2023 (2) TMI 392 - HC - Income Tax

Claim of long-term capital gains on shares in terms of Section 10(38) - Assessee not claiming exemption u/s 10(38) at the stage of the assessment proceedings but turned around and make such claim of wanting to cross-examine persons - ITAT noted the settled position in law that if an Assessee has wrongly offered an item of income or omitted to make a claim of deduction in the return, he was entitled to correct such a mistake by making a request to the AO to that effect - Denial of principles of natural justice - denial of an opportunity to cross examine the entry providers - Another ground on which the ITAT found fault with the additions made by the AO was that reliance was placed on statement of so called entry operator to justify the additions under Sections 68 and 69 and statements were recorded much before the date of the survey conducted on the Assessee and Assessee did not have an opportunity to challenge such statements and further, no opportunity to cross-examine the so-called entry providers was given to the Assessees. HELD THAT - Having heard learned Senior Standing Counsel for the Department (Appellant) and having perused the impugned orders of the AO, CIT(A) and the ITAT, the Court finds that both the grounds viz., the claim for benefit of Section 10(38) of the Act and denial of an opportunity to cross examine the entry providers, turned on facts. The ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO. In the considered view of the Court, the ITAT committed no error in concurring with the view of the CIT(A) and in dismissing the Revenue s appeals. No substantial question of law arises from the impugned order of the ITAT that calls for interference by this Court.

Summary

Issues:
1. Condonation of delay in filing appeal
2. Claim of exemption under Section 10(38) of the Income Tax Act, 1961
3. Opportunity to cross-examine entry providers

Condonaion of Delay in Filing Appeal:
The judgment addressed the delay of 19 days in filing the appeal, which was condoned by the court. The application related to this delay was allowed and disposed of accordingly without the need for certified copies of certain annexures.

Claim of Exemption under Section 10(38) of the Income Tax Act, 1961:
The appeals by the Revenue arose from a common order of the Income Tax Appellate Tribunal (ITAT) dismissing the Revenue's appeals against the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2014-15 and 2015-16. The main question raised was whether the Assessee could claim exemption under Section 10(38) after not doing so during the assessment proceedings. The Assessee had filed a revised return claiming exemption for long-term capital gains on shares. The ITAT found that the Assessee had followed the necessary procedures for claiming the exemption, including purchasing shares through Account Payee Cheques and holding them in a Demat Account for over 12 months before selling them on a recognized stock exchange. The ITAT also highlighted the Assessee's right to correct mistakes in the return by requesting the Assessing Officer (AO) to that effect. Additionally, the court noted that the Revenue had relied on statements from an entry operator without giving the Assessee an opportunity to challenge or cross-examine those statements, which was deemed unfair and a violation of natural justice.

Opportunity to Cross-Examine Entry Providers:
The court emphasized the importance of adhering to the principles of natural justice, particularly in providing the Assessee with the opportunity to cross-examine entry providers whose statements were used against them. It was noted that the statements were recorded in unrelated proceedings before the survey on the Assessee, and the Assessee was not given a chance to challenge or question those statements. The court agreed with the ITAT's decision that the failure to provide such an opportunity to the Assessee was a significant issue. The CBDT circular allowing Assessees to file revised returns if they had omitted to make a claim was also highlighted as a factor that the AO had overlooked.

In conclusion, the court found no error in the ITAT's decision to dismiss the Revenue's appeals, as the issues raised regarding the claim for exemption under Section 10(38) and the denial of an opportunity to cross-examine entry providers were fact-specific and justified. The court held that no substantial question of law arose from the ITAT's order that warranted interference. Therefore, the appeals were dismissed.