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Facts
The revenue appealed against the CIT(A)'s order deleting the disallowance of long-term capital gains claimed as exempt. The AO had treated the gains from sale of shares of Surabhi Chemicals and Investment (SCIL) as bogus long-term capital gains and added it to the assessee's income as unexplained credit u/s 68 of the Act.
Held
The Tribunal held that since the sale of part of the shares in an earlier assessment year (AY 2014-15) was accepted as genuine long-term capital gain, the remaining shares sold in the current year should also be treated similarly, as they were acquired and sold under the same conditions.
Key Issues
Whether long-term capital gains from sale of shares treated as penny stock can be disallowed as bogus and added as unexplained credit, when similar transactions in previous years were accepted.
Sections Cited
10(38), 68
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the revenue is preferred against the order of the ld. CIT(A)-48, Mumbai [hereinafter ‘the ld. CIT(A)’] dated 01/07/2024, pertaining to AY 2015-16.
The sum and substance of the grievance of the revenue is that, the ld. CIT(A) erred in deleting the entire disallowance of long-term capital gains of Rs.2,70,64,182/- being claimed as exempt u/s 10(38) of the Act. 3. Briefly stated the facts of the case are that during the course of scrutiny assessment proceedings the AO noticed that the assessee has claimed exempt income u/s 10(38) of the Act to the tune of Rs.2,70,64,182/- on sale of shares of Surabhi Chemicals and Investment (SCIL). On the basis of the information received from the Directorate of 2 Investigation, Kolkata, the AO formed a belief that shares of SCIL are nothing but Penny stock and is a part of a large scam of tax evasion to defraud the revenue by claiming the bogus long-term capital gain on sale of shares of penny stock. Having formed such belief, the AO declined the exemption u/s 10(38) of the Act and added the entire long-term capital gain of Rs.2,70,64,182/- as unexplained credit u/s. 68 of the Act and further added Rs.8,11,925/- as alleged commission to obtain be accommodation entry. 4. The assessee challenged the assessment order before the ld. CIT(A) and it was strongly contended that shares of face value of Rs.10/- each of SCIL where are acquired in FY 2012-13 relevant to AY 2013-14, directly from the company under SEBI approved private placement at premium of Rs.5/- per share. The payment was made by account payee cheque. 10 lakh shares where allotted on 01/01/2013 by the company in Demat form and the same were credited in the Demat account with Samurai Securities Pvt. Ltd.. Subsequently 10 lakh shares were split into 1 lakh shares on release of lock-in period. 4.1. During the year under consideration, out of 10 lakh fully paid equity shares, the assessee sold 3,24,500 shares as 6,75,500 shares were already sold during AY 2014-15. On this fact, the ld. CIT(A) found that the Tribunal vide order dated 29/04/2024 in the case of the assessee for AY 2014-15, has accepted the sale of shares sold in FY 2013-14 relevant to AY 2014-15, wherein the Tribunal has held that long-term capital gain earned on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act. The relevant findings are extracted in para 5.6. at page