The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently ruled in favor of an Assessee whose long-term capital gains exemption was disallowed by the Assessing Officer on the basis of uncorroborated evidence.
The Appellant is a Hindu Undivided Family (HUF) who filed their Income Tax Returns on 30.07.2012, declaring a total income of Rs.3,74,650/-. Subsequent to the processing of the Returns by the Department under Section 143(1) of the Income Tax Act, 1961, it was alleged by the Department that the Assessee had sold shares in a certain M/s Regency Trust Ltd. for a consideration of Rs.31,56,000/- during the same year for which the Returns had already been filed.
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The Assessee was further subject to Income Escape Assessment proceedings under Section 147 of the Income Tax Act and notice under Section 148. The Notice was issued on the basis of information received from the Deputy Director of Income Tax (Investigation) that there is existence of an organized racket that generates bogus entries of long-term capital gains in stocks of small companies
The Assessee responded to the notice issued by the Department asserting that the Returns already filed on 30.07.2012 may be treated as the response to the Section 148 Notice. Following a back and forth between the Assessee and the Department involving assertions and objections, the Assessing Officer passed an order under Section 143(3) read with Section 147 of the Income Tax Act.
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The AO later went on to allege that the shares traded value of Rs.31,56,000/- in the scrip of M/s Regency Trust Ltd. was done in collusion between the Assessee and the operators as a means to evade taxes; the Department also claimed that “cash has been routed from various accounts in order to accommodate the Assessee.” In light of these observations, the Department proceeded to classify the amount of Rs.31,56,000/- as Cash Credits and Unexplained Income under Sections 68 and 69A of the Income Tax Act respectively.
In the present case, the Counsel for the Assessee contended before the learned ITAT that the Assessee had purchased a total of 32,000 shares of M/s Regency Trust Ltd. on separate occasions for a total consideration of Rs.23,39,319.85 as was evident from the DEMAT book of the Assessee.
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The Mumbai Bench of ITAT comprising Sandeep Singh Karhail, Judicial Member and Renu Jauhri, Accountant Member observed that no cash was paid by the Assessee for the purchase of 32,000 shares of M/s Regency Trust Ltd. and that the entire sales transactions had been carried out on the floor of the stock exchange through a SEBI registered stock-broker. The Bench further commented on the conduct of the AO in wholly ignoring the evidence adduced by the Assessee to prove the genuineness of their transactions, while relying solely on their investigated material which failed to prove any adverse findings that prejudiced the Assessee.
In light of all the findings, the ITAT Bench concluded that there is absolutely no merit in the impugned order passed by the AO and upheld by the CIT(A) which maintained the additions under Section 68 and 69A of the Income Tax Act, while disallowing the exemption of long-term capital gains that were claimed by the Assessee.
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