2020 (8) TMI 168 - AT - Income Tax

Bogus LTCG - Benefit of exemption u/s 10(38) - long term capital gain arising from sale of shares - exemption as denied to and addition u/s 68 was made holding sale of shares as bogus and sham transaction - HELD THAT - A perusal of the assessment order in the case of assessee reveal that the Assessing Officer has observed that 3000 shares were jointly held by the assessee and Narayan Ramachandra Rathi. The facts of present case are similar to the facts of case in the case of Narayan R. Rathi decided by the Co-ordinate Bench 2019 (8) TMI 1520 - ITAT MUMBAI . No distinction in facts has been brought to our knowledge by the Department. Thus, for the parity of reasons, addition made under section 68 of the Act deserves to be deleted. Further, the Assessing Officer is directed to allow the benefit of section 10(38) of the Act to the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of long term capital gain claim and addition under section 143(3).
2. Denial of exemption under section 10(38) for sale of shares.
3. Treatment of sale of shares as income from undisclosed sources and addition under section 68.

Issue 1: Disallowance of long term capital gain claim and addition under section 143(3):
The appellant challenged the action of the Assessing Officer in completing the assessment under section 143(3) and making additions without providing copies of alleged third-party statements or the opportunity for cross-examination. Citing violations of natural justice principles, the appellant referred to relevant legal precedents. The appellant contended that the sale of shares was genuine and the long term capital gain claim under section 10(38) should not have been disallowed. Both the CIT (A) and the Assessing Officer rejected the appellant's submissions. The appellant's representative highlighted similarities with another case where the Tribunal reversed the CIT (A)'s findings, emphasizing the identical nature of the transactions and grounds of appeal.

Issue 2: Denial of exemption under section 10(38) for sale of shares:
The appellant sold shares of a specific company and claimed exemption under section 10(38) for long term capital gains. However, the authorities treated the sale transaction as bogus and made additions under section 68 of the Income Tax Act. The Tribunal noted a similar case involving the father-in-law of the appellant, where the Tribunal deleted the addition due to violations of natural justice. The Tribunal emphasized the lack of evidence to prove fraudulent intent and the denial of cross-examination opportunities. The Tribunal directed the Assessing Officer to allow the appellant's claim for exemption under section 10(38).

Issue 3: Treatment of sale of shares as income from undisclosed sources and addition under section 68:
The appellant's case was compared to a similar case where the Tribunal had ruled in favor of the taxpayer due to violations of natural justice. The Tribunal found no distinguishing facts and directed the deletion of the addition made under section 68. The Assessing Officer was instructed to grant the benefit of section 10(38) to the appellant. The Tribunal highlighted the importance of affording opportunities for cross-examination and following principles of natural justice in such cases.

This judgment highlights the significance of adhering to natural justice principles, providing opportunities for cross-examination, and ensuring fair treatment of taxpayers in assessment proceedings related to capital gains and sale of shares. The Tribunal's decision in similar cases sets a precedent for granting exemptions under section 10(38) and deleting additions made under section 68 when violations of natural justice are identified.