Appeal Dismissed: LTCG Disallowed, Assessment Reopened for A.Y. 2005-06

The Income Tax Appellate Tribunal upheld the disallowance of long term capital gain and validated the reopening of the assessment for A.Y. 2005-06. The appellant's claim of exempted LTCG was rejected due to lack of financial justification for the significant increase in share price, deemed a sham transaction. Citing relevant case law, the ITAT affirmed the CIT(A)'s decision, emphasizing the absence of cogent materials in the original assessment. The appeal was dismissed on 12.9.2019.

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Issues:
Validity of reopening and confirmation of disallowance of long term capital gain under section 10(38) of the Income Tax Act for A.Y. 2005-06.

Validity of Reopening:
The appeal challenged the validity of reopening and the disallowance of long term capital gain. The Assessing Officer made an addition on account of unexplained cash credit under section 68. The appellant claimed exempted LTCG under section 10(38) on the sale of shares. The CIT(A) confirmed the addition and rejected the challenge to the validity of jurisdiction for reopening. The ITAT noted that the intimation under section 143(1) is not an assessment order, as per the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Private Ltd. The reopening was considered valid as the assessing officer did not apply his mind in the original assessment, and there were reasonable cogent materials for reopening, supported by the jurisdictional High Court decision in Export Credit Guarantee Corporation of India Ltd.

Merits of the Case - Long Term Capital Gain Disallowance:
The appellant claimed to have earned gain from a share transaction with an astonishing jump in share price, but there was no economic or financial justification for the increase. The ITAT cited the case of Sanjay Bimalchand Jain Vs. Pr. CIT, where the High Court confirmed a similar situation of an enormous jump in share price without justification. The departmental examination corroborated the transaction as a sham, indicating a classic case of penny stock transaction. The ITAT referred to various Supreme Court decisions, including CIT Vs. Durga Prasad More and Securities and Exchange Board of India Vs. Rakhi Trading Pvt. Ltd., to support the disallowance of the long term capital gain claim. The ITAT upheld the CIT(A)'s order based on the applicable case laws and dismissed the appeal filed by the assessee.

Conclusion:
The ITAT dismissed the appeal, confirming the disallowance of long term capital gain and upholding the validity of the reopening based on the lack of application of mind in the original assessment and the presence of reasonable materials for reopening. The decision was pronounced on 12.9.2019.

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