Capital Market Transactions through Banking Channels Accepted as Genuine: ITAT Deletes Additions on Share Transactions under Income Tax Act
The Court considered the documentary evidence in its adjudication.
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that capital market transactions executed through registered intermediaries and verifiable banking channels cannot be disregarded as non-genuine merely on the basis of a generic Investigation Wing report.
The appellant, Suresh Maheshwari, a resident individual and Chartered Accountant, filed his return of income on 01.09.2015 for Assessment Year 2015-16 declaring NIL income after claiming exemption of Long-Term Capital Gain under Section 10(38) of the Income Tax Act, 1961 on sale of shares of Pine Animation Ltd., which were purchased through banking channels and held in Demat form before being sold on the Bombay Stock Exchange.
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The return was selected for scrutiny on the issue of suspicious exempt capital gains, and based on a report branding the scrip as a penny stock, the Assessing Officer (AO) rejected the claim of exemption and treated the sum of ₹85,05,050 as income from unexplained sources along with commission of ₹21,592, which was later affirmed by the Appellant Authority, Delhi .
The appellant filed a written synopsis supported by documentary evidence including Demat account statements, contract notes, details of registered stock brokers and transactions executed through verified banking channels, asserting that the share transactions were genuine and that he regularly invests in the equity market for many years.
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The respondent, represented by Swapnil Choudhary, argued that the addition deserved to be upheld as the Investigation Wing report identified Pine Animation Ltd. as a penny stock used for providing accommodation entries, and contended that the large price rise in the shares represented a non-genuine capital gain not eligible for exemption under Section 10(38) of the Income Tax Act, 1961.
The bench comprising Vice President Saktijit Dey and Accountant Member Padmavathy S held that no independent enquiry was conducted by the AO to connect the appellant with any alleged manipulation in prices of Pine Animation Ltd. shares and that the entire decision was solely based on a generic Investigation Wing report.
The tribunal further observed that SEBI’s final order dated 19.09.2017 had revoked earlier interim restrictions on entities linked to the scrip as no wrongdoing was found. It observed that the appellant had demonstrated genuine transactions through Demat account, SEBI registered brokers and regular banking channels.
The Tribunal followed its coordinate bench ruling in ITO v. Manisha Narpatkumar Chopra (2024) upholding the exemption under Section 10(38) of the Income Tax Act, 1961. Alongside, directing deletion of additions relating to both capital gains and commission.
Accordingly, the appeal was allowed.
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