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2021 (6) TMI 926 - AT - Income TaxAddition u/s 68 - bogus LTCG to claim exemption u/s 10(38) - HELD THAT - No documentary evidence to prove that the assessee was indulged in managing the affair of providing accommodation entry - Appeals deserves to be allowed on merits of the case, conditions for claiming exempt u/s 10(38) of the Act were fulfilled with regard to the sale transaction and the evidence so produced in support thereof has not been controverted by the revenue authorities. Thus the common grounds raised on merits by both assessee are allowed.
Issues Involved:
1. Genuineness of Long Term Capital Gain (LTCG) claimed exempt under Section 10(38) of the Income Tax Act. 2. Opportunity of cross-examination not provided to the assessee. Detailed Analysis: 1. Genuineness of Long Term Capital Gain (LTCG) Claimed Exempt under Section 10(38) of the Income Tax Act: The primary issue revolves around the genuineness of the LTCG claimed by the assessees, which was exempt under Section 10(38) of the Income Tax Act. The assessees reported LTCG from the sale of equity shares of Kappac Pharma Limited (KPL) and claimed it as exempt. The Assessing Officer (AO) doubted the authenticity of the transactions, labeling them as bogus and non-genuine based on an investigation report suggesting that KPL was involved in providing bogus LTCG entries. The AO added the LTCG as income from other sources, rejecting the exemption claim. The Tribunal observed that the assessees provided all necessary documents supporting the purchase and sale of shares, including purchase bills, contract notes, and evidence of payment through banking channels. The shares were purchased offline in cash and sold through a registered broker on a recognized stock exchange. The Tribunal emphasized that the purchase and sale transactions were genuine and carried out through proper channels, and the sale proceeds were credited to the assessees' bank accounts. The Tribunal further noted that the trading of KPL shares was suspended by SEBI on January 1, 2015, but the sale transactions in question occurred in April and May 2014, well before the suspension. The Tribunal found no evidence to support the AO's claim that the transactions were bogus, and the AO's reliance on an investigation report without corroborative evidence was insufficient to discredit the assessees' claims. 2. Opportunity of Cross-Examination Not Provided to the Assessee: The legal issue raised by the assessees was the denial of the opportunity to cross-examine Mr. Nishant Nyati, whose statements were used as a basis for the addition made by the AO. The Tribunal held that this was a violation of the principles of natural justice. Citing the Supreme Court's judgment in Andaman Timber Industries vs. CCE, the Tribunal emphasized that not allowing the assessees to cross-examine the witnesses whose statements were used against them was a serious flaw, rendering the order null and void. The Tribunal also referred to the Bombay High Court's decision in Pr. CIT vs. Paradise Inland Shipping Pvt. Ltd., which held that the burden shifts to the Revenue to prove their case once the assessee has produced documentary evidence. The Tribunal concluded that the AO's failure to provide the opportunity for cross-examination invalidated the addition made. Conclusion: The Tribunal allowed the appeals filed by the assessees, holding that the transactions were genuine and the conditions for claiming exemption under Section 10(38) were fulfilled. The Tribunal also ruled that the addition made by the AO without providing the opportunity for cross-examination was invalid. Consequently, all grounds raised by the assessees were allowed, and the appeals were decided in favor of the assessees.
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