2020 (5) TMI 76 - AT - Income Tax

Deduction u/s 10 (38) denied - AO in treating the purchase and sale of shares by the assessee, as penny stock transactions - denial of natural justice - HELD THAT - Assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made based on the evidences collected by the Revenue in the course of the investigation conducted by them on brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the genuineness of the transactions 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. See RAMAKRISHNA DEO. 1958 (10) TMI 9 - SUPREME COURT A O 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 issues of exemption claim in this appeal back to the file of the A.O. for re-adjudication on the lines indicated above. A O 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 A.O s requirements as per law - issues of exemption claim u/s 10(38) are restored to the file of the AO for re-adjudication - Assessee appeal allowed for statistical purposes.

Summary

Issues:
- Appeal against order of Commissioner of Income Tax (Appeals)-10, Chennai
- Addition of unexplained credit to returned income
- Confirmation of addition treating purchase and sale of shares as penny stock transactions
- Claim of deduction under section 10(38) and genuineness of transactions

Analysis:
1. The appeal was filed against the order of Commissioner of Income Tax (Appeals)-10, Chennai, for the assessment year 2013-14, where the assessee's total income was challenged due to alleged manipulation in market price of shares. The Assessing Officer reopened the assessment and added an unexplained credit to the returned income. The CIT(A) upheld the addition, leading to the current appeal.

2. The main issue revolved around the genuineness of transactions and the claim of deduction under section 10(38). The appellant argued against the CIT(A)'s decision, citing precedents and tribunal orders. The Assessing Officer's stance was that the genuineness was not proven by the assessee, relying on tribunal decisions in similar cases.

3. The ITAT Chennai, comprising Shri George Mathan and Shri S. Jayaraman, examined the submissions and highlighted that the assessee was not given a fair opportunity to prove the genuineness of transactions. The tribunal emphasized that the onus of proving exemption rests on the assessee, and the AO must provide evidence for any contrary claims. Internal communications of Revenue cannot be the sole basis for assessment.

4. Referring to previous tribunal orders, the ITAT stressed the importance of substantiating transactions and providing evidence for claims under section 10(38). The tribunal directed the Assessing Officer to re-adjudicate the exemption claim issue, requiring the assessee to establish the legitimacy of transactions and comply with the AO's requests. The AO was instructed to consider all aspects and conduct necessary inquiries while ensuring the assessee's right to be heard.

5. Ultimately, the ITAT partially allowed the assessee's appeal for statistical purposes, remitting the issues related to exemption claim under section 10(38) back to the Assessing Officer for re-adjudication. The tribunal emphasized the need for the assessee to provide adequate proof and cooperate with the AO in resolving the matter lawfully.

This comprehensive analysis outlines the key issues, arguments presented, tribunal's considerations, and the final decision regarding the appeal against the CIT(A)'s order.