Assessee wins long term capital gains exemption under Section 10(38) despite bogus share transaction allegations

ITAT Ahmedabad allowed assessee's claim for long term capital gains exemption u/s 10(38) despite AO's finding that share transactions in SRK Industries Ltd. were bogus based on investigation report identifying it as penny stock company. Tribunal held AO failed to prove collusion between broker and assessee or provide cross-examination opportunity regarding statements relied upon. Following Gujarat HC precedent in Himani M. Vakil case, where assessee proved transaction genuineness through contract notes, bank statements, and demat records, the exemption was upheld. Revenue's appeal was dismissed as lacking merit.

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Issues Involved:

1. Deletion of addition of Rs. 1,04,95,968/- being bogus Long Term Capital Gain claimed u/s 10(38) of the Income Tax Act, 1961 from bogus transaction of shares through penny stock.

Summary:

Issue 1: Deletion of addition of Rs. 1,04,95,968/- being bogus Long Term Capital Gain claimed u/s 10(38) of the Income Tax Act, 1961 from bogus transaction of shares through penny stock

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-10, Ahmedabad, which deleted the addition of Rs. 1,04,95,968/- made by the Assessing Officer (AO) as bogus Long Term Capital Gain (LTCG) claimed u/s 10(38) from transactions in penny stocks. The assessee, an individual, declared total income of Rs. 4,71,380/- for the Assessment Year 2014-15, including LTCG from the sale of shares of M/s. SRK Industries Ltd., which were purchased through banking channels and recognized stock exchanges.

The CIT(A) found that the assessee had provided sufficient evidence such as bank details, share transfer forms, purchase and sale invoices, and demat account statements to prove the genuineness of the transactions. The AO's addition was based on an investigation report without any independent inquiry or opportunity for cross-examination of witnesses. The CIT(A) noted that the AO failed to provide corroborative evidence to prove the transactions were bogus.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not dispute the purchase of shares through banking channels or the receipt of sale consideration through RTGS. The Tribunal referred to various judicial precedents, including the Hon'ble Supreme Court's decision in Parasben Kasturchand Kochar, which held that LTCG claimed on the basis of genuine transactions supported by documentary evidence should be allowed u/s 10(38). The Tribunal also highlighted that the AO did not provide any material evidence to support the claim that the transactions were sham or bogus.

The Tribunal dismissed the Revenue's appeal, affirming that the assessee had discharged the onus of proving the genuineness of the LTCG and that the addition made by the AO was not justified. The Tribunal directed the AO to delete the addition and allowed the benefit of Section 10(38) to the assessee.

Conclusion:

The appeal filed by the Revenue was dismissed, and the order of the CIT(A) allowing the assessee's claim for exemption u/s 10(38) was upheld.

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