ITAT allows LTCG exemption for SRK Industries Ltd. shares sale, citing genuine transactions & remands commission issue.

The ITAT allowed the appeal regarding the LTCG exemption under section 10(38) for the sale of shares of SRK Industries Ltd., based on genuine transactions supported by evidence, contrary to the AO and CIT(A)'s findings. Precedents supporting the genuineness of similar transactions were considered. The issue of disallowed commission payment was remanded to the AO for reevaluation with additional evidence to be provided by the assessee.

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Issues Involved:
1. Denial of exemption under section 10(38) for Long Term Capital Gains (LTCG) on the sale of shares.
2. Disallowance of commission payment due to non-deduction of tax at source under section 194H and lack of evidence.

Detailed Analysis:

1. Denial of Exemption under Section 10(38) for LTCG:

The assessee claimed exemption for LTCG on the sale of shares of SRK Industries Ltd. under section 10(38) of the Income Tax Act. The Assessing Officer (AO) denied this exemption, labeling the shares as "penny stock" and the transactions as bogus, based on an investigation report. The AO issued a detailed show cause notice and, despite the assessee's detailed reply, made an addition under section 69B of the Act.

The CIT(A) upheld the AO's decision, relying on the judgment of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Principal CIT, which dealt with a different factual matrix involving cash purchases and non-responsive brokers. The CIT(A) dismissed the appeal, emphasizing the findings of the investigation wing and the lack of fundamental support for the sharp rise in the share price of SRK Industries Ltd.

The assessee argued that the transactions were genuine, conducted through SEBI-registered brokers, and supported by contract notes, Demat account statements, and banking channel payments. The assessee cited multiple ITAT decisions where similar transactions in SRK Industries Ltd. were held genuine and exempt under section 10(38).

The ITAT considered the detailed submissions and evidence provided by the assessee, including contract notes, Demat account statements, and banking transactions. It noted that the CIT(A) did not dispute these evidences but relied solely on the investigation report. The ITAT referred to several precedents where the same script (SRK Industries Ltd.) was deemed genuine, including decisions by ITAT Kolkata and Mumbai Benches, and allowed the appeal, granting the exemption under section 10(38).

2. Disallowance of Commission Payment:

The AO disallowed a commission payment of Rs. 1,00,000/- made by the assessee for the sale of property, citing non-deduction of tax at source under section 194H and the lack of addresses for the commission recipients. The CIT(A) agreed that TDS was not required but upheld the disallowance due to insufficient evidence of the commission payment.

The assessee requested a remand to provide necessary evidence. The ITAT accepted this request, noting that partial information was already provided, and directed the AO to re-adjudicate the issue after considering the additional evidence.

Conclusion:

The ITAT allowed the appeal on the issue of LTCG exemption under section 10(38), following precedents that established the genuineness of transactions in SRK Industries Ltd. For the disallowed commission payment, the ITAT remanded the issue to the AO for re-adjudication with additional evidence to be provided by the assessee.

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