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2023 (5) TMI 956 - AT - Income TaxGain on sale of shares - Business income or Capital Gains - claim of exemption u/s.10(38) in respect of sale of shares denied - assessee is in the business of purchase and sale of IPOs, the said transaction done by the assessee is an one off transaction, the same is liable to be treated as an Adventure in the nature of trade - HELD THAT - It is an admitted fact that the assessee is doing the business of purchase and sale of shares. As pointed out by the ld. Sr. DR the assessee is doing purchases in IPOs. Thus, there is no dispute that the assessee earns her income from transaction in shares. Just because the assessee has shifted from the IPOs and has made a purchase of the shares in M/s Panchshul Marketing Ltd., would not shift the head of income from capital gains to the Adventure in the nature of trade , insofar as the assessee is an investor in the shares and is not in the business of dealing in shares. This being so, the decision relied on by the ld. Sr. DR would no more survive for consideration. As following the decision of Deepansu Mohapatra 2021 (12) TMI 1425 - ITAT CUTTACK which has also been affirmed by the Hon ble Jurisdictional High Court of Orissa in the appeal filed by the revenue 2023 (2) TMI 392 - ORISSA HIGH COURT and also the decision of Rashi Agrawal 2023 (5) TMI 851 - ITAT CUTTACK the addition as made by the AO and as confirmed by the CIT(A) in respect of the claim of exemption u/s.10(38) of the Act in respect of sale of shares of M/s Kailash Auto, stands deleted. Decided in favour of assessee.
Issues Involved:
1. Exemption under Section 10(38) of the Income Tax Act. 2. Validity of addition made by the Assessing Officer (AO). 3. Requirement of cross-examination in tax proceedings. 4. Classification of income from share transactions. Summary: 1. Exemption under Section 10(38) of the Income Tax Act: The assessee claimed an exemption under Section 10(38) for long-term capital gains from the sale of shares of M/s Kailash Auto, which were acquired through amalgamation with M/s Panchshul Marketing Ltd. The Tribunal noted that the shares were purchased through account payee cheques, held in a demat account, and sold through a recognized stock exchange after paying STT. The Tribunal referenced the case of Deepansu Mohapatra & Others, where similar transactions were deemed genuine and the exemption was allowed. The Tribunal emphasized that the AO's addition was based on mere suspicion without cogent material evidence. Consequently, the Tribunal directed the AO to delete the addition. 2. Validity of Addition Made by the Assessing Officer (AO): The Tribunal criticized the AO for making additions based on suspicion and without substantial evidence. The AO's reliance on general observations and unsubstantiated third-party statements was deemed insufficient to disprove the genuineness of the transactions. The Tribunal highlighted that the AO did not bring any material on record to show that the assessee introduced unaccounted income in the guise of long-term capital gains. The Tribunal cited multiple cases where similar findings were made, reinforcing that the AO's addition was unsustainable. 3. Requirement of Cross-Examination in Tax Proceedings: The Tribunal addressed the issue of cross-examination, noting that neither the AO nor the CIT(A) relied on any statements or investigation reports for making the addition. The Tribunal referred to the principle established by the Hon'ble Supreme Court in Andaman Timber Industries vs. CCE, which mandates cross-examination when statements are used as the basis for an adverse order. The Tribunal found that the AO's failure to provide an opportunity for cross-examination was a violation of natural justice. 4. Classification of Income from Share Transactions: The Tribunal rejected the argument that the transaction should be classified as "Adventure in the nature of trade" instead of capital gains. The Tribunal noted that the assessee was an investor in shares and not in the business of dealing in shares. The Tribunal emphasized that the mere shift from IPOs to purchasing shares of M/s Panchshul Marketing Ltd. did not alter the nature of the income from capital gains to business income. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and directing the AO to delete the addition made on account of treating the long-term capital gains as bogus. The Tribunal's decision was based on the lack of substantial evidence from the AO, adherence to judicial precedents, and the principles of natural justice.
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