2023 (9) TMI 1451 - AT - Income Tax

Bogus LTCG - Denial of exemption of capital gains u/s 10(38) - Reliance on investigation report by the Investigation Wing of the Department and the Securities Exchange Board of India (SEBI) - principle of fraud v/s principles of natural justice application - HELD THAT - We are inclined to confirm the addition made by AO, in view of the well settled principle of law that fraud vitiate everything and even principle of natural justice have no application and such transaction is void ab initio. The Hon'ble Supreme Court in the case of Friends Trading Co. vs. Union of India 2022 (9) TMI 1076 - SUPREME COURT held in the context of availment of alleged forged DEPB under the Customs Act, wherein, it was found DEPB licenses were forged and it was held that the exemption benefit availed on such forged DEPB are void ab initio on the principle that fraud vitiate everything and the period of limitation was held to have no application and the Department was held to be justified in invoking the extended period of limitation and the fact that whether the beneficiary had no knowledge of about the fraud/forged and fake DEPB licenses have no bearing the imposition of custom duty. The ratio of judgement is squarely applicable to the transaction under consideration before us. Appellant deliberately withheld the information from the AO as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the AO as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Decided against assessee.

Summary

Issues involved:
The judgment involves appeals by two different assessees against the orders of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16, concerning the denial of exemption of capital gains under section 10(38) of the Income Tax Act.

Issue 1 - Denial of exemption of capital gains under section 10(38) of the Act:
The appellant, an individual deriving income from farming and house property, filed a return of income for the assessment year 2015-16. The Assessing Officer denied the claim for exemption of capital gains under section 10(38) amounting to Rs. 2,98,95,128, considering the transactions of purchase and sale of shares as bogus. The appellant failed to substantiate the genuineness of the transactions during the assessment proceedings. The ld. CIT(A) confirmed the addition invoking the doctrine of human probability. The appellant contended that the ld. CIT(A) should not have confirmed the addition without considering their submissions. The tribunal upheld the orders of the Assessing Officer and the ld. CIT(A), citing the principle that fraud vitiates everything and the transaction was void ab initio due to deliberate withholding of information by the appellant.

Separate Judgment:
No separate judgment was delivered by the judges in this case.

This summary provides a detailed overview of the issues involved in the judgment, focusing on the denial of exemption of capital gains under section 10(38) of the Income Tax Act for the assessment year 2015-16.