2018 (11) TMI 694 - AT - Income Tax

Disallowance of claim of exemption u/s.10(38) - long term capital gains arising out of sale of 5500 equity shares of one M/s.Lifeline Drugs & Pharma Ltd. and treating the consideration received on such sale under the head income from other sources - whether transactions claimed by the assessee were real or sham? - Held that - Before relying on such Investigation reports and statement of a third party, it should have been put to an assessee for rebuttal. Rules of natural justice requires that evidence which is used against the assessee is first put to it and explanation sought, before reliance is placed on such evidence. Therefore of the opinion that the matter requires a fresh look by the AO. Set aside the orders of the lower authorities and remit the question regarding genuineness of the claim of long term capital gains from alleged sale of shares of M/s.Lifeline Drugs & Pharma Ltd., back to the AO for consideration afresh in accordance with law. Assessee has to be given all records relied on by the ld. Assessing Officer so that it can offer its explanation. AO is also to keep in mind the spirit of the direction given by the Tribunal in the case of Heerachand Kanunga 2018 (6) TMI 1329 - ITAT CHENNAI while coming to a conclusion. - Decided in favour of assessee for statistical purpose.

Summary

Issues involved:
Dispute over disallowance of exemption u/s.10(38) of the Income Tax Act on long term capital gains from the sale of equity shares of a company.

Detailed Analysis:

Issue 1: Disallowance of exemption u/s.10(38) on long term capital gains
The appeal filed by the assessee challenges the order disallowing the claim of exemption u/s.10(38) on the long term capital gains from the sale of 5500 equity shares of a company. The assessee acquired the shares through off-market purchase and later sold them through a recognized stock exchange. The lower authorities disbelieved the sale based on reports and statements, claiming the company was a penny stock. The assessee, however, argued that the purchase was genuine, supported by banking transactions, and cited precedents where similar cases were directed for reconsideration. The Departmental Representative contended that there were valid reasons for disbelief, as the assessee failed to provide evidence of how the shares were identified for purchase. The Tribunal held that the assessee did not substantiate how the shares were identified for purchase, akin to a similar case where suspicion arose. The Tribunal emphasized the need for concrete evidence and adherence to natural justice principles. Consequently, the matter was remitted back to the Assessing Officer for fresh consideration, ensuring the assessee's opportunity to present its case and addressing the concerns raised. Grounds 2 to 11 of the assessee were allowed for statistical purposes.

Conclusion:
The Tribunal partially allowed the appeal, remitting the question of the genuineness of the long term capital gains claim back to the Assessing Officer for fresh consideration, emphasizing the importance of providing the assessee with an opportunity to rebut evidence and adhering to natural justice principles.