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2025 Supreme(Online)(ITAT) 2843
INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
SHRI AMARJIT SINGH, ACJ, SHRI ANIKESH BANERJEE, J
MUKESH SHAH HUF MUMBAI – Appellant
Versus
ITO WARD -17(2)(4) MUMBAI – Respondent
ITA 2941/MUM/2019
Shri Shashank Mehta, Ms. Monika H. Pande,(SR AR)
The burden of proof lies with the revenue to establish that transactions are bogus; reliance on investigation reports without corroborating evidence is insufficient to disallow claims.
Headnote:(A) Income-tax Act, 1961 - Sections 68, 69, and 10(38) - Appeal against order of CIT(A) rejecting LTCG exemption on shares - Assessee claimed LTCG on sale of shares, but AO treated it as bogus due to market manipulation allegations - CIT(A) upheld AO's order, leading to appeal. (Paras 1-10)
(B) Legal Principles - Burden of proof lies with the revenue to establish that transactions are bogus; reliance on investigation reports without corroborating evidence is insufficient to disallow claims. (Paras 8-9)
Facts of the case:
The assessee claimed long-term capital gains on shares sold, which were allegedly manipulated in value, leading to tax liabilities. The shares were purchased through banking channels, and the transactions were substantiated by documentation.
Findings of Court:
The court found that the AO did not provide sufficient evidence to substantiate claims of manipulation and upheld the validity of the transactions based on the documentation submitted.
Issues: Whether the transactions were genuine and if the revenue established the alleged manipulation.
Ratio Decidendi: The court ruled that the AO's reliance on investigation reports without concrete evidence to support claims of manipulation was inadequate to deny the LTCG exemption.
Result: Appeal allowed.
ORDER
PER ANIKESH BANERJEE, J.M:
Instant appeal of the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeal)-28, Mumbai[for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2014-15, date of order05.03.2019.The impugned order was emanated from the order of the Ld. Income-tax Officer, Ward-17(2)(4), Mumbai(in short, ‘the A.O.’) passed under section 143(3)of the Act, date of order27/12/2016.
2. The assessee has taken the following grounds of appeal:-
“1. In the facts and circumstances of the case and in Law the learned CIT(A) erred in not making a conclusive decision while directing the Assessing Officer to treat the profit from sale of shares of SRK Industries Ltd under the head income from business in case it is held that the provisions of sec.68 are not applicable.
2. In the facts and circumstances of the case and in law the learned CIT(A) erred ignoring the basic facts in the written submissions made before him and without bringing any material on record to show that the transaction of the appellant was collusive to conclude that the transaction of the appellant is collusive.
3. In the facts and circumstances of the case and in law the learned CIT(A) erred ignoring the fact that the share market does not behave rationally and the volatility in the market is caused by the fancies of the investors.
4. In the facts and circumstances of the case and in law the learned CIT(A) erred in passing the orders relying merely on presumptions, suspicions and surmises in respect of alleged penny stocks disregarding direct evidences placed on record and furnished by assessee.
5. The appellant craves leave to add to, amend, alter any of the above grounds of appeal”
3. The brief facts of the case are that the assessee filed the return of income U/s 139 of the Act. During the impugned assessment year, the assessee claimed long term capital gain (LTCG) on sale of shares of SRK Industries Ltd (in brevity, ‘SRK’) and claimed exemption on LTCG under section 10(38) of the Act amount to Rs.76,58,526/-. The assessee purchased the share of “The Transcend Commerce Ltd” in 10,000 number of share on-line with value amount to Rs.1 lakh on dated 06/10/2012. The said company was merged with SRK and after splitting it came to 44,400 shares. The assessee sold the shares in staggered manner after holding of 12 months and total sale value was amount to Rs.79,42,197/- after deducting the cost of purchase, LTCG came to Rs.77,19,911/-, which was claimed as exempt under section 10(38) of the Act. The Ld.AO treated the sale consideration of the LTCG as bogus on ground that said company does not deserve such a huge hike of sale price. Accordingly, he disbelieved the market price. The entire sale was made through Bombay Stock Exchange (BSE) and the purchase and sale transaction was made through banking channel as also that the shares are delivered in the demat during the purchase and sale. The assessee has completed this transaction through the broker, M/s Religare Securities Ltd. An investigation was conducted by the Director of Investigation, Kolkata and the cash trail was duly verified and during the course of search and survey actions, the investigation Wing of Kolkata has also covered the regional office of M/s Religare Securities Ltd where the assessee is registered and that this share broker is also involved in registering bogus clients, who have not at all any existence. The Ld.AO also alleged that this share price was artificially rigged and manipulated beyond its normal pricing with connivance of share brokers with guidance of various entry operators wherein the illegal money was converted in legal money in the form of LTCG. Accordingly, the Ld.AO rejected the exemption under section 10(38) related to LTCG and entire consideration was treated as unexplained cash credit under section 68 which comes to total amount of Rs.77,89,120/-. Further, the Ld.AO calculated 3%
