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2025 Supreme(Guj) 1906
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, PRANAV TRIVEDI, JJ.
The Principal Commissioner of Income Tax – Appellant
Versus
Vinod Premjibhai Gangani – Respondent
Tax Appeal No. 890 of 2024
Decided On : 01-09-2025
For the Appellant : Karan G. Sanghani
The burden of proof lies with the assessing officer to establish non-genuineness in long-term capital gains transactions, which must rely on substantive evidence rather than mere suspicion.
Headnote:(A) Income Tax Act, 1961 - Section 68 - Deletion of bogus long-term capital gains addition not justified by ITAT - The appellant sold shares of a penny stock and claimed exemptions under Section 10(38) - Court highlighted the substantive reliance on statutory evidence and prior judgments. (Paras 2-17)
(B) The appellate court reinforced the principles of burden of proof on the assessing officers, emphasizing that presumption of non-genuineness requires substantive evidence (Paras 3, 5)
Facts of the case:
The appellant claimed long-term capital gains from shares sold at a significantly inflated price compared to its EPS, leading to scrutiny and addition u/s 68 by the Assessing Officer based on market volatility and suspicious trading patterns.
Findings of Court:
The Tribunal found the Assessing Officer's grounds for addition unsubstantiated by evidence and ruled the claim for exemption valid as genuine transactions occurred on a recognized stock exchange.
Issues: Whether the ITAT was justified in its ruling regarding the genuineness of the long-term capital gains and the deletion of the addition made by the Revenue.
Ratio Decidendi: The court held that the Assessing Officer's reliance on suspicion and lack of corroborative evidence were insufficient to uphold the addition, reaffirming the principle that enjoyment of the exemption under Section 10(38) necessitates genuineness in transactions.
Result: Tax Appeal dismissed.
| Table of Content |
|---|
| 1. investment in shares of penny stock raises scrutiny due to large capital gains. (Para 1 , 3 , 4) |
| 2. assessing officer must substantiate claims of non-genuineness with evidence. (Para 2 , 5) |
JUDGMENT :
BHARGAV D. KARIA, J.
1. Heard learned Senior Standing Counsel Mr. Karan G. Sanghani for the appellant.
2. This appeal is preferred under section 260A of the Income Tax Act, 1961 (For short “the Act”) raising the following substantial questions of law arising out of judgment and order dated 28.03.2024 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat (For short “the Tribunal”) in ITA No.17/SRT/2024 for Assessment Year 2015-2016:
"i) Whether on the facts and in the circumstance of the case and in law, the Hon'ble ITAT was justified in deleting the addition of bogus long term capital gain claimed as exempted u/s 10(38) of the Act of Rs.46,12,790/- made by the Assessing Officer arising out of sale of shares of Sunrise Asian Ltd., a penny stock and without appreciating the findings of the Assessing Officer that the price movement of the company were not supported by financial fundamentals of the company?
ii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in allowing the appeal of the Assessee by holding that the investment in shares was genuine, simply placing reliance upon the decision of Hon'ble High Court in the case of CIT vs. Himani M. Vakil, [2014] 41 taxmann.com 425(Guj.) and overlooking the circumstantial evidences and preponderance of the probability in the case?
iii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in ignoring the fact that, one of the entry operators involved in this case Shri Anil Khemka has admitted that the scrip of Sunrise Asian Ltd has been used for providing accommodation entry?
iv) Whether on the facts and circumstances of the case and in law the order of the Hon'ble ITAT suffers from perversity as it ignores the facts brought on record establishing manipulation of share prices of Sunrise Asian Ltd. as the upward movement of share price was not at all justified by the economic fundamental of company during the period 2011 to 2014?"
3. CIT (Appeals) has observed the facts and record of the respondent assessee as under:
“Facts on record and appellant's submissions have been examined. Facts in issue here is that the appellant bought 10000 physical shares of CTL on 02.10.2011. CTL at that time was a penny stock. Its EPS was Rs. 0.65 in FY-2012-13, Rs. 0.02 in FY-2013-14 and Rs. 0.021 in FY-2014-15. Thus, this was a highly risky venture. The appellant sold these shares on 29.05.2014@ Rs. 481.28/- per share. Thus, within a short span of three years the appellant earned astronomical gain of 2306%. During the same period, BSE Sensex rose from 16151 to 24234 i.e.50%. Gold prices during the same period in India per 10 grams rose from Rs. 25,780/- to Rs. 26,580/- i.e. appreciation of 3%. Thus, it is seen that the appellant indeed had astronomical appreciation to his investment into a share whose EPS was abysmal, sales turnover very low, net profit very low, book value again low and yet share price had zoomed to the sky. It is this background which gives rise to dissatisfaction of the AO for the purpose of section 68 of the Act. Independent of Investigation Department's Report, the pattern of investment and share price movement itself is such that it does not sound believable. Therefore, appellant's ground that extract of Investigation Report were not shared with him is not material in this case. Investigation report is only a pointer for the AO to enquire and scrutinize afterwards. It is the information collected by the AO with respect to the purchase and sale of the shares and background of CTL/SAL which has resulted in this addition and this data is very much available with the appellant. The addition is not made on the report of Kolkata Investment Department per se.
Therefore, appell
