ACIT-27(3), MUMBAI, MUMBAI vs. SIMON POULOSE PUTHANANGADY, MUMBAI

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ITA 5521/MUM/2024Status: DisposedITAT Mumbai27 May 2025AY 2016-17Bench: SHRI NARENDER KUMAR CHOUDHRY (Judicial Member), SHRI PRABHASH SHANKAR (Accountant Member)1 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the Ld. Commissioner, who had allowed the exemption. The Tribunal found that the AO failed to produce material evidence to prove the transactions were bogus and noted that the assessee had followed due process for share purchase and sale.

What were the facts?

The assessee claimed exemption for long-term capital gains on the sale of shares under Section 10(38) of the Income Tax Act. The Assessing Officer disallowed the exemption and made an addition, alleging the transactions were bogus and based on investigation reports and SEBI findings.

What were the issues?

Whether the long-term capital gains on sale of shares are eligible for exemption under Section 10(38) when the Assessing Officer alleges the transactions are bogus based on investigation reports.

Which sections of the Income-tax Act were involved?

Section 10(38),Section 250,Section 68

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR

For Appellant: Shri Jigar Mehta, Ld. A.R
For Respondent: Shri Leyaqat Ali Aafaqui, Ld. D.R
Hearing: 17.04.2025Pronounced: 27.05.2025

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Revenue Department against the order dated 29.08.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2016-17.

2.

The Assessee during the financial year 2013-14 had purchased 40,000 shares of M/s. Ojas Asset Reconstruction Company Limited @ Rs.10/- per share. Subsequently, the said shares were dematerialised and out of 40,000 shares, the Assessee sold 20,800 shares on a total consideration of Rs.1,39,98,220/- and consequently earned the long term capital gain of Rs.1,35,28,220/- and claimed the same as exempt u/s 10(38) of the Act. Though the Assessee, during the assessment proceedings, has claimed that the purchase and sale transactions have been carried out through banking channel and the Assessee sold the shares through online platform and duly paid the STT. The Assessee also submitted copies of balance sheet, computation of total income, all bank statements held by the Assessee, copy of debit note issued from Kamalkshimi Finance Corporation Limited, allotment letter of shares in respect of shares purchased, copy of ledger account of the Assessee maintained by the stock brokers, copies of all contract notes and summary bills qua shares sold through Inventure Growth, ledger confirmation by Inventure Growth, global report etc., however, still the Assessing Officer (AO) while relying on the investigation carried out by the Investigation Wing/Directorate, Kolkata and the modus operandi for obtaining the long term capital gain and finding of the SEBI, ultimately disallowed the said deduction claimed by the Assessee u/s 68 of the Act and consequently made the addition of Rs.1,35,28,220/- and added the same in the income of the Assessee.

3.

The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, who by considering material evidences put forward by the Assessee and the judgment of the Hon’ble Apex Court in the case of PCIT vs. Kuntala Mahendra (2024) 160 taxmann.com 608 (SC) wherein the Hon’ble Apex Court dismissed the SLP filed against the order of the High Court, “wherein the shares were purchased via account payee cheques, held in D-Mat account over 12 months and sold through a recognised stock exchange after payment of security transaction taxed and therefore the Hon’ble High Court has affirmed the view of the authorities below that the Assessee was eligible to claim exemption u/s 10(38) of the Act for long term capital gains”, and the fact that the AO has not brought any material evidence on record to prove that the impugned transaction is found to be bogus and in the investigation report, nowhere the name of the Assessee is mentioned indicating that the Assessee has collided with his brokers’ companies, his promoters, exit providers to arrange bogus long term capital gain, ultimately allowed the claim of the Assessee and deleted the addition made by the AO.

3.1 The Ld. Commissioner while allowing the claim of the Assessee had, also taken into consideration the judgment of the Hon’ble Jurisdictional High Court in the case of PCIT v. Indravadan Jain, HUF (2023) 156 taxmann.com 605 (Bom.) which is a celebrated judgment on the issue of penny stock and wherein it was held as under: “The Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gains and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. The Assessing Officer held that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. The Assessing Officer made addition under section 68 of the Act . On appeal the CIT(A) deleted the addition . On appeal by the Revenue, the Tribunal Affirmed the order of the CIT(A). Tribunal followed the order of Jurisdictional High Court in CIT v. Shyam R. Pawar (2015) 54 Taxmann.com 108/ 229 Taxman 256 ( Bom)(HC). On appeal by the Revenue, dismissing the appeal the Court held that The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. Order of Tribunal is affirmed.”

3.3 Thus, considering the aforesaid facts and circumstances of the case, as the Ld. Commissioner not only examined the relevant documents filed by the Assessee before the AO as well as before the CIT(A) but also analysed the peculiar facts and circumstances in totality in context of the case in hand and the relevant judgments as applicable to the instant case and then only came to the clear cut finding for allowing the claim of the Assessee u/s 10(38) of the Act and consequently deleted the addition under consideration. Thus, we are of the considered view that the order passed by the Ld. Commissioner need no interference, as the same is neither suffers from any perversity, impropriety nor illegality. Thus, the same is upheld.

4.

in the result, the appeal filed by the Revenue Department stands dismissed.

Order pronounced in the open court on 27.05.2025.

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