Purchase and Sale of Shares Transactions cannot be considered bogus when Documentary Evidence Genuinely Established : ITAT [Read Order]

Mumbai ITAT recently ruled that purchase and sale of shares transactions could not be considered bogus when documentary evidence genuinely established.
Purchase - Purchase and Sale of Shares Transactions - bogus - Documentary Evidence - taxscan

The  Mumbai bench  of Income Tax Appellate Tribunal (ITAT)   recently ruled that purchase and sale of shares transactions could not be considered bogus when documentary evidence genuinely established.

The assessee Chirag Tejprakash Dangi, herein is a Chartered Accountant . During the course of assessment proceedings, the Assessing Officer noticed that the assessee has disclosed long term capital gains of Rs. 1.45 crores arising out of sale of shares and claimed the same as exempt under section 10(38) of the Act.

Accordingly the Assessing Officer noticed that all the three companies mentioned in the  given chart have been identified as ‘penny stock’ by the Investigation Wing, Kolkata, in which prices of the shares have been rigged in order to generate bogus capital gains/capital losses.After examining the statements of  Assessee the AO concluded that the assessee failed to show that he was having any knowledge about the shares. Accordingly, the Assessing Officer took the view that the transactions in shares are not genuine and rejected the exemption claimed u/s 10(38) of the Act.

Aggrieved by the order the assessee  filed an appeal before the CIT(A). CIT(A) confirmed the addition and hence the assessee has filed this appeal before the Tribunal. 

During the adjudication Prakash Jhunjhunwala, the counsel for assessee argued that  assessee is a regular investor in shares. He submitted that the assessee has purchased shares in physical mode by paying purchase consideration through the banking channel. Subsequently, the shares were dematerialized. Later on, they were sold on the platform of the Bombay Stock Exchange. The sale consideration has been received by way of account payee cheque.

Although all the companies are still active in the stock exchange and hence it cannot be considered as bogus companies.Accordingly he contended that the Assessing Officer was not justified in disbelieving the transactions carried on by the assessee are not genuine by placing reliance on the general investigation report given by the Investigation Wing of Kolkata.

P. Suresh,  Department representatives argued that the Assessing Officer has conducted inquiry with the assessee and has come to the conclusion that the assessee was ignorant about the fundamentals of the penny stock companies.

He further submitted that the Assessing Officer has examined financial performance and fundamentals of these companies and it has been proved that the price rise was not commensurate with the financial performance of the companies, which would lead to the conclusion that there was rigging of the price of these shares.

The tribunal observed that the AO himself has not found any defect/deficiencies in the evidence furnished by the assessee with regard to purchase and sale of shares. As noticed earlier, the AO has not brought on record any material to show that the assessee was part of the group which was involved in the manipulation of prices of shares. Hence, there is no reason to suspect the purchase and sale of shares undertaken by the assessee

Therefore After analyzing the submission of both parties the bench comprising  Justice (Retd.) C.V. Bhadang (President)  and  B.R. Baskaran (Accountant Member)  relied upon the decision of CIT vs. Jamnadevi Agarwal observed  that the transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim

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