The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition under Section 68 of the Income Tax Act 1961, and disallowance of Long-term Capital Gains (LCG) the allegation of price manipulation was against the purchase and sale of shares made through Securities and Exchange Board of India (SEBI).
The assessee,Poornima Ramesh Shenoy was an individual and for the year under consideration filed the return of income on 13/04/2015, declaring a total income. The return filed by the assessee was selected for scrutiny and statutory notices under Section 143(2) as well as Section 142(1) of the Income Tax Act were issued and served on the assessee.
During the assessment proceedings, it was observed that the assessee had shown long-term capital gains on the sale of shares of Pearl Agriculture Ltd. and Pearl Electronics Limited and claimed the same as exempt under section 10(38) of the Income Tax Act.
The Assessing Officer (AO) vide order passed under Section 143(3) of the IncomeTax Act by placing reliance upon the investigation carried out by the Directorate of Investigation, the financial position of the Companies in whose shares assessee had transacted and fluctuation in the share rates in a short span of time concluded that the assessee had earned long-term capital gains from the sale of penny stocks.
Accordingly, the AO disallowed the exemption of long-term capital gains claimed under section 10(38) of the Income Tax Act and made the addition under Section 68 of the Income Tax Act.
Suresh Kumar Nair, on behalf of the assessee submitted that the assessee was a housewife and used to invest small amounts in deposits or shares from her household savings. Further, she bought and sold shares in small quantities and had the transactions through HDFC Securities Ltd. As per the assessee, the shares of Nouveau Multimedia Ltd were issued to the assessee not by way of preferential allotment or an off-market transaction but the same were purchased based on various public announcements made by the company on the stock exchange website.
He specifically submitted that the purchase as well as the sale of shares, which were doubted by the Revenue, were not a private placement/off-market transaction, rather the same was made on the stock exchange through the SEBI registered and reputed broker, namely HDFC Securities Ltd.
Prasoon Kabra, appeared on behalf of the revenue.
The two-member Bench of Prashant Maharishi, (Accountant Member) and Sandeep Singh Karhail, (Judicial Member) observed from the perusal of the said statement issued by HDFC Securities Ltd, that the assessee had also transacted in shares of companies other than Nouveau Multimedia Ltd. Further, as per the contract note dated 27/04/2011, found that the assessee had sold the shares of Nouveau Multimedia Ltd and other companies.
The Bench allowed the appeal filed by the assessee holding that the AO had without finding any fault with the evidence submitted by the assessee proceeded to treat the transaction as non-genuine and the long-term capital gains earned by the assessee as bogus.
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