2018 (9) TMI 1303 - AT - Income Tax

Denial of exemption of long term capital gains - gain arising on transfer of shares - exemption claimed u/s.10(38) - treating such sum as unexplained income u/s.68 - denial of natural justice - Held that - As relying on MR. VIMALCHAND GULABCHAND, MR. PRAVEEN CHAND, MR. GATRAJ JAIN & SONS (HUF) , MR. MAHENDRA KUMAR BHANDARI VERSUS THE INCOME TAX OFFICER, CHENNAI 2018 (4) TMI 701 - ITAT CHENNAI The transactions claimed by the assessee whether real or sham, requires a revisit by the ld. Assessing Officer. Useful reference may be made to the law laid down by Hon ble Apex Court in the case of CIT vs. Sunita Dhadda 2018 (3) TMI 1610 - SUPREME COURT OF INDIA while affirming a judgment of Hon ble Rajasthan High Court in the case of CIT vs.Smt. Sunita Dhadda 2017 (7) TMI 1164 - RAJASTHAN HIGH COURT where the importance of providing an opportunity to cross examine the witness has been stressed. Their lordship held that this was an important constituent of natural justice. Only after all the steps required under law is complete, it can be ascertained whether claim of capital gains was bogus or not. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues:
Denial of exemption of long term capital gains under section 10(38) and treatment as unexplained income under section 68.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) denying exemption of long term capital gains under section 10(38) and treating the amount as unexplained income under section 68. The assessee sold 5,000 shares of a company and claimed long term capital gains. The lower authorities disbelieved the sale based on reports mentioning the company as a penny stock. The assessee argued that the purchase was genuine and the sale was through a recognized stock exchange. The Tribunal referred to similar cases where directions were given for reconsideration adhering to natural justice rules.

2. The Departmental Representative supported the lower authorities' decision, stating there were valid reasons to doubt the transactions. The Tribunal acknowledged the capital gains arose from the sale of shares acquired through an off-market transaction. Referring to previous cases, the Tribunal highlighted the importance of following natural justice principles, including providing the assessee with relevant reports and statements for explanation.

3. The Tribunal found discrepancies in the assessment order and lack of evidence supporting the transactions. It emphasized the need for proper verification and adherence to legal procedures. The Tribunal referred to a case where suspicions were raised but not adequately supported by facts, leading to a remittance for re-adjudication. The Tribunal stressed the importance of substantiating claims with evidence and granting opportunities for cross-examination.

4. Considering the similarities with previous cases, the Tribunal directed a re-visit by the Assessing Officer to determine the genuineness of the transactions. Citing legal precedents emphasizing the importance of natural justice and cross-examination, the Tribunal set aside the lower authorities' orders and remitted the issue for fresh consideration in accordance with the law.

5. The Tribunal's decision highlighted the significance of providing opportunities for cross-examination and ensuring proper verification of claims. By setting aside the lower authorities' orders, the Tribunal emphasized the need for a thorough re-examination of the transactions to ascertain the legitimacy of the capital gains claim. The appeal was partly allowed for statistical purposes, with the issue remitted back to the Assessing Officer for reconsideration.