2023 (5) TMI 851 - AT - Income Tax

Tribunal upholds exemption under Section 10(38) for long-term capital gains

Rashi Agrawal Versus ITO, Ward-1 (1), Cuttack

Rashi Agrawal Versus ITO, Ward-1 (1), Cuttack - TMI Issues Involved:1. Whether the assessee's claim for exemption under Section 10(38) of the Income Tax Act, 1961, on long-term capital gains from the sale of shares is valid.2. Whether the transaction of purchase and sale of shares by the assessee is genuine or a premeditated arrangement to evade taxes.Summary:Issue 1: Exemption under Section 10(38) of the Income Tax Act, 1961- The assessee, an individual deriving income from capital gains through the purchase and sale of shares, claimed exemption under Section 10(38) for the assessment year 2014-2015.- The assessee purchased 1 lakh shares of M/s Panchshul Marketing Ltd. at Rs.1/- per share, which were later amalgamated with M/s Kailash Auto, resulting in the issuance of 1 lakh shares of M/s Kailash Auto.- The shares were sold through a recognized stock exchange after holding them in a demat account for over 12 months, and Securities Transaction Tax (STT) was paid.- The coordinate bench of the Tribunal in similar cases, such as Deepansu Mohapatra & Others, held that the assessee was entitled to the exemption under Section 10(38) as the transactions were genuine and supported by documentary evidence.- The Tribunal found that the addition made by the Assessing Officer (AO) was based on mere suspicion without any cogent material, and thus, the exemption under Section 10(38) was valid.Issue 2: Genuineness of the Transaction- The AO and CIT(A) had treated the long-term capital gains as bogus, alleging that the assessee introduced unaccounted income in the guise of long-term capital gains.- The Tribunal noted that the assessee had provided substantial documentary evidence, including purchase through account payee cheques, holding shares in a demat account, and selling through a recognized stock exchange.- The Tribunal referenced several judicial precedents, including decisions by the Hon'ble Supreme Court and High Courts, which emphasized that suspicion alone cannot discredit genuine transactions backed by documentary evidence.- The Tribunal also highlighted that the revenue's appeal against the decision in Deepansu Mohapatra was dismissed by the Hon'ble Jurisdictional High Court of Orissa, affirming the Tribunal's findings.- The Tribunal concluded that the AO's findings were based on assumptions and lacked concrete evidence, thereby directing the AO to not treat the long-term capital gains as bogus and delete the consequential addition.Conclusion:- The Tribunal allowed the appeal of the assessee, holding that the transactions were genuine and the exemption under Section 10(38) was rightly claimed.- The addition made by the AO and confirmed by the CIT(A) was deleted.