ITAT Rejects ₹1.17 Crore Addition as Unexplained Cash Credit on LTCG from Shares due to Lack of Evidence [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) rejected the addition of Rs. 1,17,78,534/- as unexplained cash credit on Long-Term Capital Gain (LTCG) from shares due to lack of evidence.

The Revenue-appellant,appealed against the order dated  22.01.2021, passed by Commissioner of Income Tax(Appeals)[CIT(A)] for the Assessment Year 2015-16. In this case,Denisha Rajendra Keshwani, respondent-assessee,filed the return for A.Y. 2015-16, declaring Rs. 40,66,310/-. The case was selected for scrutiny, and jurisdiction was later transferred.

During assessment, the Assessing Officer (AO) found that Rs. 1,40,06,685/- was declared as LTCG from share transactions, including Kappac Pharma Ltd. (KPL). Shares were bought offline in February 2013 at Rs. 20.59 per share, converted to Demat, and sold in November 2014 at around Rs. 252 per share, generating Rs. 1,17,78,534/- in LTCG. The AO found the sharp price rise suspicious and cited reports identifying KPL as a manipulated penny stock.

Investigations by the Securities and Exchange Board of India (SEBI) and the Income Tax Department showed KPL had low trading volume, artificial price inflation, and no real business. BSE later suspended trading in KPL shares. The AO also noted links to tax evasion.

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Despite the assessee’s defense citing legitimate transactions, the AO rejected the claim and treated the LTCG as bogus, adding Rs. 1,17,78,534/- as unexplained cash credit under Section 68 of the Act.

The assessee appealed before the CIT(A), who deleted the addition. It was held that the assessee had provided all necessary documents to support the transaction, and the AO failed to prove any link with entry operators. The AO’s findings were based only on a general report without specific evidence.

The Revenue appealed before the tribunal aggrieved by the decision.

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The two member bench comprising T.R.Senthil Kumar (Judicial Member) and Makarand V.Mahadeokar (Accountant Member) examined the submissions, reviewed the lower authorities' orders, and analyzed the evidence on record. The appeal concerned the addition of Rs.1,17,78,534/- under Section 68, treating the LTCG from the sale of Kappac Pharma Ltd. shares as non-genuine.

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The Department argued that the purchase was made offline and involved only one share, raising doubts about the transaction. The assessee countered that investments were made in multiple shares over the years, with supporting documents such as bank statements, Demat account details, and contract notes, which the CIT(A) had verified. The assessee also cited a Gujarat High Court ruling where the purchase of the same shares was held genuine, arguing that the sale could not be treated as bogus without contrary evidence.

The appellate tribunal found that the CIT(A) had thoroughly examined the transactions, including purchase mode, fund sources, and sale through a recognized stock exchange. The Revenue failed to provide any conclusive evidence to challenge these findings or establish collusion or price manipulation. The ITAT also noted that differing tax outcomes did not prove the transaction was non-genuine.

Since the assessee had submitted all necessary evidence and the Revenue relied on mere suspicion, the tribunal upheld the CIT(A)’s decision, deleting the addition of Rs.1,17,78,534/-.

In short,the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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