Back
2026 Supreme(Online)(ITAT) 9070
INCOME TAX APPELLATE TRIBUNAL (NAGPUR BENCH)
Pawan Singh, Judicial Member, Khettra Mohan Roy, Accountant Member
DCIT, Central Circle-2(1), Indrakumar Ghisulal Nagpur – Appellant
Versus
Agrawal, 601, Near Santra Market, Empress Mill Road, Nagpur-440 018 PAN : AAJPC 3885 C – Respondent
ITA No. (not specified)
For the Appellants/Petitioners:Shri K.P. Dewani, Advocate
For the Respondents: Shri Surjit Kumar Saha, Sr. DR
LTCG exemption u/s 10(38) cannot be denied based on general investigation reports alleging manipulation without direct evidence linking assessee; documentary proof of transactions via demat, contract notes, banking channels suffices to establish genuineness.
Headnote:(A) Income Tax Act, 1961 - Sections 10(38), 68, 69C - Long term capital gains - Exemption claim - Assessee claimed exemption on LTCG from sale of shares purchased in IPO and sold on stock exchange - AO treated LTCG and sale proceeds as bogus based on investigation reports alleging price manipulation, added LTCG u/s 68 and 3% of sale consideration as unexplained expenditure u/s 69C - CIT(A) deleted additions holding transactions genuine based on documentary evidence - Tribunal upheld deletion observing that in absence of direct evidence linking assessee to manipulation, general investigation reports and human probabilities insufficient to discredit transactions supported by allotment letters, demat statements, contract notes, STT payment and banking channels - Sale proceeds not assessable as unexplained cash credit u/s 68; no evidence of unexplained expenditure u/s 69C - Principles of natural justice violated by denying cross-examination; onus on AO to prove apparent not real with tangible material. (Paras 9-12)
(B) Evidence - Burden of proof - Transaction cannot be treated bogus merely on suspicion, preponderance of probabilities or general reports without specific evidence of collusion or connivance - Documentary evidence of purchase/sale through recognized channels prevails over circumstantial inferences. (Paras 31-32)
Facts of the case:
Assessee purchased shares in IPO for Rs.4,80,000, held in demat account, sold on stock exchange yielding LTCG of Rs.1,32,68,850 claimed exempt u/s 10(38); AO added LTCG u/s 68 as bogus and Rs.4,12,666 u/s 69C as unexplained expenditure based on investigation wing reports on penny stock modus operandi; CIT(A) deleted additions; Revenue appealed.
Findings of Court:
Transactions genuine; additions u/s 68 & 69C deleted; LTCG exemption u/s 10(38) allowed.
Issues: Whether LTCG from share sales could be disallowed u/s 68 as bogus and addition made u/s 69C without evidence; sufficiency of general investigation reports absent direct linking evidence.
Ratio Decidendi: LTCG/sale proceeds not taxable as unexplained without tangible proof of sham transactions; complete paper trail via banking channels, demat entry/exit, STT establishes genuineness; Revenue cannot rely solely on probabilities or uncorroborated statements without cross-examination opportunity.
Result: Revenue's appeal dismissed.
| Table of Content |
|---|
| 1. appeal against cit(a) deletion of bogus ltcg addition. (Para 1 , 2 , 3 , 4) |
| 2. parties argue on evidence, precedents, and transaction genuineness. (Para 5 , 6 , 7 , 8) |
| 3. documentary evidence proves genuine share purchase and sale. (Para 9 , 10 , 11) |
| 4. deleting additions u/s 68 & 69c; upholding ltcg exemption. (Para 12) |
ORDER
PER KHETTRA MOHAN ROY, AM:
This appeal by the Revenue is directed against the order of Ld. Commissioner of Income Tax (Appeals)-3, Nagpur, dated 12/05/2023 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of assessment order passed u/s. 143(3) dated 26.12.2017 by the ITO, Ward-4(1), Nagpur for the Assessment Year 2015-16.
2. Revenue has raised the following grounds of appeal:-
“1. On the fact and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.1,32,68,850/- & Rs.4,12,666/- made by the AO after making independent enquiry and concluding that the LTGC claim of the assessee was bogus and the corresponding expenditure in obtaining the bogus LTCG as unexplained expenditure u/s 69C of the Act.
2. On the fact and in the circumstances of the case, the Ld. CIT(A) erred in allowing the appeal of the assessee ignoring the fact that investigation on the basis of information carried out by DIT(Inv.), Kolkata and DIT(Inv.), Mumbai on the basis of statements of various brokers and sub-brokers have unearthed the modus operandi of investments in penny stock for obtaining bogus LTCG as in the assessee’s case.
3. On the fact and in the circumstances of the case, the Ld. CIT (A) erred in allowing the appeal of the assessee by ignoring the fact that the fundamentals of the M/s. GCM Securities do not corroborate with the instant hike in the price of its shares.
4. Any other ground that may be raised during the course of appellate proceedings.”
3. In the present case, assessee has filed return of income for AY 2015-16 on 19/12/2015, declaring total income of Rs.12,23,470/-. Case was selected for scrutiny, statutory notices u/s 143(2) & 142(1) of the Act were issued and duly served upon the assessee. Ld.Assessing Officer (AO) noticed that assessee had declared long term capital gain (LTCG) of Rs.1,32,68,850/- and claimed the same as being exempt u/s 10(38) of Act in respect to sale of shares of M/s.GCM Securities Ltd. Assessee purchased 24000 shares of M/s.GCM Securities Ltd. for Rs.4,80,000/-. The shares have been sold at stock exchange through Registered Stock Broker. The total sale proceeds amounting to Rs.1,37,48,850/- and LTCG on the same of Rs.1,32,68,850/- which is claimed exempt u/s 10(38) of the Act. The Ld. AO concluded the assessment holding that transactions in the purchase and sale of shares are treated as bogus and sham and the entire amount of LTCG of Rs.1,32,68,850/- on sale of shares of M/s GCM Securities Ltd. is disallowed u/s 68 of the Act 1961 and added to total income of the assessee. Ld. AO also made addition of Rs.4,12,466/- as 3% of sale consideration as unexplained expenditure by invoking the provisions of section 69C of Act.
4. Being aggrieved, assessee carried the matter before the Ld.CIT(A), who after considering the assessment order, written submissions and documentary evidences placed on record, allowed appeal of the assessee. While allowing the appeal, Ld.CIT(A) considered the legal evidence placed on record and held that transaction cannot be faulted and the addition made by Ld. AO is thus unjustified and unsustainable. Ld.CIT(A) further held that every transaction and income has to be brought to tax on the basis of material on record, facts of the case, legal position and judicial pronouncements and based on these yardsticks, Ld. AO has not brought any evidence on record to justify addition in view of judicial precedents relied upon by the assessee. Ld.CIT(A) after considering the facts and circumstances and judicial precedents, directed the Ld. AO to delete the addition and allow the exemption claimed u/
