2021 (8) TMI 333 - AT - Income Tax

Tribunal recognizes LTCG claim, emphasizes cross-examination, dismisses Revenue's arguments

M/s. Ajay Kumar Balmukund Jhawar HUF C/o SV Agrawal & Associates, Smt. Aparna Jhawar C/o SV Agrawal & Associates, M/s Balmukund Dhanraj Jhawar (HUF) C/o S.V. Agrawal & Associates Versus The ITO Sendhwa (M.P.)

M/s. Ajay Kumar Balmukund Jhawar HUF C/o SV Agrawal & Associates, Smt. Aparna Jhawar C/o SV Agrawal & Associates, M/s Balmukund Dhanraj Jhawar (HUF) C/o ... Issues Involved:1. Genuineness of long-term capital gain (LTCG) claimed under Section 10(38) of the Income Tax Act.2. Legitimacy of off-market share transactions.3. Reliance on investigation reports and denial of cross-examination.4. Validity of evidence and documentation provided by the assessee.Issue-wise Detailed Analysis:1. Genuineness of LTCG Claimed Under Section 10(38):The assessee declared a net income of Rs. 4,12,396 and claimed an LTCG exemption of Rs. 23,03,300 on the purchase and sale of shares of Turbotech Engineering Ltd. The shares were purchased off-market and later sold through a recognized stock broker. The Assessing Officer (AO) rejected this claim, suspecting the transactions were bogus and accommodative, designed to claim false exemptions. The AO's decision was based on the significant price increase of the shares and an investigation report alleging similar bogus transactions. The appellate tribunal, however, found no specific evidence linking the assessee to any fraudulent activity or collusion with entry operators or brokers.2. Legitimacy of Off-Market Share Transactions:The AO doubted the genuineness of the off-market purchase of shares from Shah Space Manager Pvt. Ltd., as the entity was not a registered stock exchange broker. Despite this, the tribunal noted that there was no legal restriction against off-market purchases and that the assessee had provided all necessary documentation, including purchase bills, demat account statements, and bank account details showing the receipt of sale proceeds.3. Reliance on Investigation Reports and Denial of Cross-Examination:The AO relied heavily on an investigation report from the Kolkata Investigation Wing, which was not directly related to the assessee. The tribunal emphasized that findings from other cases cannot be used against an assessee without providing an opportunity for cross-examination. Citing the Supreme Court's decision in Andaman Timber Industries vs. CCE, the tribunal highlighted that denying the assessee the chance to cross-examine witnesses whose statements were used against them is a violation of natural justice, rendering the assessment order null and void.4. Validity of Evidence and Documentation Provided by the Assessee:The tribunal found that the assessee had duly discharged their onus by submitting all relevant documents, including purchase and sale bills, demat account statements, and bank transaction records. The Revenue failed to produce any contrary evidence or show any specific defects in these documents. The tribunal also referenced the SEBI order lifting the suspension on trading of Turbotech Engineering Ltd. shares, indicating no irregularities or involvement in price rigging by the company's directors.Conclusion:The tribunal concluded that the AO's reliance on the investigation report was misplaced and that the assessee's transactions were genuine. The denial of cross-examination was a critical flaw. The tribunal allowed the assessee's appeal, recognizing the LTCG exemption claimed under Section 10(38) and dismissing the Revenue's arguments. The tribunal's decision was consistent with prior judgments in similar cases, including Radheyshyam Khandelwal vs. ACIT, where similar claims were upheld. Consequently, all the appeals filed by the assessee were allowed.