The Income Tax Appellate Tribunal ( ITAT ) Ahmedabad Bench, has recently in an appeal filed before it, held that exemption u/s.10(38) for long term capital gain earned on shares is claimable only on Payment made through cheque.
The aforesaid observation was made by the court when anappeal was filed by the assessee as against the order passed by the Commissioner of Income Tax (Appeals), Ahmedabad, under section 250(6) of the Income Tax Act, 1961, dated 18.2.2019 pertaining to Asst.Year 2015-16.
The issue in the present appeal being one relating to the long the capital gain on the sale of shares claimed as exempt by the assessee under section 10(38) of the Income Tax Act, the same was held as bogus by the AO, resulting in an addition made by him on the entire sale consideration received to the income of assessee, treating the entire transaction only as accommodation entry.
With the Revenue authorities i.e. AO and the Ld. Commissioner Income Tax(A) giving a detailed finding on the issue of bogus long term capital gain as claimed by the assessee, the relevant facts of the case were that the assessee had shown long term capital gains in respect of sale of 6100 shares of Lifeline Drugs & Pharma Ltd to the tune of Rs.14,96,591/- and claimed the same as exempt u/s 10(38) of the Income tax Act.
Subsequently, the assessee having purchased 610 shares of the said company on 01/04/2013 for a consideration of Rs.22,164/- at a value of Rs.36.10/- per share, on 13/11/2013, these 610 shares were split into 6100 shares, which were then sold on 08/08/2014 for Rs.15,18,755/- at Rs.248.97/- per share. Thus, the shares purchased at Rs.3.61 /- per share, were sold at Rs. Rs.248.97/- per share within a short span of a year.
The AO noted the history of the shares and found that it could not have been sold at such a high price and further that the stock exchange had suspended these shares from trading w.e.f 28th August 2015 on account of surveillance measures by the Exchange. And in addition to this, he also found that the assessee was unable to satisfactorily explain the source of purchase of these shares, stated to be purchased off market ,in cash ,kept in pool holding of share broker and dematerialized only on the day when sold i.e 06-08-2014. And based on all the above, he held the sale of these shares by the assessee as only a colorable device /accommodation entry and treated the entire capital gain as income of the assessee.
The Ld. Commissioner Income Tax(A), considering all the facts as noted by the AO, thought it necessary to inquire about the source of purchase of shares for determining genuineness of the transactions and found them to have been made in cash. He also noted that shares were never in DEMAT account of the assessee till 8.8.2014, and further that they were sold on the same day when the shares were entered in the DEMAT.
The Commissioner Income Tax(A) also noted that broker’s name was prominently reflected in the investigation report of the Department, and further that the shares were kept in pool holding of the broker. He also noted that as per SEBI rules, if full payment of shares purchased was made, then the broker had to transfer the shares to the client’s DEMAT within 24 hours, and in the case of the assessee that these shares were converted into DEMAT form only after seven days.
He therefore rejected the assessee’s pleading that the shares were kept in the pool account of the broker, since his explanation was not correct in accordance with the SEBI rules in this regard, and held that there was no credible evidence to say that the assessee was having shares till 8.8.2014 and also any clear reason as to why the shares were with the broker till they were sold. And accordingly, he held the entire evidences self-serving and stagemanaged, and thereby upholding the addition made by the AO.
With no one appearing on behalf of the assessee while Shri Mukesh Thawani, on behalf of the argued for the Revenue, Annapurna Gupta, the Accountant Member of the ITAT bench thus observed and held as follows :
“The findings of the ld. Commissioner Income Tax(A), we find are very detailed, who has made further inquiry with respect to the issue and found entire transaction to be bogus. Since the assessee has not come before me in support of his appeal, I have no option but to confirm the concurrent finding of both the Revenue authorities on the issue. Accordingly, grounds of appeal of the assessee are rejected. And in result, the appeal of the assessee is dismissed.”
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