STCG Claim on Shares Genuine as Purchase through Recognised Stock Exchange, Banking Channel, and Demat Proof Confirm Authenticity: ITAT deletes Addition [Read Order]
There was no material to suggest any collusion of the assessee with entry operators or promoters in manipulating share prices for upholding the view of the revenue, noted the bench.
STCG - ITAT - Taxscan
STCG - ITAT - Taxscan
The Pune Bench of the Income Tax Appellate Tribunal ( ITAT ) has upheld the genuineness of short-term capital gain (STCG) claimed by an assessee on the sale of shares, holding that when the transactions are routed through recognised stock exchange, registered broker, banking channel, and duly reflected in the Demat account, the Revenue cannot treat such income as unexplained or bogus merely on suspicion.
The assessee, Sonal Ashish Shah, declared income for Assessment Year (AY) 2014-15, which included STCG of ₹2,87,979 earned from the sale of 16,000 equity shares of Blazon Marbles Limited.
The shares were purchased through a recognised stock exchange in two tranches, 4,000 shares on 18 December 2012 and 12,000 shares on 4 March 2013, through a registered broker and credited into the Demat account. These were later sold in October 2013 and February 2014, and the consideration was received via banking channels.
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The Assessing Officer (AO), however, disbelieved the transactions on the ground that they involved a penny stock company and added the entire sale consideration of ₹5,50,059 as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, relying on SEBI’s list of alleged penny stock companies and the Calcutta High Court’s decision in CIT v. Swati Bajaj (2022), and treated the amount as “income from other sources.”
On further appeal, the assessee argued that the transactions were genuine, fully documented, and distinguishable from cases involving long-term capital gains (LTCG) on penny stocks where exemption under Section 10(38) was claimed.
The Counsel pointed out that unlike those cases, the present one involved STCG with purchases made transparently on a recognised exchange and immediately credited to the Demat account. Reliance was placed on the Mumbai ITAT’s ruling in Yogesh P. Thakkar v. DCIT which dealt with identical facts concerning shares of Blazon Marbles Limited.
The ITAT found merit in the assessee’s claim. The bench of Vinay Bhamore and Manish Borad noted that the purchases were through a registered broker, duly reflected in the Demat account, and settled via the banking system.
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Also, there was no material to suggest any collusion of the assessee with entry operators or promoters in manipulating share prices. Further, at the time of transactions, SEBI had not imposed any restriction on trading in Blazon Marbles Limited.
The Tribunal also distinguished the cases cited by the Revenue, such as Splice Biotech Pvt. Ltd. and Abhishek Ashok Lohade, pointing out that those involved LTCG claims or preferential allotments through offline modes, unlike the present case.
It was held by the bench that when the source of purchase is undisputed and transactions are transparent, deduction for cost of acquisition must be allowed, and the resultant gain cannot be treated as unexplained income.
Accordingly, the Pune Bench reversed the order of the CIT(A) and directed deletion of the entire addition. The assessee’s appeal was thus allowed in full.
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