2020 (12) TMI 740 - HC - Income Tax

High Court overturns Tribunal decision on share transaction authenticity

The Commissioner of Income Tax, Chennai. Versus Mrs. Manish D. Jain (HUF)

The High Court set aside the Tribunal's decision to remand a case involving the genuineness of share transactions under Section 10(38) of the Income Tax ... Bogus LTCG - Penny stock purchases - Claim made u/s 10(38) denied - ITAT remanded the matter back by setting aside the additions - HELD THAT:- Not only the Assessing Officer, but also the CIT(A) examined the modus operandi of the assessee and held that the shares were purchased through off market and not through Stock Exchange and that the selling rates were artificially hiked later on. The above findings have not been set aside by the Tribunal and there is no reason for the Tribunal to remand the matter to the Assessing Officer for a fresh consideration. As pointed out in the decision of this Court in the case of Cholamandalam MS General Insurance Co. [2013 (7) TMI 90 - MADRAS HIGH COURT] we find in the instant case that there was no material, which necessitated the remand of the case to the Assessing Officer and it is a clear case where the Tribunal had failed to exercise its jurisdiction in the manner known to law.Tribunal, being a last fact finding Authority, is under the legal obligation to record a correct finding of fact. Where all the evidence had been produced and the CIT(A), after full investigation of the evidence and examination of the accounts, had given a definite finding on the question in issue, the Tribunal's order of remand was held to be invalid. In the recent decision of the Hon'ble Division Bench of this Court in the case of Tharakumari Vs. ITO [2019 (3) TMI 647 - MADRAS HIGH COURT] the appeal filed by the assessee in a case relating to penny stock was dismissed after noting the factual findings rendered by the Assessing Officer, the CIT(A) and the Tribunal. Thus, for all the above reasons, we hold that the order passed by the Tribunal calls for interference. Substantial questions of law framed are answered in favour of the Revenue Issues Involved:1. Justification of Tribunal's remand of the case to the Assessing Officer.2. Examination of the transaction's genuineness under Section 10(38) of the Income Tax Act.3. Burden of proof and the role of the assessee in proving the genuineness of the transaction.4. Evaluation of the Tribunal's findings and its adherence to judicial principles in remanding the case.Issue 1: Justification of Tribunal's Remand of the Case to the Assessing OfficerThe Tribunal's decision to remand the case for fresh consideration was challenged. The High Court emphasized that the Tribunal, as a fact-finding authority, should not remand cases routinely and must record reasons for doing so. The Tribunal did not find errors in the Assessing Officer's or CIT(A)'s factual findings and did not provide reasons for remanding the case. The High Court cited precedents where remanding should be an exception and not a routine action. The Tribunal's order was deemed unjustified and devoid of reasons, thus unsustainable in law.Issue 2: Examination of the Transaction's Genuineness under Section 10(38) of the Income Tax ActThe Assessing Officer and CIT(A) found the transaction of purchasing shares to be a sham. The assessee's purchase of 450 shares of M/s. Dhanlabh Merchandise Limited, later converted into 4500 shares of M/s. Bakra Pratisthan Limited, was scrutinized. The investigation revealed that the purchase was not genuine, as the company from which shares were bought was non-existent at the provided address. The transaction lacked distinctive numbers and proper documentation. The Assessing Officer concluded that the transaction was engineered to generate artificial long-term capital gains and added the amount to the assessee's income as unexplained cash credit under Section 68 of the Act.Issue 3: Burden of Proof and the Role of the Assessee in Proving the Genuineness of the TransactionThe High Court reiterated that the burden of proof lies initially on the assessee to establish the genuineness of the transaction, identity of the creditors, and the creditworthiness of the investors. The assessee failed to provide satisfactory evidence to prove the genuineness of the share transactions. The Tribunal's reliance on the decision in Kanhaiyalal & Sons (HUF) was misplaced as the assessee did not dispute the factual findings. The High Court cited several precedents, including Sumati Dayal and NRA Iron & Steel Private Limited, emphasizing that the assessee must provide cogent evidence to prove the genuineness of transactions.Issue 4: Evaluation of the Tribunal's Findings and Its Adherence to Judicial Principles in Remanding the CaseThe High Court found that the Tribunal did not adhere to judicial principles in remanding the case. The Tribunal failed to record reasons for remanding and did not find new material necessitating a remand. The High Court cited precedents where remand orders were invalidated when the CIT(A) had already conducted a full investigation and given a definite finding. The High Court emphasized that the Tribunal, being the last fact-finding authority, must record correct findings of fact and exercise its power to remand judiciously.Conclusion:The High Court allowed the appeal, set aside the Tribunal's order, and restored the CIT(A)'s order. The substantial questions of law were answered in favor of the Revenue, highlighting that the Tribunal's remand was unjustified, and the assessee failed to prove the genuineness of the transaction.