue of exemption claim under Section 10(38) back to the Assessing Officer for re-adjudication. The assessee was required to establish the legitimacy of transactions, comply with AO's requirements, and provide necessary evidence for assessment. The AO was directed to conduct appropriate inquiries and provide adequate opportunity to the assessee for a fair decision (Para 6).

6. The appeal filed by the assessee was treated as partly allowed for statistical purposes, and the order was pronounced in court on 29th November 2019 in Chennai (Para 7).