The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench while deleting the addition made under Section 68 of the Income Tax Act, 1961 held that capital gain earned from sale of shares could not be held as bogus merely on the basis of a report unearthed in case of third parties.
The assessee, Sejalben N. Vora claimed substantial long term capital gain, exempt under Section 10(38) of the Act on sale of script of M/s. Comfort Fincap Ltd. to the tune of Rs.1,65,74,716/-
Subsequently the AO details of sale on purchase of these share were called it was found that the said shares were purchased off market and it was preferential allotment.Further it was observed that said company was not listed on BSE or NSE but subsequently got listed at BSE w.e.f. 25.03.2013 at the price of Rs.387/- per share. The assessee stated to the department of not having any knowledge of the fundamentals of the company, namely, M/s. Comfort Fincap Ltd. but purchased share
The Assessing Officer invoked the provisions of section 14A stating that the assessee has not discharged the onus of evidencing the source of investment is from own funds. Accordingly the assessing officer made a disallowance of Rs.458.866 crores towards interest paid and Rs.17.37 crores towards administration expenses after adjusting the suo moto disallowance made by the assessee.
Accordingly by verifying the investigation report issued by the Investigating Wing, Kolkata a show cause notice was issued and asked why LTCG earned to the tune of Rs.1,65,74,716/- from the sale of share of M/s. Comfort Fincap Ltd. should not be treated as bogus and the addition under Section 68 of the Act should not be made by treating the same as unexplained cash credit.
Before the AO assessee submitted that assessee was dealing in investment of shares and securities of different companies. The payment was made through a banking channel. The share was subsequently dematerialized and the shares were further held by the assessee for more than one year and finally sold through stock exchange.
After examining the submission AO rejected the submission and made addition to the income of the assessee .
Aggrieved, the assessee filed further appeal before the CIT(A) who confirmed the addition . Thereafter the assessee filed a second appeal before the tribunal.
Tushar Hemani,Counsel for assesee argued that evidence in respect of purchase of shares being the letter of allotment of shares, share certificate, delivery register is duly filed before the tribunal by annexing the same in the paper book.
Further argued that assessee cannot be said to be involved either rigging of share prices or any other sort of wrong doings as alleged by the Revenue.
Ashok Kumar Suthar, Counsel for Revenue, supported the order of the lower authorities.
The tribunal observed that the capital gain earned by the assessee as ultimately held bogus on the basis of a report unearthed in case of third party/parties has been quashed by the Co-ordinate Bench In case of Alpa Udaykumar Shah vs. ITO.
Therefore the addition treating the long term capital gain earned by the assessee out of the sale of impugned shares of the company namely M/s Comfort Fincap Ltd. on the basis of report unearthed by any third party in the absence of any cogent material brought against the assessee is not sustainable in the eye of law.
After reviewing the facts and records, the two-member bench Of Waseem Ahmed (Accountant member ) and Madhumita Roy (Judicial Member) held that capital gain earned from sale of shares could not be held as bogus merely on the basis of a report unearthed in case of third parties.
Hence the bench allowed the appeal of the assessee.
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