The Rajasthan High Court, while dismissing the appeal filed by the Income Tax Department under Section 260A of the Income Tax Act, 1961 challenging the order passed by the Income Tax Appellate Tribunal ( ITAT ), upheld the decision on deleting the addition made on Capital Gain from sale of shares.
The case arises from the respondent- Arnav Goyal’s initial income tax return, declaring an income of Rs. 5,48,200/-. Subsequently, during scrutiny, the Income Tax department had made significant additions: Rs. 31,70,080/- on account of alleged bogus long-term capital gains from the sale of shares of M/s. Kappac Pharma Limited, and Rs. 63,402/- as undisclosed expenditure towards commission payments related to the same shares.
Following an unsuccessful appeal before the Commissioner of Income Tax (Appeals), the matter reached the ITAT, which ruled in favour of the respondent-assessee, thereby deleting the aforementioned additions. Dissatisfied with this outcome, the appellant-department filed the present appeal.
The counsel representing the appellant – department argued before the High Court that the Tribunal had erred in its decision, stating the existence of material evidence, such as statements from individuals suggesting the provision of accommodating entries for capital gains. The appellant contended that the rapid escalation in share prices raised suspicions, particularly in the absence of supporting documentation.
However, the respondent’s counsel rebutted these claims, asserting that the transaction involved 12,500 shares of M/s. Kappac Pharma Limited had been conducted legitimately through a Demat account, supported by payment through account payee cheques and brokered through registered agencies.
The bench of Justices Avneesh Jhingan and Shubha Mehta noted that the Assessing Officer had failed to substantiate claims of irregularities or contradictory evidence against the respondent’s submissions.
The Rajasthan High Court stated that mere statements recorded without an opportunity for cross-examination did not constitute valid evidence under legal scrutiny, especially when they did not explicitly support claims of accommodating entries.
Consequently, the High Court upheld the ITAT’s decision, asserting that no substantial questions of law were raised in the appeal that warranted interference. The appeal was thus dismissed, affirming the Tribunal’s findings based on the evidence presented and the lack of rebuttal by the Income Tax department.
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