Assessee Lawfully Bound to Prove Huge Long Term Capital Gain Claims to be Genuine: ITAT Denies Exemption u/s 10(38) [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has denied exemption under Section 10(38) of the Income Tax Act 1961 holding that the assessee is lawfully bound to prove huge long term capital gain which was claimed to be genuine.

The assessee, Sangeeta Devi Jhunjhunwala is an individual and derived income from salary, other sources and capital gain which she claimed exempt under section 10(38) of the Income Tax Act, 1961.

Her case was selected for complete scrutiny through CASS for the reason “suspicious sale transaction in shares and exempt long term capital gain was shown in return.

The AO found that the assessee had earned long term capital gain on sale of shares of HPC Biosciences Limited which the assessee claimed as exempt under Section 10(38) of the Income Tax Act. She had purchased 20,000 shares on 03.01.2013 which she sold during the previous year relevant to AY 2015-16.

From the details of the share transactions the AO noticed that there was a steep escalation in the value of shares within a short span of time from the date of acquisition of the shares and that the listed company HPC Biosciences Limited did not justify the price of shares transacted. The AO also noticed that the sale proceeds have been deposited in her bank account on different dates.

AO apprised the assessee of the Investigation Report of Pr. DIT (Inv.) Kolkata wherein it was stated that HPC Biosciences Limited had been identified as a BSE listed stock which had been used for generating bogus long term capital gain and exemption under section 10(38) of the Income Tax Act had been claimed on the capital gain against the sale of scrips of HPC Biosciences Limited.

AO recorded the finding that undoubtedly there was a scheme unravelled by the Directorate of Investigation of which the assessee was a beneficiary. The onus shifted to the assessee to prove the contrary that there was no such scheme and that the transaction was genuine.

The AO therefore, denied the claim of exemption of the long-term capital gain under Section 10(38) of the Income Tax Act and added the same to the income of the assessee under Section 68 read with Section 115BBE of the Income Tax Act.

Rajiv Saxena, on behalf of the assessee submitted that no inquiry had been made on the assessee in HPC Biosciences Limited’s case. The assessee was only a passive beneficiary.

Amit Shukla, appeared on behalf of the revenue submitted that the assessee was lawfully bound to prove the huge long term capital gain which claimed to be genuine.

The two-member Bench of B.R.R Kumar, (Accountant Member) and Astha Chandra, (Judicial Member) in the light of the judicial precedents set out treating the impugned transactions as sham and discarding the assessee’s explanation as not satisfactory. The Bench upheld the disallowance of exemption under section 10(38) of the Act on long term capital gain holding that the assessee had failed to discharge the onus cast upon her under Section 68 of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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