2021 (8) TMI 1183 - AT - Income Tax

Retraction of surrender of LTCG - Transaction were accepted as bogus but later claimed as Genuine - CIT-A did not admit the additional ground of appeal - claiming the Long Term Capital Gains earned as exempt - surrender made by the assessee of alleged bogus Long Term Capital Gain by way of filing a revised return revoked by SEBI order - HELD THAT - We find merit in the contention of the Ld. Counsel for the assessee that the additional grounds raised by the assessee before Ld. CIT(A) were wrongly refused to be admitted by him. The assessee has suitably demonstrated before us the reason for revoking the surrender originally made before the AO of Long Term Capital Gain as being on account of the scrip transacted in by the assessee having subsequently been found to be genuine by the order of the SEBI. The surrender no doubt was made on account of certain evidences collected during survey at the assessee s premises to the effect that the claim of Long Term Capital Gains on the sales as exempt was bogus. Subsequent event of the SEBI order holding the transaction in the said scrip to be genuine was sufficient enough for the assessee to raise a legitimate ground before the Ld. CIT(A) for claiming the Long Term Capital Gains earned as exempt. As rightly pointed out by the assessee it is settled law that the assessee is entitled to make a claim before the worthy CIT(A), for the first time. The decision of the Hon ble Apex Court in the case of Jute Corporation of India 1990 (9) TMI 6 - SUPREME COURT and the decision of CIT v. Pruthvi Brokers Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT settles the said issue in favour of the assessee. CIT(A) directed to admit the additional ground raised by the assessee and thereafter adjudicate the same in accordance with law

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not admitting additional grounds of appeal.
2. Whether the assessment of surrendered income on account of alleged bogus Long Term Capital Gain transactions was justified.
3. Whether the penalty proceedings initiated under section 271(1)(c) were valid.

Issue-wise Detailed Analysis:

1. Non-admission of Additional Grounds of Appeal by CIT(A):
The primary contention of the assessee was that the CIT(A) unjustifiably refused to admit additional grounds of appeal. The assessee argued that the additional grounds were raised due to a significant subsequent event, specifically the final order by SEBI which concluded that there was no manipulation in the scrip of M/s Kailash Auto. This information was not available at the time of the original assessment, and thus, the additional grounds could not have been raised earlier. The Tribunal found merit in this argument, citing established legal precedents that allow for new claims to be raised in appellate proceedings if they arise from subsequent events or changes in circumstances. The Tribunal directed the CIT(A) to admit the additional grounds and adjudicate them in accordance with the law, referencing the Supreme Court's decision in the case of Jute Corporation of India v. CIT and the Bombay High Court's decision in CIT v. Pruthvi Brokers & Shareholders.

2. Assessment of Surrendered Income on Account of Alleged Bogus Long Term Capital Gain Transactions:
The assessee had initially surrendered the Long Term Capital Gains (LTCG) as income following a survey that suggested the gains were bogus. However, the SEBI's final order, which found no manipulation in the scrip of M/s Kailash Auto, prompted the assessee to challenge this surrender. The Tribunal noted that the subsequent SEBI order was a legitimate basis for the assessee to revoke the surrender and claim the LTCG as exempt under section 10(38) of the Income Tax Act. The Tribunal emphasized that the assessee is entitled to make such a claim before the appellate authority for the first time, especially when new evidence or a change in circumstances justifies it.

3. Penalty Proceedings under Section 271(1)(c):
The penalty proceedings under section 271(1)(c) were initiated based on the assessment of the surrendered income. Given the Tribunal's decision to allow the additional grounds and remand the matter to the CIT(A) for a fresh adjudication, the issue of penalty proceedings was also implicitly kept open for reconsideration. The Tribunal's direction to the CIT(A) to re-examine the merits of the case would inherently include a reassessment of the validity of the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the CIT(A) to admit and adjudicate the additional grounds raised by the assessee. This decision underscores the principle that appellate authorities have the jurisdiction to consider new grounds arising from subsequent events or changes in circumstances, ensuring a fair reassessment of the tax liability. The Tribunal's order mandates a fresh examination of both the merits of the LTCG claim and the associated penalty proceedings, providing the assessee an opportunity to contest the initial findings based on new evidence.