2019 (7) TMI 432 - AT - Income Tax

Re-opening of assessment u/s 147 - bogus STCG - solely on the basis of the report / statements of the persons of Mahasagar Group - no opportunity to present its rebuttal, and / or cross examination of any person whose statement was relied upon - HELD THAT - Hon ble Karnataka High Court in the case of M/s. Chandra Devi Kothari 2015 (2) TMI 1313 - KARNATAKA HIGH COURT has held that assessee has been denied an opportunity of fair hearing by providing copy of the statement and related details regarding the alleged share amount, hence the matter requires to be re-considered by the respondent by providing fair and reasonable opportunity of hearing to the assessee and by furnishing the details / copy of the statement based on which the impugned assessment order has been passed. The facts noted by the High Court appears to be similar to the fact situation in the case on hand and therefore by respectfully following the judgment in the case of Chandra Devi Kothari (Supra), I set aside the impugned order of learned CIT(A) for Assessment Year 2007-08 and restore the matter to the file of the AO for fresh adjudication with the same directions as were issued by the Hon ble Karnataka High Court in above judgment. In view of this decision, no adjudication is called for at this stage in respect of other grounds; both legal and on the merits of the addition. - the assessee s appeal is allowed for statistical purposes

Summary

Issues:
1. Reopening of assessment based on share transactions through Mahasagar Securities Services Pvt. Ltd.
2. Determination of income as 'Income from Other Sources' instead of short term capital gain.
3. Violation of principles of natural justice in assessment proceedings.
4. Denial of liability to pay interest.

Analysis:

Issue 1: Reopening of assessment based on share transactions through Mahasagar Securities Services Pvt. Ltd.
The assessment for the assessee was reopened based on information that share transactions were carried out through Mahasagar Securities Services Pvt. Ltd., deemed non-genuine. The AO determined income from these transactions as 'Income from Other Sources' instead of short term capital gain. The CIT(A) upheld this decision based on reasons like non-issuance of contract notes by a recognized stock exchange broker and off-market transactions. However, the appellant contended that the AO violated principles of natural justice by not providing an opportunity for rebuttal or cross-examination. The Tribunal referred to a High Court judgment emphasizing fair hearing and directed the matter back to the AO for fresh adjudication with proper opportunity for the assessee.

Issue 2: Determination of income as 'Income from Other Sources' instead of short term capital gain
The assessing officer treated the short term capital gain earned on share transactions as 'Income from Other Sources,' a decision upheld by the CIT(A). The appellant argued that the conclusions drawn were erroneous and not supported by facts or law. The Tribunal found that the lower authorities' observations lacked basis and evidence, relying on surmises and conjectures. The Tribunal directed to disregard these conclusions and consider the short term capital gain as offered by the appellant.

Issue 3: Violation of principles of natural justice in assessment proceedings
The appellant raised concerns about the violation of principles of natural justice during the assessment proceedings, specifically regarding the lack of notice, basis disclosure, and denial of cross-examination. Citing a High Court judgment, the Tribunal agreed that fair and reasonable opportunity of hearing was essential, leading to the decision to set aside the CIT(A)'s order and restore the matter to the AO for fresh adjudication with proper directions.

Issue 4: Denial of liability to pay interest
The appellant denied the liability to pay interest, claiming it was levied erroneously. However, the judgment did not provide specific details or arguments related to this issue.

In conclusion, the Tribunal allowed the assessee's appeal for Assessment Year 2007-08 for statistical purposes, directing the matter back to the AO for fresh adjudication with proper adherence to principles of natural justice and fair hearing.