2019 (11) TMI 1048 - AT - Income Tax

Exemption claim u/s 10(38) - genuineness of the transactions - HELD THAT - It is noticed the assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made primarily, based on the evidences collected by the Revenue in the course of the investigation conducted by them on the brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the gC require re-adjudication. Since, the right to exemption must be established by those who seek it, the onus therefore lies on the assessee. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper materials which would enable them to come to a conclusion. AO must keep in mind that the onus of proving the exemption rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. We deem it fit to remit the issue of exemption in this appeal back to the file of the Assessing Officer for re-adjudication. Therefore, the Assessing Officer concerned shall require the assessee; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply with the Assessing Officer s requirements as per law. AO is also free to conduct appropriate enquiry as deemed fit. The Assessing Officer shall also bring on record the role of the assessee in promoting the company and relationship of the assessee with other promoters, role of the assessee in inflating the price of shares, etc. as had been held by the Co-ordinate Bench of this Tribunal in the case of Kanhaiyalal Sons (HUF) v. ITO 2019 (2) TMI 1640 - ITAT CHENNAI . AO shall furnish adequate opportunity to the assessee on the material etc to be used against him and on appreciation of all the aspects, the Assessing Officer would decide the matter in accordance with law. Thus, the issue of exemption claim u/s 10(38) is restored to the file of the Assessing Officer for re-adjudication - Assessee s appeal is treated as partly allowed for statistical purposes.

Issues Involved:
1. Legitimacy of Long Term Capital Gains (LTCG) from share transactions.
2. Genuineness of the transactions and the role of the assessee.
3. Onus of proof for claiming tax exemptions under Section 10(38) of the Income Tax Act.
4. Adequacy of opportunity provided to the assessee to prove the genuineness of transactions.
5. Permissibility of assessment based on evidence collected by the Revenue without providing cross-examination opportunities.

Detailed Analysis:

Legitimacy of Long Term Capital Gains (LTCG) from Share Transactions:
The assessee purchased shares of M/s. Blazon Marbles Ltd. and M/s. Gujarat Narmada Flyash Co. Ltd. and later sold them, claiming LTCG of ?1,80,34,450/-. Based on investigations, the Assessing Officer (AO) concluded that these transactions were pre-arranged to evade taxes and launder money, thus adding the entire sale proceeds to the returned income.

Genuineness of the Transactions and the Role of the Assessee:
The AO and the Commissioner of Income Tax (Appeals) (CIT(A)) questioned the commercial nature and genuineness of the transactions. The AO held that the transactions were make-believe, designed to create artificial gains. The CIT(A) upheld this view, relying on precedents like ITO vs. Shamim M Bharwani and Sanjay Bimalchand Jain vs. PCIT.

Onus of Proof for Claiming Tax Exemptions under Section 10(38):
The Tribunal emphasized that the right to exemption must be established by the assessee. The onus lies on the assessee to provide proper materials to the Income Tax authorities to claim exemptions. The AO must provide any contrary evidence to the assessee for rebuttal.

Adequacy of Opportunity Provided to the Assessee to Prove the Genuineness of Transactions:
The Tribunal noted that the assessee was not given a fair opportunity to prove the genuineness of the transactions. The assessment was primarily based on evidence collected by the Revenue during their investigation, which is not permissible without giving the assessee a chance for rebuttal.

Permissibility of Assessment Based on Evidence Collected by the Revenue Without Providing Cross-Examination Opportunities:
The Tribunal referred to the case of Mr. Sunil Kumar Lalwani vs. ITO, where it was held that assessments should not be based on mere suspicion but supported by facts. The Tribunal also cited the case of Shri Heerachand Kanunga, emphasizing that statements from third parties (like brokers) cannot be used as evidence against the assessee without providing cross-examination opportunities.

Tribunal's Decision:
The Tribunal decided to remit the issue back to the AO for re-adjudication. The AO is required to:
1. Provide the assessee with a fair opportunity to prove the genuineness of the transactions.
2. Conduct appropriate inquiries and bring on record the role of the assessee in promoting the companies and inflating share prices.
3. Furnish a copy of the report from the Investigation Wing to the assessee and allow for rebuttal.
4. Ensure that all necessary evidence and materials are provided to the assessee for a fair defense.

The appeal was thus partly allowed for statistical purposes, and the issue of exemption under Section 10(38) was restored to the AO for re-adjudication.

Conclusion:
The Tribunal's judgment underscores the importance of providing fair opportunities to assessees to prove their claims and the necessity for assessments to be based on concrete evidence rather than suspicion. The case was remitted back to the AO to ensure a thorough and fair re-examination of the facts and circumstances surrounding the transactions.

← Previous Next →