The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) reversed the Assessing Officer’s ( AO ) additions and upheld the legitimacy of long-term capital gains reported by an individual assessee, for the assessment year(AY) 2014-15.
Bhavna Lalit Jain,the appellant-assessee,an individual with income from other sources and house property, filed a return for the AY 2014-15 on January 31, 2015, reporting a total income of ₹2,056,540. The return included a claim of long-term capital gains amounting to ₹22,49,650 from the sale of shares. The AO scrutinized the transactions, particularly focusing on the genuineness of the share transactions reported by the assessee.
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During the assessment proceedings, the AO found that the assessee sold shares through a registered stockbroker and received payment through banking channels. However, the AO questioned the legitimacy of these transactions, suggesting they were manipulated and alleging that the sales were merely a facade for tax evasion. The AO assessed the sale consideration as unexplained cash credit under Section 68 of the Act, leading to an addition of ₹22,49,650 to the assessee’s income.
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that all necessary documentation had been provided to establish the authenticity of the transactions. The CIT(A) upheld the AO’s additions, finding that the transactions were not satisfactorily substantiated by the evidence presented. The CIT(A) noted the absence of details on how the shares were procured and the nature of the transactions.
Subsequently, the assessee approached the tribunal, emphasizing the documentary evidence that demonstrated the legitimacy of the share purchases and sales. The tribunal highlighted that the shares were acquired through the Kolkata Stock Exchange via a registered broker, and payments were made through proper banking channels, corroborating the claims made by the assessee.
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The ITAT reviewed several judicial pronouncements, including CIT vs. Jamnadevi Agarwal and PCIT vs. Indravadan Jain (HUF), affirming that documented transactions should not be deemed bogus without concrete evidence. It highlighted that the sale of shares occurred on a recognized exchange, and the AO failed to provide compelling proof of any price rigging scheme.
The tribunal found the AO’s conclusions based on conjecture rather than substantiated claims, emphasizing that the sale consideration was validated by proper documentation, including invoices and contract notes. The shares were held in the assessee’s Demat account for over a year before the sale, further reinforcing the legitimacy of the transactions.
The two member bench comprising Raj Kumar Chauhan(Judicial Member) and Prashant Maharishi(Accountant Member) concluded that the AO had not established the sale consideration as unexplained cash credit under Section 68 of the Act. It reversed the decisions of the lower authorities, directing the AO to delete the additions and allow the exemption under Section 10(38) for the declared long-term capital gains.
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It upheld the CIT(A)’s view on natural justice, stating that the statements made were not used to support the additions, thus no violation occurred. The tribunal ruled in favor of the assessee, deeming the transactions legitimate and compliant with the Income Tax Act. It partly allowed the appeal, resulting in the deletion of additions and the recognition of the claimed long-term capital gains.
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