Exemption under Section 10(38) upheld for long-term capital gains on penny stock sales despite revenue's bogus transaction claims

The HC upheld the Tribunal's decision allowing exemption u/s 10(38) for LTCG on penny stock sales. Despite revenue's contention of bogus LTCG based on assessee's group's admission during survey u/s 133A, the court found all statutory requirements satisfied: shares held over 12 months, sold on recognized stock exchange, and STT paid. The court ruled that admission without incriminating evidence cannot defeat exemption claims. Revenue failed to prove transactions were non-genuine or documents fabricated. CBDT Circular 23/2019 on penny stock LTCG was held inapplicable as it cannot operate retrospectively for AY 2013-14. No substantial question of law arose.

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Issues Involved:
1. Whether the Tribunal rightly accepted the claim of exemption under Section 10(38) for Long Term Capital Gain (LTCG) on sale of shares.
2. Whether the Tribunal rightly dismissed the revenue's appeal based on the sale of shares through a recognized stock exchange and payment of Securities Transaction Tax (STT).

Summary:

Issue 1: Exemption under Section 10(38) for LTCG

The respondent-assessee filed a return for the assessment year 2013-14, claiming exemption under Section 10(38) for LTCG from the sale of shares of CCL International Limited. The case was selected for scrutiny, and the Assessing Officer included Rs.1,61,09,716/- as income from other sources, initiating penalty proceedings. The First Appellate Authority allowed the exemption claim, stating the shares were sold on a recognized stock exchange, held for more than twelve months, and STT was paid. The Income Tax Appellate Tribunal upheld this decision, noting the lack of evidence from the Assessing Officer to rebut the respondent's claim. The Tribunal dismissed the revenue's appeal, confirming the exemption under Section 10(38).

Issue 2: Dismissal of Revenue's Appeal

The revenue argued that the respondent's LTCG claim was a bogus accommodation entry to disguise unaccounted income. The Tribunal found that the revenue failed to provide evidence to support this claim, relying solely on a statement obtained during a survey under Section 133A, which has no evidentiary value. The Tribunal emphasized that the sale of shares was through a recognized stock exchange with STT paid, thus qualifying for the exemption under Section 10(38). The Tribunal dismissed the appeal, noting the absence of incriminating evidence against the respondent and the compliance with legal requirements for the exemption.

Conclusion:

The High Court upheld the Tribunal's decision, stating that the revenue failed to demonstrate any substantial question of law. The Court confirmed that the respondent-assessee met all requirements for the exemption under Section 10(38), and the orders of the appellate authorities were based on proper evidence and legal principles. The appeals were dismissed with no order as to costs.

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