2019 (4) TMI 834 - HC - Income Tax

Denial of natural justice - assessee not granted fair opportunity - LTCG claim denied - cross-examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal - HELD THAT - This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent A.O., CIT(A) and the ITAT have all consistently rendered adverse findings what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company s shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.

Summary

Issues:
1. Rejection of long term capital gain claim.
2. Denial of right to cross-examination.
3. Alleged erroneous approach by tax authorities.
4. Suspicions raised due to company's financial status.
5. Dismissal of appeal due to lack of substantial question of law.

Analysis:
1. The judgment deals with the rejection of a long term capital gain claim by the appellant in relation to the sale of shares of M/s Kappac Pharma Ltd. The appellant held the shares for approximately 19 months, with an acquisition price of &8377;12 per share and a sale price of &8377;720 per share. The tax authorities, including the lower appellate authorities, rejected the claim, leading to the appellant's grievance. The appellant argued that a fair opportunity was not granted, citing previous tribunal orders in favor of the same company.

2. The appellant contended that the denial of the right to cross-examination of key individuals whose statements influenced the inquiry and disallowance of the long term capital gain claim was a crucial issue. This denial was highlighted as a violation of procedural fairness and a contributing factor to the adverse findings against the appellant.

3. The judgment addresses the alleged erroneous approach of the tax authorities in handling the appellant's case. The counsel for the appellant argued that the tax authority's approach was erroneous and inconsistent, pointing out discrepancies in the treatment of similar cases involving M/s Kappac Pharma Ltd. The court considered these arguments but found the findings of the authorities to be consistent and concurrent.

4. A significant aspect of the case was the suspicions raised by the Revenue due to the financial status of M/s Kappac Pharma Ltd. The company had meagre resources and reported consistent losses, making the substantial increase in the value of its shares questionable. The court noted that the company was even directed to be delisted from the stock exchange, further raising concerns about the legitimacy of the capital gain claim.

5. Ultimately, the court dismissed the appeal on the grounds that no substantial question of law arose from the case. The court emphasized that the findings were primarily factual, with all levels of authorities consistently rendering adverse decisions against the appellant. Therefore, the appeal was deemed to lack merit for further legal consideration, leading to its dismissal.