2019 (9) TMI 769 - AT - Income Tax

Exemption income u/s.10(38) - denial of natural justice - AO on the basis of investigations done by the Revenue held that the purchase and sale of those shares as penny stock, the assessees have manipulated the transactions with the brokers to convert their unaccounted income etc and hence treated the entire sale consideration as an unexplained credit and refused each of the assessee s exemption claim under section 10(38) - HELD THAT - Assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made primarily, based on the evidences collected by the Revenue in the course of the investigation conducted by them on the brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the genuineness of the transactions require re-adjudication. Since, the right to exemption must be established by those who seek it, the onus therefore lies on the assessee. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper materials which would enable them to come to a conclusion.Thus, the AO must keep in mind that the onus of proving the exemption rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. Further, perusal of assessee s case shows that it is similar to the facts in the case of Shri Heerachand Kanunga 2018 (6) TMI 1329 - ITAT CHENNAI Respectfully following the above order, on the facts and circumstances of these cases, we deem it fit to remit the issue of exemption in these appeals back to the file of the respective Assessing Officer for re-adjudication on the lines indicated above. AO concerned shall require the assessees; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply to the concerned Assessing Officer s requirements as per law. - Assessee s appeal is treated as partly allowed for statistical purposes.

Summary

Issues:
Appeal against Commissioner of Income Tax (Appeals) orders regarding treating purchase and sale of shares as penny stock transactions and denial of exemption claim under section 10(38).

Analysis:
The assessees appealed against the orders of the Commissioner of Income Tax (Appeals) concerning the treatment of purchase and sale of shares as penny stock transactions and the denial of exemption under section 10(38). The Assessing Officer scrutinized the transactions based on investigations by the Revenue and concluded that the assessees manipulated the transactions to convert unaccounted income, thus denying the exemption claim. The CIT(A) upheld the Assessing Officer's decision, citing relevant case laws. The assessees then appealed to the Tribunal.

The Tribunal observed that the assessees were not given a fair opportunity to prove the genuineness of the transactions, as the assessment primarily relied on evidence collected by the Revenue during investigations. Emphasizing the principle that the onus of proving exemption lies with the assessee, the Tribunal highlighted the need for the assessees to provide proper materials to support their claims. Referring to a previous Tribunal decision, the Tribunal stressed the importance of factual evidence in assessments rather than mere suspicion.

The Tribunal directed the Assessing Officer to re-adjudicate the issue of exemption, instructing the assessees to establish the genuineness of the transactions and provide necessary evidence. The Assessing Officer was tasked with conducting a thorough inquiry, granting the assessees adequate opportunity to present their case and decide the matter in accordance with the law. The Tribunal partially allowed the appeals for statistical purposes, remitting the issue back to the Assessing Officer for re-examination.

In conclusion, the Tribunal acknowledged the need for a fair assessment process based on concrete evidence and directed a re-evaluation of the exemption claims by the Assessing Officer. The decision highlighted the importance of substantiating claims with proper documentation and providing the opportunity for assessees to present their case effectively.