2023 (10) TMI 769 - AT - Income Tax

Sale of shares not treated as unexplained cash credit; capital gains deemed genuine and exempt under sections 68 and 10(38).

Rehana Anwar Shaikh Versus Assessing Authority Delhi National Faceless Appeal Centre Delhi

Rehana Anwar Shaikh Versus Assessing Authority Delhi National Faceless Appeal Centre Delhi - TMI Issues Involved:1. Whether the sale consideration received on the sale of shares of M/s. Radford Global Limited should be treated as unexplained cash credit under section 68 of the Act.2. Whether the long-term capital gains declared by the assessee on the sale of shares are genuine and exempt under section 10(38) of the Act.Summary:Issue 1: Treatment of Sale Consideration as Unexplained Cash CreditThe assessee challenged the addition of Rs. 1.05 crores as unexplained cash credit under section 68 of the Act, which was confirmed by the learned CIT(A). The Assessing Officer (AO) had relied on the SEBI report and the Investigation Directorate's findings, which identified the shares of M/s. Radford Global Limited as penny stocks involved in price manipulation. Despite the assessee providing evidence of the purchase and sale of shares through a SEBI registered broker and receiving consideration through banking channels, the AO doubted the genuineness of the transactions. The AO issued notices under section 133(6) to the purchasers and the seller of the shares, which went unanswered, leading to the assessment of the sale consideration as unexplained cash credit.Issue 2: Genuineness and Exemption of Long-Term Capital GainsThe assessee argued that all necessary evidence was provided to prove the genuineness of the transactions. The SEBI's final report did not find any adverse evidence against the assessee for violating SEBI regulations. The Tribunal noted that the AO did not establish that the assessee was part of the group manipulating share prices. The purchase of shares was made through M/s. Atherton Glass Works Ltd, and the transactions were conducted through recognized stock exchanges. The Tribunal relied on the decisions of the Hon'ble Bombay High Court in the cases of Shyam R. Pawar and Ziauddin A. Siddique, which emphasized the need for concrete evidence to prove the involvement of the assessee in price manipulation. The Tribunal concluded that the AO failed to find any fault with the documentary evidence provided by the assessee and did not prove the assessee's involvement in any fraudulent activities.Conclusion:The Tribunal held that the sale consideration received on the sale of shares cannot be assessed as unexplained cash credit under section 68 of the Act. The long-term capital gains declared by the assessee were considered genuine and exempt under section 10(38) of the Act. Consequently, the order passed by the learned CIT(A) was set aside, and the AO was directed to delete the impugned addition. The appeal filed by the assessee was allowed.