The Bombay High Court held that capital gain as unexplained income is not valid when the sale of shares was substantiated with documentary evidence and upheld the order of the Income Tax Appellate Tribunal(ITAT).
The Revenue had filed against the order of Commissioner of Income Tax (Appeals) (CIT[A]) for Assessment Year 2005-06 in the matter of order passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (the Act) against Respondent, Indravadan Jain.
The revenue argued that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long-term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Income Tax Act.
Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long-term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share.
AO’s investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through the synchronized and cross-deal in the scrip of RFL.
SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, the respondent’s case was reopened under Section 148 of the Act.
While allowing the appeal filed by the respondent, the CIT[A] deleted the addition made under Section 68 of the Act and observed that the A.O. himself has stated that SEBI had conducted the independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL.
After a period of one year, the shares were sold by the said broker on various dates on the Kolkata Stock Exchange. Under the sale of shares, the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings.
The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange.
A division bench comprising Justice K R Shriram & Justice Firdosh P Pooniwalla found no infirmity in the tribunal’s order and while dismissing the appeal of revenue, upheld the order of ITAT.
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