2019 (9) TMI 1513 - AT - Income Tax

Bogus LTCG - Exemption 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 re-adjudication. 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. AO 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 AO s requirements as per law. The AO is also free to conduct appropriate enquiry as deemed fit. The Assessing Officer 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 in the case of Kanhaiyalal Sons (HUF) 2019 (2) TMI 1640 - ITAT CHENNAI . The AO shall furnish adequate opportunity to the assessee on the material etc to be used against it and on appreciation of all the aspects the AO would decide the matter in accordance with law. - Appeal of assessee allowed for statistical purposes.

Summary

Issues:
Appeal against order of CIT(A) confirming additions treating shares as penny stock transactions - Assessing Officer's reliance on investigation report - Failure to provide fair opportunity to assessee - Onus of proving exemption on assessee - Requirement for proper materials to establish exemption - Tribunal remitting matter back to Assessing Officer for re-adjudication.

Analysis:
The appeal was filed against the CIT(A)'s order confirming additions treating shares as penny stock transactions. The Assessing Officer relied on an investigation report without providing a fair opportunity to the assessee to prove the genuineness of the transactions. The Tribunal emphasized that the onus of proving exemption rests on the assessee, requiring them to present proper materials to support their claim. The Tribunal cited a Supreme Court case stating that the right to exemption must be established by those seeking it. The Tribunal highlighted that internal communications of the Revenue are not final evidence. Referring to a similar case, the Tribunal remitted the issue back to the Assessing Officer for re-adjudication, emphasizing the need for the AO to provide material relied upon and grant a reasonable opportunity to the assessee.

The Tribunal noted that the facts in the case raised suspicions but assessments should be based on facts, not mere suspicions. The main foundation of the assessment was a statement that could not be used as a basis without providing an opportunity for cross-examination. Questions were raised regarding the purchase of shares, possession, demat process, and other transaction details. Lack of evidence regarding holding shares for over 12 months was highlighted. The Tribunal concluded that the issues must be restored to the AO for re-adjudication after granting the assessee an opportunity to substantiate its case.

Following the above orders, the Tribunal decided to remit the issue of exemption back to the AO for re-adjudication. The AO was directed to require the assessee to establish the genuineness of the transactions and comply with the requirements as per law. The AO was given the freedom to conduct appropriate inquiries and bring on record the role of the assessee in the transactions. The Tribunal emphasized the need for a fair opportunity for the assessee and directed the AO to decide the matter in accordance with the law. Consequently, the assessee's appeal was treated as partly allowed for statistical purposes.