The Cuttack Bench of the Income Tax Appellate Tribunal ( ITAT ) allowed exemption under Section 10 (38) of the Income Tax Act, 1961, which the Assessing Officer had denied because the share transaction was bogus. The Tribunal emphasized that Securities Transaction Tax ( STT ) had been paid on each transaction, thereby validating the authenticity of the share dealings.
Satish Kumar Garg, the assessee is a trader dealing in milk powder and ghee and he disclosed long-term capital gains (LTCG) from trading shares in NCL Research & Financial Services Ltd.
He purchased 1000 shares of NCL Research & Financial Services Ltd. on August 1, 2011, for Rs.2,27,621.4 and sold them between November 22, 2013, and February 24, 2014, for a total of Rs. 11,07,865.24, earned a profit of Rs. 8,80,244.01.
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The assessee claimed Rs. 8,80,244.01 capital gain as an exemption under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) treated the purchase and sale of these shares as bogus transactions, categorizing the entire sale amount as unexplained credit and denying the exemption.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, rejecting the claim for exemption. Aggrieved by the CIT(A) decision, the assessee challenged the order before the Cuttack Bench of ITAT.
The assessee’s counsel argued that the shares were purchased and sold through a recognized stock exchange, and STT was paid making the transaction eligible for exemption under Section 10(38) of the Income Tax Act.
The assessee’s counsel submitted documentation to prove the genuineness of the transactions, including the contract-cum-bill for the purchase and sale of shares.
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On the contrary, the revenue counsel argued that the transaction in question was fraudulent and designed to evade taxes by showing bogus LTCG. The revenue counsel stated that the assessee had claimed a loss on the purchase and sale of shares of NCL Research & Financial Services Ltd., which they believed to be false.
A single bench led by the Judicial Member, George Mathan reviewed the facts and noted that the assessee was a regular trader in shares, and the transaction involving NCL Research & Financial Services Ltd. was not the only event.
The tribunal observed that the assessee’s demat account revealed a pattern of purchasing and selling various shares over the years. The transactions were carried out through recognized stock exchanges, and STT had been paid.
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The tribunal referred to similar High Court cases such as Bimla Devi Singhania and Radheshyam Singhania which granted exemptions under Section 10(38).
The Tribunal found no evidence showing that the transactions were bogus and the revenue failed to prove that the documents submitted by the assessee were false or fabricated. Therefore, the tribunal directed AO to allow the benefit of exemption claimed under Section 10(38) of the Income Tax Act, 1961.
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