2019 (12) TMI 1668 - AT - Income Tax

Bogus LTCG - scrip being a penny stock company - exemption u/s 10(38) towards sale of equity shares denied - HELD THAT - Relevant factors to be considered are surrounding circumstances, objective facts, evidence adduced, presumption of facts based on common human experience in life and reasonable conclusions. In present facts of the case it is further observed that Ld. AO has not examined/called for any evidences in respect of purchase/sale of alleged scripts. Assessee is therefore directed to provide all relevant documents to establish sound financial of alledged companies and that fluctuation in price was market driven. Ld.AO shall take all evidences into consideration and then decide the issue as per law. In the event de hors statement, there are overwhelming evidences and assessee is unable to establish genuineness of sale and purchase of alledged scripts, adverse view would be taken by holding the transaction to be sham. AO is directed to provide all statements recorded by investigation wing to assessee, referred to in assessment order. In the event, statements recorded are not of secondary and subordinate category, cross examination has to be granted to assessee. Ld.AO is directed to re-examine the case of assessee in the light of aforestated direction in accordance with law. Assessee s appeal stands allowed for statistical purposes.

Summary

Issues:
1. Claim of exemption under section 10(38) for long term capital gains on shares.
2. Allegations of preconceived scheme to procure capital gains.
3. Upholding of AO's findings by Ld. CIT (A).
4. Request for cross-examination of persons whose statements were used against the assessee.
5. Consideration of circumstantial evidence and genuineness of share transactions.
6. Compliance with principles of natural justice regarding cross-examination.
7. Examination of evidences related to purchase/sale of shares.
8. Directive for providing statements recorded by investigation wing and re-examination by Ld.AO.

Analysis:
1. The appellant, a HUF, filed an appeal against the order of Ld. CIT (A) for the assessment year 2015-16, challenging the denial of exemption under section 10(38) for long term capital gains on shares. The Assessing Officer (AO) raised concerns regarding the sale of shares of M/s Sunrise Asian Ltd., alleging a preconceived scheme to procure capital gains.

2. The AO contended that the rise in share price was not based on commercial principles and market factors, leading to the denial of the exemption claim. Ld. CIT (A) upheld the AO's findings, prompting the appellant to appeal to the ITAT Bangalore.

3. During the appeal, the appellant requested the opportunity to cross-examine individuals whose statements were used against them, citing legal precedents. The Ld. CIT (A) and the Senior DR opposed the claim, emphasizing the importance of circumstantial evidence in determining the legitimacy of transactions.

4. The ITAT considered the principles of natural justice regarding cross-examination, citing various legal judgments. It highlighted that the right to cross-examination is not absolute and depends on the circumstances of the case. The tribunal referred to relevant case laws to support its decision.

5. In the absence of examination of evidences related to the purchase/sale of shares, the ITAT directed the appellant to provide all relevant documents to establish the financial soundness of the companies involved. The AO was instructed to re-examine the case considering the provided evidence and statements recorded by the investigation wing.

6. The ITAT emphasized the need for compliance with natural justice principles, directing the AO to provide all statements to the appellant and allow cross-examination if necessary. The tribunal stressed the importance of fair representation for the appellant in the reassessment process.

7. Ultimately, the ITAT allowed the appellant's appeal on the preliminary legal issue, emphasizing the importance of providing a proper opportunity for the appellant to present their case. The appeal was allowed for statistical purposes, indicating a favorable outcome for the appellant in this regard.