2018 (7) TMI 574 - AT - Income Tax

Denial of exemption claimed u/s.10(38) - long term capital gains on sale of certain shares - Held that - As disputed that statements recorded from these persons and records relied on by the Revenue for disbelieving the claim of the sale of shares, were not put to the assessee. Undisputedly, the sale of shares were through recognized stock exchange and through a recognized stock broker. Question regarding genuineness of the claim of long term capital gains requires to be restored to the ld. Assessing Officer for reconsideration after granting assessee adequate opportunity to substantiate its case. Revenue has to furnish to the assessee all the statements relied on by them. Appeal of the assessee is allowed for statistical purpose.

Issues involved:
Denial of exemption under section 10(38) of the Income Tax Act for long term capital gains on sale of shares.

Detailed Analysis:

1. Issue of Exemption Claimed by Assessee:
The appeal was filed against the denial of exemption claimed by the assessee under section 10(38) of the Income Tax Act for long term capital gains on the sale of certain shares. The assessee argued that the gains from the sale of shares, held for more than twelve months, were not allowed exemption under section 10(38) and were treated as income from other sources. The lower authorities disbelieved the purchase and sale of shares of certain companies and relied on statements made during a survey under Section 133A of the Act. The assessee contended that these statements were recorded without providing an opportunity for cross-examination, which was a violation of natural justice.

2. Dispute Over Genuineness of Transactions:
The Assessing Officer disallowed the claim of exemption, considering the companies to be penny stock companies and alleging a lack of evidence regarding the genuineness of the transactions. The Revenue relied on statements recorded during a survey in a stockbroking firm to disbelieve the sale of shares. However, these statements and records were not provided to the assessee for verification. The Tribunal emphasized the importance of providing an opportunity for cross-examination and following due process of law before fastening a tax liability on the assessee.

3. Judicial Precedent and Remittal of Issue:
The Tribunal referred to a similar case where suspicions were raised regarding the transactions, but assessments cannot be based solely on suspicion. The Tribunal highlighted the necessity of supporting assessments with concrete facts and evidence. Due to the lack of evidence and cross-examination opportunities, the Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for reconsideration. The Tribunal stressed the importance of providing all statements relied on by the Revenue to the assessee and granting the assessee an opportunity to substantiate its case.

4. Legal Principles and Conclusion:
The Tribunal emphasized the principles of natural justice, citing the importance of cross-examination as a crucial element in determining the genuineness of claims. Referring to relevant legal precedents, the Tribunal directed the Assessing Officer to re-examine the genuineness of the long term capital gains claim after providing the assessee with a fair opportunity to present evidence and cross-examine witnesses. The appeal of the assessee was allowed for statistical purposes, and the issue was remitted back to the Assessing Officer for fresh consideration in accordance with the law.

In conclusion, the judgment highlighted the significance of due process, evidence-based assessments, and the right to cross-examination in tax matters, underscoring the need for fair treatment and procedural fairness in determining tax liabilities.

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