Long-Term Capital Gains cannot be deemed Bogus as AO fails to prove Price Rigging: ITAT [Read Order]

In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) held that in the present case, long-term capital gains cannot be deemed bogus as the assessing officer (  AO ) fails to prove price rigging.

In this case, the appellant, Manjula H. Vira, had purchased 200,000 shares of the company, M/s. Greencrest Financial Services Limited, at Rs. 12 per share in 2013 through a preferential allotment. A subsequent share split increased her holdings to 2 million shares. During the assessment year 2015-16, she sold 520,000 shares for Rs. 3.28 crore, declaring Rs. 3.21 crore as long-term capital gains and claiming exemption under Section 10(38) of the Income Tax Act.

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The assessing officer ( AO ), by relying on the investigation report of the Income Tax Department, which was general in nature, concluded that the transactions were part of a pre-arranged scheme designed to convert unaccounted money into tax-exempt income. AO relied on the statements from certain brokers, including Rakesh Somani, who alleged that the share prices were artificially manipulated. The AO treated the entire sale proceeds of Rs. 3.27 crores of the Act as unexplained cash credits and made additions under Section 68 of the Income Tax Act, 1961.

The Commissioner of Income Tax ( Appeals ) [ CIT( A ) ] upled the additions.

The assessee's counsel submitted that proper evidence was submitted by the assessee regarding the transactions and that the AO was unable to show that the assessee had actually been involved in the manipulation of the prices of the above-mentioned shares.

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The counsel on behalf of the assessee contended that the transactions entered into by the assessee were legitimate. The counsel argued that the AO has not brought any independent material on record to show that the transactions of purchase and sale of shares undertaken by the assessee were not genuine.

The ITAT noted that the investigation report of the Income Tax Department was general in nature, and the AO relied on it without proving that the assessee’s transactions were part of any price manipulation or conducted in connection with those rigging prices.

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The bench noted that the AO did not find fault with any of the documents furnished by the assessee.

The ITAT, comprising Justice (Retd.) C.V. Bhadang( President ) and B.R. Baskaran ( Accountant Member )  held that long-term capital gains declared by the assessee cannot be considered to be bogus and directed the AO to delete the additions.

To Read the full text of the Order CLICK HERE

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