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2025 Supreme(Online)(ITAT) 23705
INCOME TAX APPELLATE TRIBUNAL (PUNE BENCH)
R. K. Panda, VP, Astha Chandra, Judicial Member
Dineshkumar Ramchandra Tulsyan (HUF) – Appellant
Versus
ITO, Ward 1(5), Nashik – Respondent
ITA No.813/PUN/2018|ITA No.814/PUN/2018
For the Appellants/Petitioners: Pramod S Shingte
For the Respondents: Rajesh Haladkar
Tax exemption on long-term capital gains from share sales cannot be denied based on generalized allegations of price manipulation or retracted statements when the assessee provides credible documentary evidence of genuine transactions and the regulator clears the underlying scrip of adverse findings.
Headnote:(A) Income Tax Act, 1961 - Section 10(38), 68, 69, 69C, 131, 133A, 143(2) and 144A - Income tax - Exemption on Long Term Capital Gains (LTCG) from share transactions - Assessee claimed exemption on sale of shares treated as penny stocks - Revenue alleged manipulation of share prices and entry of bogus capital gains based on investigation report and survey statement - Assessee retracted survey statement - Regulatory authority cleared identified entities in final investigation report - No evidence linking assessee to price rigging or manipulation by brokers - Burden of proof on Revenue not discharged - Addition of capital gains and associated expenses as unexplained cash credit not sustainable. (Paras 4-10, 28, 29, 30, 31, 33)
Facts of the case:
Assessee declared income claiming exemption for long-term capital gains from sale of listed shares under Section 10(38). Authorities rejected the claim, alleging the transaction was an accommodation entry for bogus gains based on investigations into the scrip's volatility and regulatory findings involving intermediaries. Allegations were supported by a statement obtained during a survey, which the assessee subsequently retracted via affidavit.
Findings of Court:
The appellate body found that the regulatory investigation concluded without adverse findings against the entities involved in the scrip. Given that the assessee provided evidence of share purchase and sale through regulated stock exchange platforms, payment of applicable transaction taxes, and routing of funds through banking channels, the disallowance was deemed unjustified. Revenue failed to connect the assessee to the alleged price manipulation or rigged transactions.
Issues: Whether the rejection of the LTCG exemption under Section 10(38) and the subsequent treatment of sales proceeds as unexplained cash credit was legally sustainable given the retraction of the survey statement and the lack of adverse findings in the final regulatory investigation report.
Ratio Decidendi: When an assessee establishes the genuineness of share transactions through documentary evidence such as contract notes, demat account statements, and banking transaction records, and where the regulatory body finds no adverse evidence against the taxpayer in a final report, the claim for tax exemption under Section 10(38) cannot be denied based on generalized investigation reports or retracted statements.
Result: Appeals allowed; additions deleted and exemption confirmed.
| Table of Content |
|---|
| 1. procedural background and factual history of share purchase transactions. (Para 1 , 2 , 3 , 4 , 5 , 6) |
| 2. investigating agency reports on price manipulation and penny stock operations. (Para 7 , 8 , 9 , 10) |
| 3. contentions regarding evidence, retractions, and judicial precedents on exemption u/s 10(38). (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27) |
| 4. absence of adverse sebi findings validates transaction genuineness. (Para 28 , 29 , 30 , 31 , 32 , 33) |
| 5. appeals allowed; exemption u/s 10(38) granted. (Para 34 , 35) |
O R D E R
PER R.K. PANDA, V.P:
The above two appeals filed by the respective assessees are directed against the separate orders dated 21.03.2018 of the Ld. CIT(A)-1, Nashik relating to assessment year 2014-15. Since identical grounds have been raised by the respective assessees in these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.
2. These appeals were earlier dismissed by the Tribunal for non-prosecution vide order dated 12.09.2022. Subsequently, the Tribunal vide MA Nos.147 & 148/PUN/2023 order dated 02.05.2025 recalled the order. Hence, these are recalled matters.
3. First we take up ITA No.813/PUN/2018 as the lead case.
4. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 02.08.2014 declaring total income of Rs.7,28,260/- after claiming an amount of Rs.1,00,97,902/- as exempt income u/s 10(38) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) being the long term capital gain on sale of listed shares on which STT was paid. The case was selected for scrutiny through CASS. Accordingly, statutory notice u/s 143(2) of the Act was issued and served on the assessee. Subsequently, notice u/s 142(1) of the Act along with a questionnaire was issued to the assessee calling for certain information in response to which the assessee filed the requisite details before the Assessing Officer from time to time.
5. During the course of assessment proceedings the Assessing Officer noted that the assessee has purchased 2500 shares of M/s. Pyramid Trading & Finance Ltd on 15.06.2012 @ Rs.6/- per share for Rs.15,000/-. Thereafter the company has issued bonus shares in the ratio of 1:7 on 05.02.2013 making the total holding of 20000 equity shares by the assessee. Again the shares were split on 16.01.2014 with ratio of 1:10 by renaming as Mishka Finance and Trading Ltd., thus making the total holding of 200000 equity shares of Mishka Finance and Trading Ltd. by the assessee. These shares were sold by the assessee during 19.02.2014 to 18.03.2014 for Rs.50.95 to 50.25 per share on various dates with total consideration of Rs.1,01,12,902/-.
6. From the various details furnished by the assessee, the Assessing Officer noted that the purchase of shares was offline in the name of the assessee through Roongta Rising Stock Pvt Ltd, a share broker of Surat. The shares were transferred to D-mat account on 28.12.2012 and sold through IIFL and the amount of Rs.1,01,12,902/- received in lieu of sale consideration was deposited in ICICI Bank. The Assessing Officer sought directions from the JCIT u/s 144A of the Act vide letter dated 26.12.2016 who gave directions which have been reproduced by the Assessing Officer in the body of the assessment order. The Assessing Officer confronted the directions given by the JCIT to the assessee.
7. The Assessing Officer noted that the Investigation Wing, Kolkata had conducted search and seizure action at the premises of entry operators, share brokers and money launderers who were involved in providing accommodation entries of Long Term Capital Gains. It was found that the price of various listed companies including Mishka i.e. the shares under question were manipulated and the unaccounted money of the investors was routed through share transactions, resulting in Long Term Capital Gains as the same were exempt. He
