Purchase and Sale of Share through Registered Stock Broker carried out through Demat Account cannot be Declared as Unexplained Income u/s 68 of Income Tax Act: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that AO was not justified in assessing the sale value of shares as unexplained cash credit in both the years under consideration and confirmed the order of of Income Tax (Appeals) [CIT(A)] in deleting such addition.

The assessee Sanjay Mahabir Maheshka had purchased 2000 shares of M/s. Global Capital Market Ltd. at the rate of Rs. 63 per share. The above said shares were split into 1:10 ratio. Accordingly, the assessee received 20000 shares of the above said company. The assessee sold 10000 shares at the rate of Rs. 14.75 per share in A.Y (Assessment Year) 2011-12 and sold remaining 10000 shares at the rate of Rs. 24.86 per share in A.Y. 2012-13. The total sales consideration received in the above said two years was Rs. 1,47,500/- and Rs. 2,48,683/- respectively.

The Assessing Officer (AO) received information from the Investigation Directorate, Kolkata that the prices of certain stocks are manipulated by certain people in order to generate bogus capital gains, business loss etc. Those types of shares were named as ‘penny stocks’. It was noticed that the M/s. Global Capital Market Ltd. was included in the list of penny stocks.

Since the assessee has sold shares of M/s. Global Capital Market Ltd., based on the above said information received from the Investigation Wing, the Assessing Officer reopened the assessment of both the years under consideration by issuing notice under Section 148 of the Income Tax Act, 1961.

Before the AO, the assessee submitted that he has purchased and sold shares of M/s. Global Capital Market Ltd. through a registered stock broker. It was submitted that the shares have entered and exited the Demat account of the assessee and further all the transactions have been carried out through the banking channel.

The AO did not agree with the submissions made by the assessee and assessed the sale value of Rs. 1,47,500/- and Rs. 2,48,683/- declared by the assessee in A.Y. 2011-12 and 2012-13 respectively as unexplained cash credit under Section 68 of the Income Tax Act.

Aggrieved by the order the assessee filed an appeal before the CIT(A). The CIT(A) observed that the transactions of purchase and sale of shares were carried out on recognized stock exchange through registered broker and the purchase and sale of shares have been carried out through the Demat Account of the assessee. Accordingly he agreed with the submissions of the assessee that there was no reason to suspect the genuineness of the transactions and thus deleted the additions in both the years under consideration.

Aggrieved by the order the assessee filed an appeal before the Tribunal. Bhupendra Shah appeared as Authorised Representative of assessee (AR) and Naganath B. Pasale as Departmental Representative.

The Bench comprising of B.R. Baskaran (Accountant Member) and Narender Kumar Choudhry (Judicial Magistrate) noticed that the assessee has furnished all the documents in support of purchase and sale of shares. However, the AO did not examine those documents and find fault with them. There is also no allegation made that the assessee was part of ring which indulged in the alleged price rigging. The AO has placed reliance on the report of Investigation wing to hold that the assessee has availed accommodation entries by way of long term capital gains.

The Tribunal relied on the decision of Bombay High Court in the case of Shyam Power and PCIT vs. Ziauddin A Siddique, and stated that the long term capital gains declared by the assessee cannot be doubted with. Accordingly held that the AO was not justified in assessing the sale value of shares as unexplained cash credit in both years under consideration and confirmed the order passed by  CIT(A) in both the years.

Hence the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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