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2018 (9) TMI 1461 - AT - Income TaxDenial of exemption of long term capital gains - gain arising on transfer of shares - exemption claimed u/s.10(38) - treating such sum as unexplained income u/s.68 - denial of natural justice - Held that - As relying on MR. VIMALCHAND GULABCHAND, MR. PRAVEEN CHAND, MR. GATRAJ JAIN & SONS (HUF) , MR. MAHENDRA KUMAR BHANDARI VERSUS THE INCOME TAX OFFICER, CHENNAI 2018 (4) TMI 701 - ITAT CHENNAI The transactions claimed by the assessee whether real or sham, requires a revisit by the ld. Assessing Officer. Useful reference may be made to the law laid down by Hon ble Apex Court in the case of CIT vs. Sunita Dhadda 2018 (3) TMI 1610 - SUPREME COURT OF INDIA while affirming a judgment of Hon ble Rajasthan High Court in the case of CIT vs.Smt. Sunita Dhadda 2017 (7) TMI 1164 - RAJASTHAN HIGH COURT where the importance of providing an opportunity to cross examine the witness has been stressed. Their lordship held that this was an important constituent of natural justice. Only after all the steps required under law is complete, it can be ascertained whether claim of capital gains was bogus or not. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law. Appeal of the assessee is partly allowed for statistical purposes.
Issues:
Denial of exemption of long term capital gains under section 10(38) of the Income Tax Act, 1961 and treating the sum as unexplained income under section 68 of the Act. Analysis: 1. The appeal was filed by the assessee against an order of the Commissioner of Income Tax (Appeals)-4, Chennai, challenging the denial of exemption of long term capital gains amounting to ?49,48,640 arising from the sale of shares of a company. The assessee claimed the gains as exempt under section 10(38) of the Act. The lower authorities disbelieved the sale of shares based on reports from the Directorate of Income Tax (Investigation) Kolkata and Delhi, labeling the company as a penny stock company. The assessee argued that the purchase of shares was genuine, even though it was done off-market, and the sale was made through a recognized stock exchange. The Tribunal had previously directed reconsideration of similar cases, emphasizing adherence to the rules of natural justice. 2. The Departmental Representative supported the lower authorities' decision, citing reasons for disbelief in the transactions related to the equity shares. The representative also referred to a decision by a Coordinate Bench in a similar case to support their stance. 3. Upon considering the arguments, it was acknowledged that the long term capital gains arose from the sale of shares of the company, initially acquired through an off-market transaction. The Tribunal referred to previous cases where similar claims for exemption were made, emphasizing the importance of natural justice and proper examination of evidence before drawing conclusions. 4. Referring to a specific case cited by the Departmental Representative, the Tribunal highlighted the necessity for assessments to be based on facts rather than mere suspicion. The Tribunal emphasized the importance of providing the assessee with an opportunity to substantiate claims and present evidence, including details of transactions, share ownership, and relevant financial information. The Tribunal stressed the need for a thorough re-examination of the transactions by the Assessing Officer. 5. In conclusion, the Tribunal found similarities between the present case and previous decisions, warranting a re-evaluation of the transactions by the Assessing Officer. The Tribunal emphasized the importance of following legal procedures, including providing opportunities for cross-examination and presenting evidence. The orders of the lower authorities were set aside, and the issue was remitted back to the Assessing Officer for a fresh consideration in accordance with the law. 6. The appeal was partly allowed for statistical purposes, and the order was pronounced on a specified date in Chennai.
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