2023 (9) TMI 1161 - HC - Income Tax

Gujarat HC upholds Tribunal decision on tax appeal, dismissing challenge on disallowed exemption under IT Act

The Gujarat High Court, comprising Honourable Mr. Justice Biren Vaishnav and Honourable Mr. Justice Bhargav D. Karia, upheld the Tribunal's decision in a ... Disallowance of exemption u/s. 10(38) - Bogus LTCG - SEBI had passed an interim order in relation to this scrip by ‘MFTL’ holding that preferential allottees and promoters related entities had, with the aid of exit providers, misused the exchange mechanism to exit at a higher price - Principal CIT (A) and the Tribunal found that the SEBI report based on which the AO had made additions was an interim report and in the final report there was no adverse finding. SEBI in the final report had not made any adverse findings - HELD THAT:- As verified that the payment for purchase of shares was made through banking channel, shares were in demat account of the appellant for more than 12 months before they were sold through BOLT of BSE and the proceeds have been received through banking channel, STT has been paid. The main stand of the AO which was picked up from SEBI interim report has also been decimated by the final report of the SEBI itself. Confirming this view of the CIT(A), the Tribunal observed that having gone through the assessment order it was evident that it was based on the interim report. The final report of SEBI had absolved the scrip of all charges. Moreover, there was no independent finding on any other aspect casting doubts to show that share prices were manipulated at an unreasonable price when sold. Decided against revenue. Issues Involved:The issue involves challenging the order of the Income Tax Appellate Tribunal regarding the addition made by the Assessing Officer on account of disallowance of exemption under section 10(38) of the IT Act.Summary:The appellant filed a tax appeal challenging the Tribunal's order for the assessment year 2014-15. The appeal raised the question of whether the ITAT erred in deleting the addition made by the AO on account of disallowance of exemption claimed under section 10(38) of the IT Act. The facts revealed that the appellant had earned long term capital gain from the sale of shares of a company, which was subject to scrutiny by SEBI due to alleged price manipulation. The SEBI's interim report implicated preferential allottees and promoters for misuse of the exchange mechanism. However, the final SEBI report did not find any adverse findings against the entities involved. The CIT(A) and the Tribunal both noted the final SEBI report's exoneration of the entities and absolution of the appellant from any wrongdoing. The Tribunal found that the assessment order was based on the interim SEBI report, and there were no independent findings to support the manipulation of share prices. Consequently, the Tribunal dismissed the appeal, stating that no substantial question of law arose based on the concurrent findings of the Principal CIT and the Tribunal.Judgment by Judges:The judgment was delivered by Honourable Mr. Justice Biren Vaishnav and Honourable Mr. Justice Bhargav D. Karia of the Gujarat High Court.