CASE TITLE:
Abhishek Ashok Lohade Vs. ITO
DATE OF ORDER:
22November 2022
BENCH:
S.S Viswanethra Ravi(Judicial Member)
Inturi Rama Rao(Accountant Member)
PARTIES:
Appellant- Abhishek Ashok Lohade
Respondent- Income Tax Officer
SUBJECT
In the present case, the Pune Bench of The Income Tax Appellate Tribunal reiterated the well established principle of law that ‘fraud vitiates everything.’ The Tribunal, while applying the said principle denied the exemption claimed by the appellant u/s 10(38) as he failed to substantiate the genuineness of the transaction on which the respondent claimed to impose income tax.
IMPORTANT LEGAL PROVISION
INCOME TAX ACT
Section10(38)- provided that the long-term capital gains arising on sale of equity shares or units of an equity-oriented mutual fund on which Securities Transaction Tax (STT) is paid is exempt from taxation.
[The said section has been repealed by the Finance Act 2018, which also introduced a new section 112A in order to levy long term capital gain tax on transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented funds or unit of a business trust w.e.f A.Y. 2019-20.]
BRIEF FACTS OF THE CASE
- While conducting the assessment proceedings, the Assessing Officer observed that the appellant was a party to some suspicious transaction relating to long term capital gains on sale of shares.
- The appellant had claimed an exemption of Rs. 50,67,174 u/s 10(38). This was his capital gains from the sale of the shares in question.
- The Assessing Officer held the appellant guilty of being a beneficiary of accommodation entries on long term capital gains from Calcutta Entry Provider, namely, Mr. Anil Khemka of Devshyam Stock Broking P. Ltd.
- As per the search and seizure conducted by the Income Tax Department, Calcutta on the said entry provider, it was admitted by him that he had provided the accommodation entries in respect of scripts as per list which includes the company of which the appellant was a shareholder. It was the shares of this company that he sold.
- In light of the above findings, the Assessing Officer called upon the appellant to establish the genuineness of the transaction of sale and purchase of shares in question.
- Upon his failure to do so, the AO refused to grant him the exemption and calculated his tax liability after taking into consideration the capital gain of Rs. 50,67,174 as unexpected cash credit.
- The conclusion reached by the AO was further upheld by Commissioner of Income Tax (Appeals), an appeal against the same is preferred before the present Tribunal.
ARGUMENTS RAISED BY THE RESPONDENT
- It was contended that despite the ample opportunity afforded to the appellant, he failed to rebut the findings of the Assessing Officer. This gives rise to suspicion.
LEGAL ISSUE
- Whether or not the claim for exemption of capital gains u/s 10(38) of the Act is genuine?
ANALYSIS BY THE TRIBUNAL
- While adjudicating upon the matter, the Tribunal affirmed the doctrine of human probabilities invoked by the ld. CIT(A). The ld. CIT(A) had relied upon the decision of the Apex Court in Sumati Dayal v. CIT [214 ITR 801 (SC)] and CIT V. Durga Prasad More [82 ITP 540 (SC)].
- The Tribunal observed that in a case involving identical facts, the Calcutta High Court ruled in the favour of the conclusion reached by the Assessing Officer.
- The Tribunal further went on to observe the well established principle of law that fraud vitiates everything. It observed that “fraud vitiates everything and even the principle of natural justice have no application and such transaction is void ab initio.”
- A reference was also made to the decision of the Apex Court in the case of Friends Trading Co. v. Union of India[CIVIL APPEAL NO. 5608 of 2011], wherein it was held by the Apex Court that since the Duty Entitlement Passbook Scheme (DEPB) licenses were forged, the exemption benefit availed on such licenses was void ab initio. It had also observed that even if the beneficiary had no knowledge about the forged licenses, it would have no bearing on the imposition of customs duty.
- As far as the facts of the present case was concerned, the Tribunal observed that the appellant knowingly withheld the information regarding the genuineness of the transaction of purchase of the shares from the AO as well as the ld. CIT(A). It further observed that-
“It is nothing but fraud played by the appellant against the Assessing Officer as well as the ld. CIT(A).”
CONCLUSION
The Income Tax Appellate Tribunal while applying the principle of fraud, held that the transaction of purchase and sale of shares under consideration was void ab intio. As such, the order of the Assessing Officer as well as the ld. Commissioner of Income Tax( Appeals) was confirmed and the appeal was rejected.
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