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Facts
The assessee claimed Section 10(38) exemption for Long Term Capital Gains (LTCG) from the sale of shares of M/s Pearl Electronics Ltd., which were received through a demerger of M/s Nouveau Multimedia Ltd. The Assessing Officer disallowed the exemption, treating the transactions as bogus and making an addition under Section 68, which the CIT(A) upheld.
Held
The Tribunal found that the shares were acquired through a demerger, which was not disputed, and the allotment was beyond the assessee's control. Since the AO had already accepted the exemption for a portion of the same shares, the entire addition under Section 68 was deleted, and the assessee was granted the benefit of Section 10(38) exemption.
Key Issues
Whether the assessee is entitled to claim exemption under Section 10(38) of the Income Tax Act for Long Term Capital Gains arising from the sale of shares received via demerger, or if the transactions are bogus, attracting addition under Section 68.
Sections Cited
143(2), 142(1), 10(38), 68
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: SHRI DUVVURU RL REDDY
O R D E R The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 20.05.2025 passed for Assessment Year 2015-2016.
The only ground argued by the ld.AR of the assessee with regard to confirmation of addition by the ld. CIT(A) which was made by the AO u/s.68 of the Act on account of sale proceeds received by the assessee on sale of shares.
Facts in brief are that the assessee filed his Return of Income for the AY 2015-16 declaring Total Income of Rs 4,29,970. The assessee in pursuance to notice u/s.143(2) and 142(1) of the Act along with Questionnaire submitted required details and documents as sought by the Assessing officer (AO). During the FY 2014-15 the assessee sold Quoted shares through Recognized Stock Exchanges paying STT. Thereby assessee derived LTCG out of the above Sales Proceedings of M/S Pearl Electronics Ltd of Rs 27,99,495/- and accordingly claimed Exemption n of the above under Section 10(38) of the Income Tax Act in respect of LTCG. However the AO did not consider the facts of the case as submitted by the assessee and disallowed the above exemption u/s.10(38) of the Act and made addition to the total income of Rs. 27,99,495/- u/s.68 of the IT Act on the basis of suspicion and wrong allegation.
Aggrieved with the addition made in the assessment order, the assessee preferred appeal before the ld.CIT(A) and the ld.CIT(A) has also dismissed the appeal of the assessee thereby upholding the view taken by the AO.
Now, the assessee is in further appeal before the Tribunal.
Ld. AR submitted that in course of assessment the AO had disbelieved the assessee’s claim for the deduction claimed u/s.10(38) of the Act in respect of sale of shares of M/s Pearl Electronics Ltd.. It was the submission that the assessee had purchased shares of M/s Nouveau Multimedia Ltd. in 2007 through Bombay Stock Exchange. It was the submission that in 2009 the said company had issued shares. There was demerger of the said company namely M/s Nouveau Multimedia Ltd. and 6029 shares of M/s Pearl Electronics Ltd. was allotted to assessee in 2012 by M/s Nouveau Multimedia Ltd. in pursuance of demerger scheme. It was the submission that the assessee is an investor in shares since 1987. The total shares purchased by the assessee in Nouveau Multimedia Ltd. was 13,118 shares. On account of demerger the assessee was allotted 5930 equity shares of M/s Pearl Agriculture Limited and 6029 shares of M/s Pearl Electronics Ltd. on 1.1.2013. The shares were allotted in lieu of Nouveau Multimedia Ltd. Shares in the demat account maintained by the assessee in ICICI Bank Ltd. The assessee sod 6029 shares of M/s Pearl Electronic Ltd. on different dates between 26.05.2014 and 17.11.2014. It was the submission that in the return the assessee had claimed exemption u/s.10(38) of the Act in respect of Rs.47,22,268/- in respect of the transactions of M/s Pearl Electronics Ltd. The AO treated the shares of M/s Pearl Electronics Ltd. between 6.6.2014 to 10.06.2014 to an extent of Rs.27,99,495/- as not eligible for exemption u/s.10(38) of the Act. It was submitted that the balance had not been disputed by the AO. It was the submission that when the assessee had sold its entire holding of M/s Pearl Electronics Ltd. and the said shares were allotted to the assessee on demerger of Nouveau Multimedia Ltd., the shares purchased in 2007, it cannot be held that the assessee has done any transaction in penny stock. It was also submitted that when the assessee has sold the shares between 26.05.2014 to 17.11.2014 only such transactions between 06.06.2014 to 10.06.2014 were bogus. It was the submission that the addition as made by the AO by invoking the provisions of Section 68 of the Act and as confirmed by the ld. CIT(A) is liable to be deleted.
7. On the other hand, ld.Sr. DR vehemently supported the orders of the ld. AO and ld. CIT(A) and submitted that the AO has categorically brought out the said shares were actually a manipulation. It was further submitted that the scripts of M/s Pearl Electronics Ltd. have been suspended by the SEBI for illegality for being involved in concocted transactions. Ld.Sr. DR drew my attention to page 11 of the assessment order which is a letter received by the AO on 16.06.2017 wherein the suspension of the trading in the securities of M/s Pearl Electronics Ltd. w.e.f.27.08.2015 is also mentioned. It was the submission that the order of the AO and that of the ld. CIT(A) is liable to be upheld.
I have considered the rival submissions of both the parties and perused the material available on record. It remains admitted fact that the assessee had purchased 13118 shares of Nouveau Multimedia Ltd. it is also an undisputed fact that these shares were purchased in December 2007 and another lot on 22.09.2009. These purchases are not disputed. The demerger of Nouveau Multimedia Ltd. is also not disputed. The allotment of shares of M/s Pearl Electronics Ltd. on the demerger of Nouveau Multimedia Ltd. is not within the control of the assessee. The allotment of 5934 equity shares of M/s Pearl Agriculture Ltd. and 6029 equity shares of M/s Pearl Electronics Ltd. has been made to the demat account of the assessee on 01.01.2013. Till this point the assessee had no control in respect of purchases of the shares of M/s Pearl Electronics Ltd. In fact, the assessee was allotted the shares on the demerger. It cannot be said that the assessee has done anything to manipulate his accounts. These shares allotted to the assessee has been sold by him during the impugned assessment year. Out of the full equity of shares sold, the AO has only disputed the transactions in 5150 shares and in respect of balance 6029 shares, the Assessing Officer has accepted the assessee claim on the exemption u/s.10(38) of the Act. In these circumstances, as the Assessing Officer has accepted the transactions in respect of 879 shares and granted the benefit exemption u/s.10(38) of the Act, on connected transactions of the same shares, the exemption u/s.10(38) of the Act cannot be denied. This being so, the addition as made by the Assessing Officer and as confirmed by the ld. CIT(A) stands deleted. The Assessing Officer is directed to grant the assessee the benefit of deduction u/s.10(38) of the Act as claimed by the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 21/11/2025. Sd/- (DUVVURU RL REDDY) उपा�य� / VICE PRESIDENT �दनांक Dated 21/11/2025 Prakash Kumar Mishra, Sr.P.S. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. 2. ��यथ� / The Respondent- 3. आयकर आयु�(अपील) / The CIT(A), 4. आयकर आयु�त / CIT 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, कोलकाता / DR, ITAT, Kolkata गाड� फाईल / Guard file. 6. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,