2024 (4) TMI 1238 - AT - Income Tax

ITAT deletes section 68 addition on exempt long term capital gains under section 10(38) without concrete evidence of price manipulation

Shri Pannalal Hastimal Gulecha Versus The ITO, Ward-23 (2) (7), Mumbai.

ITAT Mumbai held that addition under section 68 treating long term capital gains exempt under section 10(38) as non-genuine was unjustified. The tribunal ... Addition u/s 68 - treating long term capital gains being exempt u/s. 10(38) to be non-genuine - HELD THAT:- There is no material or information that SEBI has found any manipulation for rigging of prices in the shares of Prraneta Industries Ltd or has ever banned the trading. Apart from that, even the Investigation report and information which has been referred by the AO in his order, there is nothing concrete which has been mentioned except for stating that Investigation report points out that the companies which were controlled by Shri Shirish Chandrakant Shah were only for providing accommodation entries. However, nowhere it has been brought on record that Shri Shirish Chandrakant Shah was promoter and director of this company and the company was only for providing accommodation entry or was part of any rigging or manipulation of prices or there is any information regarding exchange providers who had assisted the sellers like purchasing scrips. Reasons given to delete the addition in case of assessee’s family will apply mutatis mutandis for this appeal also. Accordingly, the addition made by the AO is on similar grounds is directed to be deleted. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment were:Whether the additions made under Section 68 of the Income Tax Act by treating the sale consideration on the sale of shares as unexplained cash credit were justified.Whether the claim of exemption of long-term capital gains under Section 10(38) was valid in the context of alleged bogus transactions.Whether the evidence presented by the assessee was sufficient to substantiate the genuineness of the transactions.Whether the findings and observations of the Assessing Officer (AO) and the Investigation Wing were adequately supported by evidence specific to the transactions of the assessee.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe core legal provisions involved were Section 68 and Section 10(38) of the Income Tax Act. Section 68 deals with unexplained cash credits, while Section 10(38) provides for exemption of long-term capital gains on the sale of equity shares. Precedents from various High Courts were cited, emphasizing the need for concrete evidence to treat capital gains as unexplained cash credits.Court's Interpretation and ReasoningThe Tribunal scrutinized the evidence provided by the assessee, including contract notes, bank statements, Demat accounts, and balance sheets. The Court noted that the AO's conclusions were based on general observations rather than specific evidence against the assessee. The Tribunal emphasized that mere price fluctuations or general allegations of penny stock manipulation were insufficient to deny the exemption under Section 10(38).Key Evidence and FindingsThe assessee provided substantial documentation to support the purchase and sale of shares, including:Contract notes from recognized stock brokers.Bank statements showing transactions through banking channels.Demat account statements reflecting the shares.Balance sheets indicating investments in shares.The Tribunal found no direct evidence or material linking the assessee to any bogus transactions or accommodation entries.Application of Law to FactsThe Tribunal applied legal principles from precedents such as Indravadan Jain HUF and Pr. CIT v. Karuna Garg, which emphasized the necessity of concrete evidence to treat capital gains as unexplained cash credits. The Tribunal concluded that the AO had not provided sufficient evidence to disprove the genuineness of the transactions.Treatment of Competing ArgumentsThe Tribunal considered the arguments of both the assessee and the Revenue. The Revenue's reliance on the general modus operandi of penny stock manipulation was found inadequate without specific evidence. The assessee's detailed documentation and lack of adverse findings from SEBI or other authoritative bodies were pivotal in the Tribunal's decision.ConclusionsThe Tribunal concluded that the additions made by the AO were not justified due to the lack of specific evidence against the assessee. The claims of long-term capital gains exemption under Section 10(38) were upheld.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning'Mere rise of share price cannot be the sole ground for treating the transaction of sale of shares as bogus. There has to be some other material or any other factors brought on record before us to dislodge the claim of the assessee when the existence of purchase and sale of shares is through stock exchange online.'Core Principles EstablishedThe burden of proof lies on the Revenue to provide specific evidence when alleging bogus transactions.Mere fluctuations in share prices do not automatically render transactions as accommodation entries.Documentary evidence provided by the assessee, if unchallenged, supports the genuineness of transactions.Final Determinations on Each IssueThe Tribunal allowed both appeals, deleting the additions made by the AO and upholding the exemption claims under Section 10(38) for both assessees. The Tribunal emphasized the necessity of specific evidence to support allegations of bogus transactions, which was lacking in this case.