2022 (7) TMI 387 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, dismisses revenue's appeals based on substantial evidence.

Income Tax Officer, Ward-1 (1), Cuttack Versus Smt. Bimala Devi Singhania, Sri Radheshyam Singhania

The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeals. The tribunal found no error in the CIT(A)'s decision, based on substantial ... Bogus LTCG - claim of exemption u/s.10(38) - HELD THAT:- As the statement recorded from the brokers, who have agreed to penny stock manipulation and the investigation report based thereon having not been relied upon by the ld. AO for the purpose of assessment, the decision relied on by the revenue in the case of Anip Rastogi & Anju Rastogi (2019 (4) TMI 1363 - ITAT DELHI] as also the decision in the case of Swati Bajaj (2022 (6) TMI 670 - CALCUTTA HIGH COURT], does not apply to the facts of the present case. In these circumstances, we find no error in the order of the ld.CIT(A), which calls for any interference and consequently, we uphold the same. Alternate claim of the ld. Sr.DR that the income should be assessed under the head “adventure in the nature of trade”, we are unable to accept the contention, insofar as when all the criterion required for claim of exemption u/s.10(38) of the Act has been complied with by the assessee and no fault or error in such claim has been proved much less a falsity in the claim, the income of the assessee at to be exempt u/s.10(38) of the Act, cannot be brought to tax under the head “adventure in the nature of trade”. In regard to the plea of ld.Sr. DR that two terms of Short Term Capital Gains has to be assessed also no hold merger insofar as the assessee has not sold the shares or transferred the shares of AAR Infrastructure. In far, the AAR Infrastructure merged with CCL International Ltd. When such merger itself has not considered as transferred to treat that the assessee’s shareholding in AAR Infrastructure has got extinguished or has been transferred for the purpose of computing Short Term Capital Gains, will not arise. The assessee has been issued 1.25 lakhs shares of CCL International Ltd. in lieu of 50000 shares in AAR Infrastructure held by the assessee. There is no transfer as a consequence of the merger to treat the same as Short Term Capital Gains. - Decided against revenue. Issues Involved:1. Validity of the Long Term Capital Gains (LTCG) claimed by the assessee.2. Treatment of the transaction as an adventure in the nature of trade.3. Assessment of the transaction as Short Term Capital Gains (STCG).Detailed Analysis:1. Validity of the Long Term Capital Gains (LTCG) claimed by the assessee:The primary issue was whether the LTCG claimed by the assessee on the sale of shares of CCL International Ltd. and the subsequent exemption under Section 10(38) of the Income Tax Act was genuine. The revenue argued that the shares were traded for claiming bogus LTCG, referring to a statement from a broker categorizing CCL International Ltd. as a 'penny stock' company. The Assessing Officer (AO) treated the transaction as a colorable device for tax evasion, bringing the entire sale consideration to tax under the head 'income from other sources.'The CIT(A) deleted the addition, holding the transaction as genuine and compliant with the requirements for exemption under Section 10(38). The tribunal upheld the CIT(A)'s decision, noting that the assessee provided substantial evidence, including the initial allotment of shares, the merger details, sale through SEBI-authorized brokers, and payment of Securities Transaction Tax (STT). The AO's reliance solely on the assessee's statement recorded during the survey, without any corroborative evidence, was insufficient to deny the exemption.2. Treatment of the transaction as an adventure in the nature of trade:The revenue alternatively argued that the transaction should be treated as an adventure in the nature of trade, given the substantial gains from an investment in a 'worthless' company's shares. The tribunal rejected this contention, emphasizing that the assessee met all criteria for claiming exemption under Section 10(38) and no falsity in the claim was proven. The tribunal stated that the income exempt under Section 10(38) could not be reclassified under the head 'adventure in the nature of trade.'3. Assessment of the transaction as Short Term Capital Gains (STCG):Another alternate plea by the revenue was to assess the transaction as two STCGs, arguing that the shares of AAR Infrastructure, which merged with CCL International Ltd., should be treated as transferred. The tribunal dismissed this plea, clarifying that the merger did not constitute a transfer of shares. The assessee received shares of CCL International Ltd. in lieu of AAR Infrastructure shares, and there was no transfer to compute STCG.Conclusion:The tribunal upheld the CIT(A)'s order, dismissing the revenue's appeals in both cases. The tribunal found no error in the CIT(A)'s decision, which was based on substantial evidence provided by the assessee. The tribunal also noted that the revenue's reliance on statements and investigation reports without providing an opportunity for cross-examination to the assessee was insufficient to deny the exemption under Section 10(38). The appeals were dismissed, affirming the genuineness of the LTCG claimed by the assessee and rejecting the revenue's alternate contentions.