Exemption under section 10(38) allowed for genuine capital gains from legitimate company shares

ITAT Delhi allowed the assessee's appeal regarding denial of exemption under section 10(38) and additions under sections 69 and 68. The tribunal held that CCL International Ltd was not a penny stock company as alleged by AO, finding no material evidence of price manipulation or adverse SEBI action. The company was legitimately listed and engaged in genuine business with reported incomes. Capital gains from share sale were deemed genuine, entitling exemption under section 10(38). Regarding unsecured loans, the tribunal found the assessee adequately proved identity, creditworthiness, and genuineness of transactions for all three lenders, directing deletion of additions under section 68.

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Issues Involved:

1. Addition of Rs 49,33,062/- by denying exemption u/s 10(38) of the Income-tax Act.
2. Addition of Rs 29,56,000/- u/s 68 of the Income-tax Act in respect of unsecured loans.

Summary:

Issue 1: Addition of Rs 49,33,062/- by denying exemption u/s 10(38) of the Income-tax Act

The appeal concerns the confirmation of an addition of Rs 49,33,062/- by denying the exemption u/s 10(38) of the Act. The assessee, an individual deriving income from salary and other sources, had purchased 12500 equity shares of CCL International Ltd and later sold 9500 shares, claiming exemption u/s 10(38) for long-term capital gains. The Assessing Officer (AO) doubted the genuineness of the transactions, classifying the scrip as a penny stock and adding the sale consideration as income u/s 69 of the Act. The Tribunal found that the AO's suspicion was baseless, noting that CCL International Ltd is a legitimate company recognized by the Government of India and not a penny stock. The Tribunal held that the capital gains earned by the assessee on the sale of shares were genuine and entitled to exemption u/s 10(38), thus deleting the addition made u/s 69.

Issue 2: Addition of Rs 29,56,000/- u/s 68 of the Income-tax Act in respect of unsecured loans

The assessee challenged the addition of Rs 29,56,000/- u/s 68 of the Act concerning unsecured loans received from various parties. The AO questioned the identity, creditworthiness, and genuineness of the transactions. Specifically, the AO doubted the loan from Rakesh Gupta (HUF) due to the source being sale proceeds from Trustline Securities Ltd, and loans from Ankita Garg due to the absence of her bank statement. The Tribunal found that the AO's doubts were unfounded, as the assessee provided sufficient documentation, including confirmations, bank statements, and income tax returns of the lenders. The Tribunal held that the assessee had proved the identity, creditworthiness, and genuineness of the transactions, directing the deletion of the additions made u/s 68.

Conclusion:

The Tribunal allowed the appeal, deleting the additions made by the AO u/s 69 and u/s 68 of the Act, thereby granting relief to the assessee. The order was pronounced in the open court on 03/04/2024.

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