Share Sale Through Demat and Banking Channels Cannot Be Treated as Bogus LTCG: ITAT Deletes ₹1.43 Cr Addition [Read Order]

The Income Tax AppellateTribunal (ITAT) Nagpur Bench has upheld the deletion of additions amounting to ₹1.43 crore holding that long-term capital gains (LTCG) arising from sale of listed shares through recognised stock exchange and routed through demat and banking channels cannot be treated as bogus merely on the basis of general investigation reports.

The issue was related to the Assessment Year 2015-16 wherein the assessee had reported total income amounting to ₹15.58 lakh and sought an exemption under Section 10(38) of the Income Tax Act, 1961 in respect of LTCG of ₹1.32 crore arising out of the sale of shares of GCM Securities Ltd. The assessee had bought 24,000 shares for ₹4.80 lakh and subsequently disposed of these shares for ₹1.36 crore in a registered stock broker at the stock exchange.

The Assessing Officer (AO) based on the investigation reports by the Kolkata Investigation Wing with regard to penny stock manipulation deemed the sale consideration as unexplained cash credit under Section 68 and additionally added ₹6.84 lakh under Section 69C regarding commission expenditure on obtaining accommodation entries.

The Revenue argued that the transactions were colourable devices designed to convert unaccounted money into exempt LTCG and relied upon the theory of human probabilities and circumstantial evidence.

The assessee Shikha IndraKumar stated that the entire transaction was supported by complete documentary evidence, including share allotment letters, demat account statements, broker contract notes, ledger accounts, and bank statements evidencing payment and receipt through proper banking channels. It was further argued that the issue was squarely covered by the Tribunal’s earlier ruling in a connected family matter involving the same scrip.

The Tribunal observed that the Revenue failed to bring any direct evidence linking the assessee to price rigging or accommodation entries. The Bench held that mere reliance on general investigation reports and suspicion could not displace documentary evidence establishing genuineness.

Accordingly, the Bench comprising Pawan Singh (Judicial Member) and Khettra Mohan Roy (Accountant Member) upheld the deletion of additions under Sections 68 and 69 C and allowed the exemption claimed under Section 10(38) held that legal evidence must prevail over presumptions and probabilities in taxation matters.

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