2016 (11) TMI 886 - AT - Income Tax

Tribunal directs AO to assess LTCG on shares, allows exemption under section 54F. Disallowances criticized for lack of natural justice.

The Tribunal partially allowed the assessee's appeal, directing the AO to assess the LTCG declared on the sale of shares and allow the exemption under ... Exemption under section 54F - claim of LTCG denied - assessee had not given any details of purchase and sale of shares of Buniyad Chemicals Ltd. - Held that:- AO appears to have approached this issue with preconceived notions and a closed mind. When the AO has based his decision on the statement of Shri Mukesh Choksi, it was incumbent on him to have provided a copy of the same to the assessee and also to have provided him with opportunity for cross examination, before coming to a conclusion in the matter. The AO’s failure to do so in the case on hand goes against the principles of natural justice and an addition/ finding rendered in this manner, as has been done in the case on hand, is not sustainable. By virtue of the details/documents, etc. filed by the assessee before the authorities below (as laid out in submissions in the paper book referred to earlier in this order), the assessee has proved the genuineness of the share transactions on sale/purchase of 7500 shares of Buniyad Chemicals Ltd. We, therefore, are of the view that there was no justification on the part of the AO to disallow the assessee’s claim of LTCG arising on sale of the aforesaid shares merely on the basis of the uncorroborated statement of Mukesh Choksi dated 11.12.2009 in respect of which no enquiry was carried out by the AO to establish the veracity thereof and without giving the assessee an opportunity to cross examine Shri Mukesh Choksi thereon. In this view of the matter and keeping in mind the principles of judicial consistency, we reverse the findings of the learned CIT(A) and AO and direct the AO to assess the LTCG declared by the assessee on sale of 7500 shares of Buniyad Chemicals Ltd. as declared at ₹ 7,78,861/- and allow the assessee exemption under section 54F of the Act. - Decided in favour of assessee Issues Involved:1. Reopening of assessment under section 147 of the Income Tax Act, 1961.2. Addition of Long Term Capital Gains (LTCG) on sale of shares.3. Disallowance of transfer fee.4. Disallowance of commission paid.5. Principles of natural justice and opportunity for cross-examination.Issue-wise Detailed Analysis:1. Reopening of assessment under section 147 of the Income Tax Act, 1961:The assessee filed the return of income for A.Y. 2004-05 on 31.03.2005 declaring an income of Rs. 7,47,052/-. The Assessing Officer (AO) initiated proceedings under section 147 for reopening the assessment, believing that the income had escaped assessment. Notice under section 148 was issued on 29.03.2011, and the assessment was completed under section 143(3) r.w.s. 147, determining the income at Rs. 18,64,860/- due to various additions/disallowances.2. Addition of Long Term Capital Gains (LTCG) on sale of shares:The AO added Rs. 7,78,816/- as LTCG on the sale of 7500 shares of Buniyad Chemicals, based on the statement of one Shri Mukesh Choksi. The assessee contended that the shares were genuinely purchased and sold, providing copies of the purchase and sale bills, demat account statements, and financial statements. The AO's reliance on Mukesh Choksi's statement was challenged as the assessee was not given a copy of the statement nor an opportunity for cross-examination. The Tribunal found that the AO failed to conduct an independent inquiry to verify the statement's veracity and did not follow the principles of natural justice. Consequently, the addition of LTCG was not sustainable.3. Disallowance of transfer fee:The AO disallowed Rs. 3,00,000/- as a transfer fee. However, this specific disallowance was not pressed by the assessee during the hearing and was rendered infructuous and dismissed as not pressed.4. Disallowance of commission paid:The AO disallowed the commission paid at 5%, amounting to Rs. 38,943/-. The CIT(A) restricted this disallowance to 0.15% of the transaction value. The Tribunal, considering the merits of the case, did not find it necessary to adjudicate further on this issue as the primary grievances were addressed.5. Principles of natural justice and opportunity for cross-examination:The Tribunal emphasized that the AO's reliance on the statement of Mukesh Choksi without providing the assessee an opportunity for cross-examination violated the principles of natural justice. The AO's approach was deemed to be with preconceived notions and a closed mind, as no independent inquiry was conducted. The Tribunal cited similar cases where the assessee's claim of LTCG was upheld, reinforcing that the assessee had proved the genuineness of the share transactions.Conclusion:The Tribunal allowed the assessee's appeal partly, directing the AO to assess the LTCG declared by the assessee on the sale of 7500 shares of Buniyad Chemicals Ltd. and to allow the exemption under section 54F of the Act. The technical grounds raised by the assessee were deemed academic and not adjudicated further.Order Pronounced:The order was pronounced in the open court on 9th November 2016.