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2021 (8) TMI 417 - AT - Income TaxBogus LTCG - disallowing exemption u/s 10(38) - HELD THAT - In the instant case suspension order in trading in securities of M/s Turbo Tech Engineering Ltd. has ultimately been lifted by the adjudication order dated 25.11.2014 wherein SEBI has found no irregularities in the trading of such scrips; neither it has been found that the Directors are involved in any price rigging. Considering the entire facts of the matter, the judgment passed by the different Judicial Forums as relied upon by the Ld. AR and the Ld. DR as well, the particular judgment passed by the Hon ble Delhi Bench 2021 (1) TMI 1008 - DELHI HIGH COURT dealing with the scrips of the same company namely M/s. Lifeline Drugs Pharma Ltd. on the identical set of facts deciding the issue in favour of the assessee, the judgment passed by the Hon ble Delhi High Court in the matter of PCIT vs. Smt. Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT we with the above observation do not hesitate to allow the claim made by the appellant towards LTCG in the absence of contrary evidence produced by the Revenue on record. The appeal filed by the assessee is, thus, allowed.
Issues Involved:
1. Disallowance of exemption under Section 10(38) of the Income Tax Act, 1961. 2. Allegation of bogus long-term capital gains on the sale of shares. 3. Denial of opportunity for cross-examination. 4. Reliance on third-party investigation reports without independent verification. Detailed Analysis: 1. Disallowance of Exemption under Section 10(38): The core issue revolves around the assessee's claim of long-term capital gains (LTCG) exemption under Section 10(38) of the Income Tax Act, 1961, from the sale of shares of Lifeline Drugs & Pharma Limited. The Assessing Officer (AO) treated these transactions as bogus and disallowed the exemption, which was upheld by the First Appellate Authority. The assessee provided extensive documentation to substantiate the genuineness of the transactions, including purchase notes, bank statements, share certificates, and demat account statements. 2. Allegation of Bogus Long-Term Capital Gains: The AO's disallowance was primarily based on an investigation report suggesting that the transactions were part of a scheme to generate bogus LTCG. However, the tribunal noted that the investigation report did not specifically name the assessee or link them directly to any fraudulent activity. The assessee argued that Lifeline Drugs & Pharma Limited was neither a paper nor a shell company, supporting this with financial statements of the company. The tribunal found no direct evidence linking the assessee to any price rigging or fraudulent activities. 3. Denial of Opportunity for Cross-Examination: The tribunal highlighted a significant procedural flaw: the assessee was not given an opportunity to cross-examine the individuals whose statements were used against them. This denial was deemed a violation of natural justice principles, rendering the assessment order flawed. The tribunal referenced the Supreme Court's judgment in Andaman Timber Industries vs. CCE, emphasizing that not allowing cross-examination of witnesses whose statements form the basis of an assessment is a serious flaw. 4. Reliance on Third-Party Investigation Reports Without Independent Verification: The tribunal criticized the AO for relying solely on third-party investigation reports without conducting independent inquiries or providing the assessee with the opportunity to counter the evidence. It was noted that the AO did not corroborate the findings of the investigation with any independent evidence. The tribunal cited several judicial precedents, including the Delhi Bench of ITAT in Anoop Jain vs. ACIT, which underscored the necessity of independent verification and the inadmissibility of third-party reports without direct evidence. Conclusion: The tribunal concluded that the AO's reliance on the investigation report without independent verification and the denial of cross-examination opportunities were significant procedural lapses. The tribunal found that the assessee had provided sufficient documentation to substantiate the genuineness of the transactions and that the AO had failed to produce any contrary evidence. Consequently, the tribunal allowed the appeals, directing the deletion of the additions made by the Revenue and accepting the assessee's claim for LTCG exemption under Section 10(38). Separate Judgments: The tribunal delivered a common order for all the appeals, as they involved identical issues and facts. The lead case ITA No. 242/Ind/2019 was used as the basis for the judgment, and the conclusions applied mutatis mutandis to the other appeals (ITA Nos. 245-247/Ind/2019). Final Pronouncement: The tribunal allowed all the appeals filed by the different assessees and pronounced the order in the open court on 27.07.2021.
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