2019 (12) TMI 1487 - AT - Income Tax

Bogus LTCG - assessee has manipulated the sale of shares within a short span of time in collusion with the brokers in order to earn tax free exempt LTCG - 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. See RAMAKRISHNA DEO. 1958 (10) TMI 9 - SUPREME COURT .Thus, the 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. Thus we deem it fit to remit the issue of exemption in this appeal back to the file of the Assessing Officer for re-adjudication 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 is also free to conduct appropriate enquiry as deemed fit. 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 2019 (2) TMI 1640 - ITAT CHENNAI - Appeal filed by the assessee is treated as partly allowed for statistical purposes.

Summary

Issues involved:
Appeal against addition of Long Term Capital Gain as penny stock transactions, genuineness of transactions, burden of proof on the assessee, re-adjudication of exemption claim u/s 10(38).

Analysis:
1. The appeal was filed against the addition of Long Term Capital Gain as penny stock transactions by the Assessing Officer. The Revenue contended that the assessee failed to prove the genuineness of the transactions, thereby supporting the lower authorities' decisions. The Tribunal observed that the assessee was not given a fair opportunity to prove genuineness, and the assessment primarily relied on evidence collected during investigations. The onus of proving exemption lies on the assessee, and the AO must provide evidence for the assessee to rebut. The Tribunal referenced a previous case to emphasize the importance of proper materials for claiming tax exemption.

2. The Tribunal referred to a case where reexamination was ordered due to insufficient evidence and lack of cross-examination. Similarly, in the present case, the Tribunal found room for suspicion but emphasized that assessments should be based on facts, not mere suspicion. Questions regarding the purchase of shares, possession, demat process, and sale transactions were raised. Lack of evidence on holding shares for over 12 months and discrepancies in the demat process led to the decision to remit the issue back to the AO for re-adjudication.

3. Following previous orders, the Tribunal decided to remit the issue of exemption back to the AO for re-adjudication. The AO was instructed to require the assessee to establish the genuineness of transactions, conduct appropriate inquiries, and bring on record the role of the assessee in share transactions. The assessee was directed to comply with the AO's requirements and provide necessary evidence. The AO was advised to provide adequate opportunity to the assessee for presenting their case before making a decision in accordance with the law.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the Tribunal's decision to remit the matter back to the Assessing Officer for re-adjudication based on the principles of natural justice and burden of proof on the assessee.