2018 (6) TMI 1329 - AT - Income Tax

Denial of exemption u/s.10(38) - Long Term Capital Gains in respect of the sale of the shares - Held that - A perusal of the facts in the present case admittedly given room for suspicion. However, assessments are not to be done on the basis of mere suspicion. It has to be supported by facts and the facts are unfortunately not forthcoming in the Assessment Order, in the order of the Ld.CIT(A) nor from the side of the assessee. The main foundation of the assessment in the present case is the statement of one Shri Ashok Kumar Kayan who has admitted to have provided bogus Long Term Capital Gains to his clients. The said Shri Ashok Kumar Kayan also allegedly seems to have provided the assessee s name and PAN as one of the beneficiaries. However, this statement given by Shri Ashok Kumar Kayan cannot be the foundation for the purpose of assessment in so far as Shri Ashok Kumar Kayan has not been provided to the assessee for cross-examination. In the absence of opportunity of cross-examination, the statement remains mere information and such information cannot be foundation for assessment. A perusal of the Assessment Order at Para No.7.1 shows that in the Written Submissions, the assessee states that he has purchased 15000 shares of M/s.BPL from M/s.ABPL, Kolkata. However, in Para No.8.3, it is mentioned that the assessee in good faith has purchased the shares of M/s.BPL from a sub-broker in his friends circle. What is the true nature of the transaction? From whom did the assessee actually purchase the shares? Did the assessee take possession of the shares in its physical form? In Para No.8.1 of the Assessment Order, it is mentioned that the assessee is an investor and has been regularly trading in shares. If this is so, does the demat account show such transactions being done by the assessee or is this the only one of transaction. Thus, clearly the facts required for adjudicating the appeals are not forthcoming - we are of the view that the issues in this appeal must be restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case and we do so. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
- Reopening of assessment under section 147 without tangible material
- Denial of exemption under section 10(38) of the Income-tax Act
- Allegations of providing bogus Long Term Capital Gains entries
- Lack of opportunity for cross-examination and principles of natural justice
- Insufficient evidence to support the genuineness of the transaction
- Need for further substantiation and examination of the transaction details

Reopening of Assessment under Section 147:
The appellant challenged the jurisdiction of the Assessing Officer (AO) in reopening the assessment under section 147, citing the absence of tangible material indicating taxable income escapement. The appellant contended that the AO failed to provide reasons for reopening despite a specific request. The Tribunal dismissed Ground Nos. 2.1 & 2.2 as not pressed by the appellant. However, the Tribunal emphasized that assessments cannot be based on mere suspicion but require factual support, which was lacking in this case.

Denial of Exemption under Section 10(38):
The appellant claimed exemption under section 10(38) for Long Term Capital Gains from the sale of shares but faced denial by the Commissioner of Income Tax (Appeals) (CIT(A)). The appellant argued that the denial was unjustified, emphasizing the lack of opportunity to cross-examine the stockbroker whose statement formed the basis of the re-assessment. The Tribunal noted the appellant's submission of detailed evidence to prove the genuineness of the share transactions and held that the claim of exemption under section 10(38) should be allowed.

Allegations of Providing Bogus Long Term Capital Gains Entries:
The case involved allegations of the stockbroker providing bogus Long Term Capital Gains entries, with the appellant's name identified as a beneficiary. However, the Tribunal highlighted that the stockbroker's statement could not be the sole basis for assessment as the appellant was not given the opportunity to cross-examine the stockbroker. The lack of cross-examination rendered the statement mere information and not a valid foundation for assessment.

Lack of Opportunity for Cross-Examination and Principles of Natural Justice:
The Tribunal emphasized the importance of providing the appellant with the opportunity to cross-examine witnesses, especially regarding crucial statements affecting the assessment. The failure to allow cross-examination was deemed a violation of natural justice principles, impacting the validity of the assessment based on such statements.

Insufficient Evidence to Support the Genuineness of the Transaction:
The Tribunal noted discrepancies and insufficient evidence regarding the purchase and sale of shares, raising questions about the authenticity of the transactions claimed by the appellant. The lack of clarity on various transaction details, including share purchase locations, possession, and holding periods, indicated a need for further substantiation and verification.

Need for Further Substantiation and Examination of Transaction Details:
Given the uncertainties and gaps in the presented facts, the Tribunal decided to restore the issues to the AO for re-adjudication. The appellant was directed to provide all necessary evidence to substantiate the Long Term Capital Gains transactions claimed for exemption under section 10(38). The AO was instructed to conduct a thorough examination, including the involvement of relevant parties in the transactions, to clarify the transaction details before making a final assessment.

This detailed analysis of the judgment highlights the key issues addressed by the Tribunal, emphasizing the importance of factual support, cross-examination opportunities, and thorough substantiation in tax assessment cases.