The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the Rs. 4,27,83,714 addition alleged bogus long-term capital gains ( LTCG ) from penny stock transactions citing the Lack of Fair Opportunity for Senior Citizen in Faceless Proceedings.
Late Rajkumar Bansal filed his income tax return, declaring Rs. 84,98,510. The assessment was completed under Section 143(3), accepting the declared income. The Investigation Wing, Ahmedabad, conducted a search in the Globe Ecologistics Group case, discovering alleged non-genuine transactions involving shares of KGN Enterprise Ltd. and KGN Industries Ltd.
The department claimed that Rajkumar Bansal had sold shares of KGN Enterprise Ltd., earning Rs. 4,27,83,714 in long-term capital gains (LTCG), which were exempted under Section 10(38) of the Income Tax Act, 1961. The transactions were deemed as part of a penny stock scam aimed at generating bogus LTCG for tax evasion.
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Based on the investigation, the AO reopened the assessment under Section 147 and issued a notice on 31st March 2021. Upon reassessment, the AO concluded that the entire sale proceeds of Rs. 4,27,83,714 were unexplained cash credits under Section 68, adding it to the income. Penalty proceedings under Section 271(1)(c) were also initiated.
Sarojben Rajkumar Bansal, his legal heir, took over the case and contested the reassessment and addition after the death of Rajkumar Bansal. On appeal, CIT(A) ex-parte decision due to non-compliance of notices.
Aggrieved, the assessee appealed before the ITAT arguing that the reopening of the assessment was merely a review of the original assessment with no fresh tangible material. The assessee contended that transactions in shares of KGN Enterprise Ltd. were conducted through recognized stock exchanges and banking channels and thus were genuine.
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The assessee’s counsel explained that the assessee being a senior citizen, was not given adequate opportunity to cross-examine witnesses whose statements were used against the assessee.
The revenue relied on the investigation findings, which pointed to a large-scale operation of bogus LTCG from penny stocks to evade taxes. They argued that the entire sale of shares was a sham transaction aimed at avoiding tax liability under the garb of exempt LTCG.
The two-member bench comprising Suchitra Kamble (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) observed that natural justice demands fair opportunity for taxpayers, especially senior citizens to present their case, which was not adhered to in this instance.
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The tribunal noted that the CIT(A) had dismissed the appeal without considering the merits of the case. The tribunal found that the original assessment was completed based on the declared income, and no fresh material justified reopening the assessment.
Therefore, the tribunal set aside the order passed by the CIT(A) which upheld the addition of Rs.4,27,83,714 and restored the case for fresh adjudication on merits. The CIT(A) was directed to provide a fair opportunity to the assessee to present their case, particularly concerning the challenge to the reopening of the assessment. The appeal was allowed for statistical purposes.
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