The Delhi bench of Income Tax Appellate Tribunal ( ITAT ), while deleting the addition made under Section 69A of the Income Tax Act, 1961 held that capital gain arising on sale of shares could not be regarded as sham profit.
The assessee Sarika Bindal filed her return of income declaring total income at Rs.10,64,770/- for the A.Y. 2015-16 .After that assessee case was selected for scrutiny. In the course of scrutiny assessment. The Assessing Officer inter alia observed that assessee has declared exempt income derived by way of Long Term Capital Gains ( LTCG ) under section 10(38) of the Act on account of sale of shares of CCL International Ltd
On enquiry by the AO, the assessee submitted the payment towards purchase of shares .he Assessing Officer however, observed that LTCG claimed as exempt income is only an accommodation entry to louder the unaccounted income of the assessee and introduced it as exempt income in the form of LTCG.
Consequently, the Assessing Officer resorted to provision of section 69A of the Act and treated the Long Term Capital Gains arising from sale of CCL shares to be unaccounted income of the assessee to the extent of Rs.51,41,219/-.
Aggrieved, the assessee filed an appeal before the CIT(A), who dismissed the appeal. Thereafter the assesse filed another appeal before the tribunal.
Sandeep Sapra, counsel for the assessee argued that Long Term Capital Gains claimed as exempt under section 10(38) of the Act is fully supportable by the documentary evidences placed before the lower authorities and the Revenue authorities have blindly relied upon the investigation report which primarily narrates general modus operandi.
Further submitted by the counsel for the assessee that CCL International ltd. is a genuine company which is engaged in large scale civil construction work and is a profitable dividend paying company which is discernible from the financial statement placed on record. Thus mere astronomical increase in the share prices of a company which was not commensurate with the financial parameter of the said company is not a good ground for adverse inference.
It was also argued that Both purchase and sale transactions have occurred through banking channels. The documentary evidences have been furnished in support of purchase and sale of shares and transfer of shares in demat form
Anuj Garg, the Department representative,opposed these submissions and supported the orders of the authorities below.
It was observed by the tribunal that the existence of the purchase and sale of CCL Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act is fully corroborated by the documentary evidence. The shares have been credited in the demat account and transferred out of the demat account at the time of sale. Both purchase and sale transactions are carried out through a banking channel and by transfer of shares.
After observing the submissions of both parties the two-member bench Of Pradip Kumar Kedia, ( Accountant member ) and Challa Nagendra Prasad ( Judicial Member ) held that capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under section 69A of the Act is not justified.
Therefore the bench allowed the appeal filed by the assessee.
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