2023 (2) TMI 1289 - HC - Income Tax

Benefit of Section 10(38) - Assessee to file revised returns if he omitted to make a claim - denial of an opportunity to cross examine the entry providers - Whether after making certain statements in the survey the Assessee not claiming exemption u/s 10(38) at the stage of the assessment proceedings, could be the Assessee turned around and make such claim of wanting to cross-examine persons make adverse statements against the Assessee at the stage of the appeal before the ITAT ? HELD THAT - Having heard Department (Appellant) and having perused the impugned orders of the AO, CIT(A) and the ITAT, the Court finds that both the grounds viz., the claim for benefit of Section 10(38) and denial of an opportunity to cross examine the entry providers, turned on facts. ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO. ITAT committed no error in concurring with the view of the CIT(A) and in dismissing the Revenue s appeal. No substantial question of law arises from the impugned order of the ITAT that calls for interference by this Court.

Summary

Issues:
Appeal by Revenue against ITAT order dismissing appeal, Claim of exemption under Section 10(38) of the Income Tax Act, 1961, Opportunity to cross-examine entry providers, Principles of natural justice, Compliance with CBDT circular, Validity of ITAT decision.

Analysis:
1. The appeal before the High Court stemmed from the ITAT's dismissal of the Revenue's appeal against the CIT(A)'s order for the assessment years 2014-15. The key issue raised by the Revenue was whether the Assessee could claim exemption under Section 10(38) of the Income Tax Act after not doing so during the assessment proceedings but seeking it during the appeal before the ITAT.

2. The ITAT extensively considered the factual details concerning the Respondent-Assessee's claim of long-term capital gains on shares under Section 10(38) of the Act. The Assessee filed a revised return during scrutiny assessment, claiming the exemption. The CIT(A) accepted this claim after verifying that the shares were purchased through Account Payee Cheques, held in Demat Account for over 12 months, and sold through a recognized stock exchange after paying security transaction tax. The ITAT also highlighted the Assessee's right to correct mistakes in the return.

3. Another significant point addressed by the ITAT was the reliance placed by the AO on statements of 'entry operators' to justify additions under Sections 68 and 69 of the IT Act. These statements were made in unrelated proceedings before the Assessee's survey, depriving the Assessee of the chance to challenge or cross-examine the providers of such statements. The ITAT found fault with this approach, emphasizing the importance of providing opportunities for cross-examination.

4. Upon reviewing the orders of the AO, CIT(A), and ITAT, the High Court concurred with the ITAT's decision. It noted that the issues of claiming Section 10(38) benefit and the lack of opportunity to cross-examine entry providers were fact-specific. The failure to adhere to natural justice principles and the oversight of the CBDT circular allowing revised returns were crucial in the Court's decision.

5. Ultimately, the High Court held that the ITAT did not err in upholding the CIT(A)'s decision and dismissing the Revenue's appeal. It concluded that no substantial question of law merited the Court's intervention, leading to the dismissal of the appeal.

6. In summary, the High Court's judgment upheld the ITAT's decision based on the Assessee's right to correct mistakes in the return, the importance of natural justice principles, and the specific factual circumstances surrounding the case. The Court found no grounds to interfere with the ITAT's ruling, resulting in the dismissal of the appeal by the Revenue.