MR. GANPATHRAJ & SONS,,CHENNAI vs. ITO, NCW - 10 (2),, CHENNAI

Shri J. Ganpatraj & Sons, the assessee, had purchased 6000 shares of M/s. GCM Securities, subsequently amalgamated with M/s. Kailash Auto Finance Ltd., at the rate of Rs.20 per share from M/s. Purva Shareregistry (India) Pvt. Ltd., off market, on 04.04.2013. Later, the assessee sold these shares and 21,000 shares of M/s. Kailash Auto Finance Ltd. During the assessment, after considering the assessee’s explanation, material etc., based on the outcome of the investigations done by the Revenue by the Directorate of Investigation, Kolkata, and after analyzing these transactions, the Assessing Officer concluded that the Long Term Capital Gains booked by the assessee were not genuine and not carried out in the course of the investment or business to reap genuine and legal return. Further, the Assessing Officer found that not only the assessee but also his relatives and associates adopted similar pattern which was similar with outcome of a series of investigations carried out by the department which revealed organized rackets where the assessees have colluded with various unscrupulous agents to gain benefits that are illegal. Since the assessee was not able to prove that his transactions was genuine and that he had not availed the benefit of the scheme to convert black money into the white, the Assessing Officer added Rs.42,76,557/- U/s.68 of the Act. Aggrieved against that order, the assessee filed an appeal before the CIT(A). The Ld. CIT(A), inter alia, relying on the decisions in the case of Sanjay Bimalchand Jain v PCIT- 1, Nagpur reported in 89 taxmann.com 196 (Bomb HC, Nagpur Bench) etc., dismissed the appeal of the assessee. Aggrieved against that order, the assessee filed this appeal.

It was submitted by Ld. AR that the issue in this appeal was against the action of the Ld. CIT(A) in confirming the addition made by the Ld. Assessing Officer in treating the purchase and sale of shares by the assessee, as penny stock transactions. The Ld.AR submitted on the lines of grounds of appeal

We have considered the rival submissions. It is noticed that the assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made primarily, based on the evidences collected by the Revenue in the course of the investigation conducted by them on the brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the genuineness of the transactions require re- adjudication. Since, the right to exemption must be established by those who seek it, the onus therefore lies on the assessee. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper materials which would enable them to come to a conclusion. (35 ITR 312 (SC)).Thus, the AO must keep in mind that the onus of proving the exemption rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. The relevant portion of the order of this Tribunal in the case of Mr. Sunil Kumar Lalwani Vs ITO & others, Non Corporate Circle 9(4), Chennai in & 660/ CHNY/2018 dt. 09.01.2019 is extracted as under:

Further, perusal of assessee’s case shows that it is similar to the facts in the case of Shri Heerachand Kanunga, a decision of the Co-ordinate Bench of this Tribunal made for assessment years 2010-11 & 2011-12 in & 2787/Mds/2017 dated 03.05.2018 . The relevant portions from that order is extracted as under :- “9. A perusal of the facts in the present case admittedly given room for suspicion. However, assessments are not to be done on the basis of mere suspicion. It has to be supported by facts and the facts are unfortunately not forthcoming in the Assessment Order, in the order of the Ld.CIT(A) nor from the side of the assessee. The main foundation of the assessment in the present case is the statement of one Shri Ashok Kumar Kayan who has admitted to have provided bogus Long Term Capital Gains to his clients. The said Shri Ashok Kumar Kayan also allegedly seems to have provided the assessee’s name and PAN as one of the beneficiaries. However, this statement given by Shri Ashok Kumar Kayan cannot be the foundation for the purpose of assessment in so far as Shri Ashok Kumar Kayan has not been provided to the assessee for cross-examination. In the absence of opportunity of cross-examination, the statement remains mere information and such information cannot be foundation for assessment.

In the result, the appeals filed by the assessee in & 2787/Chny/2017 are partly allowed for statistical purposes.”

Respectfully following the above orders, on the facts and circumstances of this case, we deem it fit to remit the issue of exemption in this appeal back to the file of the Assessing Officer for re- adjudication on the lines indicated above. Therefore, the Assessing Officer shall require the assessee; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply with the Assessing Officer’s requirements as per law. The Assessing Officer is also free to conduct appropriate enquiry as deemed fit. The Assessing Officer shall also bring on record the role of the assessee in promoting the company and relationship of the assessee with other promoters, role of the assessee in inflating the price of shares, etc. as had been held by the Co-ordinate Bench of this Tribunal in the case of Kanhaiyalal & Sons (HUF) v. ITO in I.T.A.

In the result, appeal filed by the assessee is treated as partly allowed for statistical purposes.