2019 (3) TMI 2004 - AT - Income Tax

Bogus LTCG - unexplained cash credit u/s 68 - denying exemption u/s 10(38) - HELD THAT - On the issue of claim of exemption u/s.10(38) in respect of long term capital gains, it is noticed that the assessee has not been given any opportunity to prove the genuineness but the assessment has been made based on the evidences collected by the Revenue in the course of the investigation conducted by them on brokers / share broking entities etc. This is not permissible. This being so, in the interest 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, assessee had to put before the Income Tax authorities proper materials which would enable to come to a conclusion. AO must keep in mind that the onus of proving the exemption rests on the assessee. If the A O 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 to the A O s requirements as per law. On appreciation of all the above aspects, the AO would decide the matter in accordance with law.

Summary

Issues:
1. Assessment of unexplained cash credit u/s 68 of IT Act and denial of exemption u/s 10(38) on long term capital gains.
2. Admissibility of additional evidence and re-adjudication of genuineness of transactions.

Analysis:
1. The appeal involved the assessment of unexplained cash credit u/s 68 of IT Act and denial of exemption u/s 10(38) on long term capital gains. The assessee, an individual deriving salary income and capital gains, purchased shares of a company which later amalgamated with another. The Assessing Officer (AO) treated the sale value of shares as unexplained cash credit due to suspicions of trading in penny stocks. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Tribunal noted that the assessee was not given the opportunity to prove the genuineness of the transactions, as the assessment was based on evidence collected by the Revenue without providing the same to the assessee. The Tribunal emphasized the onus on the assessee to establish the right to exemption and ordered re-adjudication of the issue to ensure natural justice.

2. The additional evidence submitted by the assessee regarding the annual report of the company involved was admitted in the interests of justice. The Tribunal observed that the AO must allow the assessee to establish the actuality and genuineness of the transactions, including providing details on the parties involved, the nature of transactions, and compliance with legal requirements. The Tribunal referred to a previous case emphasizing the need for factual evidence to support assessments rather than mere suspicions. Consequently, the Tribunal directed the AO to re-examine the genuineness of the transactions and provide the assessee with the opportunity to substantiate their case, ensuring a fair assessment process.

This detailed analysis of the judgment highlights the key issues, legal arguments, and the Tribunal's decision to ensure fairness and adherence to legal principles in the assessment of unexplained cash credit and denial of exemption on long term capital gains.