2024 (1) TMI 1270 - AT - Income Tax

Validity of reopening of assessment proceedings u/s 147 - reasons to believe - claim of exemption u/s 10(38) denied - borrowed satisfaction of another AO or Independent application of mind - HELD THAT - CIT(A) has rightly upheld the initiation of the proceedings, by observing that the inputs received from the Investigation Wing constituted fresh material for the AO in order to reopen the case by issue of notice u/s 148 and that the AO has recorded reasons and had also taken due approval of PCIT. Therefore, the contention raised by the appellant has no reasonable basis. Accordingly, we hold that the information received from investigation wing would be forming a valid basis for initiation of reopening proceedings u/s 147 of the Act. Accordingly, the ground regarding validity u/s 147 is dismissed. Denial of Exemption u/s 10(38) - unexplained cash credit u/s 68 - It is seen that all the necessary documents and details were duly submitted before the authorities below, which were neither controverted or disproved. We are of the considered view that the assessee has discharged the primary onus casted on him in terms of claim of exemption of long-term capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and therefore, the gains so arising on sale of shares has been rightly claimed as exempt u/s 10(38) of the Act. For instance, in the case of another assessee Shri Mohd. Sharif, Pali (Rajasthan) and Abhay Kumar Kuldeep Kumar HUF, on similar facts and circumstances, department has reopened assessment u/s 148 for the same reasons as of the assessee but assessments were closed by allowing exemption u/s 10(38) on sale of shares of M/s ACI Infocom Ltd. In our view, the action of the authorities below not allowing exemption u/s 10(38) to the assessee on the same facts and circumstances is bad in law and against the principles of natural justice. The order of the Ld. CIT(A) is infirm and perverse to the facts on record in rejecting the appellants claim of exemption u/s 10(38) of the Act. In view of peculiar facts of the case, we set-aside the order of the learned CIT(A) and as such allow the claim of the assessee under section 10(38) of the act. The 2nd issue of exemption u/s 10(38) of the act is thus decided in favour of the assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment proceedings under Section 147 of the Income Tax Act.
2. Claim of exemption under Section 10(38) of the Income Tax Act.

Summary:

Issue 1: Validity of Reopening of Assessment Proceedings under Section 147

The appellant objected to the initiation of proceedings under Section 148, arguing that there was no justification for such proceedings. The appellant contended that all transactions were conducted through registered brokers on recognized stock exchanges, and all details were submitted in the return of income. The proceedings were initiated based on information from the DDIT Investigation, Mumbai, without any separate enquiry, thus violating the principles of natural justice. The CIT(A) upheld the initiation, stating that the inputs from the Investigation Wing constituted fresh material for the AO to reopen the case, and all mandatory safeguards were complied with. The Tribunal agreed, holding that the information received from the Investigation Wing formed a valid basis for reopening proceedings under Section 147. Thus, the ground regarding validity under Section 147 was dismissed.

Issue 2: Claim of Exemption under Section 10(38)

During scrutiny, the AO treated the sale value of shares as manipulated transactions and classified the exempted long-term capital gains as unexplained cash credit under Section 68. The CIT(A) confirmed this, observing that the business of ACI Infocom had been declining, and the extraordinary price rise indicated rigged and manipulated prices. The investigation revealed brokers providing accommodation entries, and the appellant failed to discharge the onus of proving the genuineness of transactions. The Tribunal, however, noted that the appellant provided all necessary documents, including broker transaction statements and demat account details, proving the genuineness of the transactions. The Tribunal cited various judicial precedents supporting the appellant's case, including the ITAT Jodhpur Bench's decision in Piyush Kumar Gogad and the Hon'ble jurisdictional High Court's decision in CIT vs. Smt Pooja Agarwal. The Tribunal found that the appellant had discharged the primary onus of proving the genuineness of the transactions and satisfying the conditions for exemption under Section 10(38). The Tribunal also noted that similar exemptions were allowed in other cases involving the same shares. Thus, the Tribunal set aside the CIT(A)'s order and allowed the appellant's claim for exemption under Section 10(38).

Conclusion:

The Tribunal dismissed the ground regarding the validity of reopening under Section 147 but allowed the appellant's claim for exemption under Section 10(38). The appeals were partly allowed.