Law does not Prohibit Share Purchase in Cash: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the law does not prohibit the Share Purchase in cash.

The assessee, in her return for the relevant assessment year, claimed exempt income u/s 10 (38) of the Act in respect of long term capital gain derived from the sale of listed company’s shares. The sales of shares were affected in the stock exchange through a registered share broker after paying STT. Accordingly, the assessee had claimed long term capital gain as exempt under section 10 (38) in the return of income to the tune of Rs. 20,55,146- and Rs. 23,00,616/-. The Assessing Officer also raised an objection regarding the cash purchase of shares and that shares were dematerialized a few days back only from the date of sale.

The assessee during the course of assessment proceedings had submitted all the relevant evidence for purchase of shares made in cash by the assessee, along with sale contract notes together with bank statements and Demat statements before the AO evidencing the entire transaction of sale of shares being routed through regular disclosed bank statement of the assessee.

While concluding the case in favour of the assessee, the Tribunal noted that “there is no law which prohibits the purchase of shares in cash, however in the present case, assessee had filed copies of bills of purchase, copy of share certificates and transfer forms etc. before Ld. AO and no adverse inference could be drawn only because the shares were purchased in cash.”

Regarding Demat of shares, the Tribunal held that “it is the option of the buyer of shares to keep the shares either in Demat form or in paper form. Merely because the shares were dematted at a later stage, no adverse inference could be drawn. The Learned Counsel for the Assessee has taken us through various documents filed in the paper book as referred to above which specifically prove the purchase of shares made by assessee genuinely which were also sold genuinely. The transactions were carried through Demat account and banking channel on which STT has been paid by the assessee. The report of the SEBI was not adverse in nature against the assessee because the name of the assessee did not appear therein for conducting the dubious transaction. The report of the Investigation Wing and other material was neither confronted to assessee nor there was any inquiry from where it transpired that assessee was beneficiary of any bogus long-term capital gain; therefore, the same cannot be read in evidence against the assessee.”