LTCG from share transactions cannot be treated as unexplained cash credit under Section 68

ITAT Visakhapatnam held that LTCG from share transactions cannot be treated as unexplained cash credit under Section 68. Despite AO's allegations of stock price manipulation in penny stocks and seizure of loose sheets showing transaction details, the tribunal found no incriminating material or corroborative evidence proving manipulation. Since transactions occurred through proper banking channels via recognized stock exchange with buyer details available, the LTCG was deemed genuine. The tribunal allowed exemption under Section 10(38) and permitted commission expenditure deduction from LTCG, rejecting revenue's case.

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Issues Involved:

1. Validity of assessment under section 153A.
2. Treatment of Long Term Capital Gains (LTCG) as unexplained cash credit under section 68.
3. Treatment of commission expenditure as unexplained expenditure under section 69C.

Summary:

1. Validity of Assessment under Section 153A:
The first ground of objection regarding the notice issued under section 153A was not pressed by the assessee's representative and hence was dismissed as not pressed.

2. Treatment of Long Term Capital Gains (LTCG) as Unexplained Cash Credit under Section 68:
The assessee, Smt. A. Harshitha, filed her return of income for AY 2014-15, claiming exemption under section 10(38) for LTCG from the sale of listed equity shares. The Assessing Officer (AO) considered these transactions as abnormal, suspecting manipulation of share prices by M/s. Global Infratech & Finance Limited. Despite detailed enquiries and statements from entry operators, the AO treated the LTCG as unexplained cash credit under section 68 and denied the exemption. The CIT(A) upheld the AO's order. However, the Tribunal found that the AO did not provide substantial corroborative evidence to prove the assessee's involvement in manipulating stock prices. The transactions were made through recognized stock exchanges, payments were through banking channels, and the assessee paid Securities Transaction Tax (STT). The Securities Appellate Tribunal, Mumbai, exonerated the assessee from allegations of price manipulation. Consequently, the Tribunal allowed the assessee's appeal, ruling that the LTCG was genuine.

3. Treatment of Commission Expenditure as Unexplained Expenditure under Section 69C:
Since the Tribunal found the LTCG to be bonafide, the commission expenditure claimed by the assessee was also allowed as a deduction from the LTCG. The AO had initially treated the commission as unexplained expenditure under section 69C due to perceived manipulation in stock transactions. However, the Tribunal's decision to recognize the LTCG as genuine led to the acceptance of the commission expenditure as well.

Conclusion:
The Tribunal allowed the appeals of both assessees, Smt. A. Harshitha and Smt. A. Ammaji, ruling that the LTCG and related commission expenditures were genuine and should not be treated as unexplained cash credits or expenditures. The decisions were pronounced in the open court on 15th December 2023.

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