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Facts
The assessee, a HUF, claimed exemption under Section 10(38) for Long Term Capital Gain (LTCG) from the sale of shares of M/s. Kailash Auto Finance Limited (KAFL) for AY 2014-15. The Assessing Officer added the sale consideration as 'Income from Other Sources' due to 'suspicious LTCG on shares,' which was upheld by the CIT(A). The assessee appealed, arguing that the share transactions were genuine, supported by evidence, and that SEBI had later exonerated the scrip and the intermediary company involved.
Held
The Tribunal found that SEBI, after detailed investigation, had exonerated M/s. Sanskriti Vincom Private Limited and the scrip of Kailash Auto Finance Limited, revoking earlier interim orders. Relying on a Coordinate Bench decision with identical facts, the Tribunal held that the share transactions were genuine. Consequently, the addition made by the Assessing Officer was deleted, and the penalty levied under Section 271(1)(c) was also deleted.
Key Issues
Whether LTCG from the sale of shares in Kailash Auto Finance Limited was genuinely exempt under Section 10(38) of the Income Tax Act, and whether penalty under Section 271(1)(c) was leviable for the related addition.
Sections Cited
10(38), 143(3), 111A, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI MANJUNATHA. G & SHRI K. NARASIMHA CHARY
आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the orders dated 16/08/2017 and 31/01/2020 passed by the learned Commissioner of Income Tax (Appeals)-12, Hyderabad & learned Commissioner of Income Tax (Appeals)-11, Hyderabad (“learned CIT(A)”) respec�vely, in the case of Sri Tarun Kumar Goyal (HUF) (“the assessee”), assessee preferred the cap�oned appeals for the AY 2014-15. 2. Briefly stated facts are that the assessee is a Hindu Undivided Family (HUF). It filed the return of income for the assessment year 2014- 15 declaring a total income of Rs. 31,48,400/-and claimed the exemption under section 10(38) of the Income Tax Act, 1961 (for short “the Act”). Case was selected for scrutiny for the reason of "suspicious Long Term Capital Gain (LTCG) on shares”.
It could be seen from the record that the assessee claimed an exemption under section 10(38) of the Act for the LTCG earned from selling shares of M/s. Kailash Auto Finance Limited (KAFL), a listed company. The total sale amount for the KAFL shares was 38,10,750/-, and the assessee set off a capital loss of Rs. 6,167.47 from the sale of Reliance Power Ltd shares, calculating a net LTCG of Rs. 36,76,913, which was fully claimed as exempt. Assessee invested in M/s. Kailash Auto Finance Limited by purchasing 1,00,000 shares at Rs.1/- per share in 2012. These shares were sold in 2013 on multiple dates through HSE Securities Limited. Assessment under section 143(3) of the Act was completed by order dated 03/11/2016 by making an addition of Rs. 36,83,077/- which represented the sale consideration of shares, under the head "Income from Other Sources."
Page 2 of 8 & 455/Hyd/2020 Tarun Kumar Goyal (HUF)
Aggrieved by such an ac�on of the learned Assessing Officer, assessee preferred appeal before the learned CIT(A). Learned CIT(A), concurred with the findings of learned Assessing Officer and upheld the addi�ons. Hence this appeal before us, by the assessee.
Learned AR submi�ed that the shares that were sold were acquired in earlier years and the learned Assessing Officer has not doubted the purchase of shares. According to him, the learned CIT(A) failed to consider various evidences filed by the assessee in the form of Bank Statements, Details of shares purchased, Share Bills, Confirma�on le�ers, Statement of Accounts, Ledger copies about the existence, genuineness of the sales and purchases made during the year under considera�on, and that the learned Assessing Officer made the disallowance merely based on the order of Securi�es & Exchange Board of India (“SEBI”), without verifying the applicability and otherwise of the same in the assessee’s case.
Further, according to learned AR, the sale transac�ons between the assessee and the other party i.e., HSE Securi�es Ltd was not a pre- arranged transac�on the share transac�ons have been made through M/s HSE Securi�es Ltd., a recognized stockbroker/member of BSE and that they are genuine. He further submi�ed that the impugned shares were of listed companies and that the assessee paid the s�pulated tax u/s 111A of the Act that the sale transac�on between the assessee and the other party was not a pre-arranged transac�on, therefore, the learned Assessing Officer cannot deny the sale transac�on. Learned AR further submi�ed that the learned Assessing Officer did not doubt the purchase of shares and conversion of shares into D-MAT Form through Government agency, thus sale cannot be stated as bogus; that the shares were in dematerialized Form and sold in electronic form and that they were genuine; that there is no men�on in the impugned order that there
Page 3 of 8 & 455/Hyd/2020 Tarun Kumar Goyal (HUF) is any nexus between the assessee and the party who purchased the shares through stock exchange; that the there is no incrimina�ng material to suggest that the seller has made compensatory payment to buyer for purchase of shares; that the authori�es should have no�ced that the judgement of jurisdic�onal High Court in I.T.T.A. No. 490 of 2014 dated 30.07.2014 in the case of CIT-V, Hyderabad v. Smt. Aar� Mi�al and should have held that the share transac�ons of the appellant are genuine; that the First Appellate Authority is incorrect in observing that the assessee has not declared any income under “Income Declara�on Scheme (IDS)” on this scrip of “Kailash Auto Finance Limited’, which the learned Assessing Officer has considered the same in the assessment order; and that the SEBI later has li�ed the ban on the scrip “Kailesh Auto Finance Ltd”, which proves that the scrip is genuine.
Per contra, learned DR placed reliance on the observa�ons of the learned Assessing Officer in the assessment order and also the reasoning given by the learned CIT(A).
We have gone through the record in the light of the submissions made on either side. It could be seen from the assessment order that during the Financial Year 2013-14 relevant to the assessment year 2014- 15, the assessee sold shares for a total sale considera�on Rs. 38,10,750/- of M/s. Kailash Auto Finance Limited. The assessee a�er adjus�ng the purchase cost of Rs. 1,07,310/- & Transfer Expenses of Rs. 26,527.82, worked out long term capital gain at Rs. 36,76,913/- and claimed the en�re capital gain as exempt u/s 10(38) of the Act.
We further noted that the shares are purchased from M/s. Sanskri� Vincom Private Limited and the same was purchased through Bank Statement which are furnished by the assessee as a proof for purchase and sale of shares. From the bank statements it is noted that Page 4 of 8 & 455/Hyd/2020 Tarun Kumar Goyal (HUF) shares purchased by the assessee were pertaining to M/s Kailash Auto Finance Limited and the transac�ons for the same were carried through banking channels. The main plank of conten�on of assessee before us is that the learned Assessing Officer and the learned CIT(A) relied on the interim order of SEBI passed on 29/03/2016. Both the authori�es below referred to the same in their orders.
Now the Learned AR filed the copy of order of SEBI dated 21/09/2017 and argued that the company is dealing with M/s Kailash Auto Finance Limited, including the assessee par�cularly, M/s Sanskri� Vincom Private Limited which is men�oned at item No. 126 at page 5 of the order is exonerated. Learned AR took us to page 5 and the Column deno�ng the name of En�ty and par�cularly, M/s. Sanskri� Vincom Private Limited shown at item no.126, wherein the share price through M/s. Sanskri� Vincom Private Limited is exonerated.
Apart from this, the learned AR placed reliance on the findings of the Coordinate Bench of this Tribunal in the case of Shri Aditya Mundada vs ITO & wherein an iden�cal issue of addi�on towards Long-Term Capital Gain derived from the sale of shares of M/s. Kailash Auto Finance Limited and claimed exemp�on u/s 10(38) of the Act was involved.
On a perusal of the order dated 21/09/2017 passed by the SEBI, we found that though the preliminary examina�on into the dealings in the scrip of M/s Kailash Auto Finance Limited for the period between 17/1/2013 and 31/3/2015 was ordered and by way of interim ex-parte order dated 29/3/2016, 246 en��es including the M/s. Sanskri� Vincom Limited were restrained from accessing the securi�es market and buying, selling or dealing in securi�es, either directly or indirectly, in any manner whatsoever, �ll further direc�ons, a�er an elaborate enquiry
Page 5 of 8 & 455/Hyd/2020 Tarun Kumar Goyal (HUF) and detailed inves�ga�on into the role of all those en��es, a�er comple�on of inves�ga�on by SEBI, no adverse evidence / adverse findings in respect of viola�on of provisions of SEBI (Prohibi�on of Fraudulent and Unfair Trade Prac�ces Rela�ng to Securi�es Market) Regula�ons, 2003 (PFUTP) were found in respect of 244 en��es including M/s. Sanskri� Vincom Private Limited and the interim order as well as the confirmatory orders were revoked. The order dated 21/9/2017 passed by the SEBI unequivocally establishes that nothing unusual or suspectable was there against either the scrip of M/s Kailash Auto Finance Limited or the dealings of M/s. Sanskri� Vincom Private Limited.
Now coming to the findings returned by a Coordinate Bench of this Tribunal in the case of Aditya Mundada vs ITO (supra), for the sake of completeness, we extract the same hereunder: “9. In view of the above, learned counsel for the assessee made submission before us that there is no inves�ga�on carried out by the Directorate of Inves�ga�on of Kolkata in the case of the assessee or in the case of M/s. Kai/ash Auto Finance Limited and even now, there is no allega�on on assessee and the en�re premise of the Revenue that SEBI has found irregulari�es of jacking up all the prices which has been exonerated. We have gone through the order of SEBI dated 21.09.2017 end noted that SEBI has par�cularly exonerated M/s. Kailash Auto Finance Limited, and shares traded through. Jatadhari Marke�ng Private Limited are not under any inves�ga�on. In terms of the above facts and the facts narrated in SEBI report, we are of the view that there is no charge on the assessee that the assessee has entered into bogus transac�ons, or the shares of M/s. Kailash Auto Finance Limited was jacked up. Hence, we are of the lieu› that the transac�ons carried out by the assessee seems to be genuine and there is no evidence against the same. Hence, we delete the addi�on made by the Assessing Officer and confined by the CIT(A) and allow this issue of assessee's appeal.”
This decision covers the facts of this case also on all its fours. In these circumstances, while respec�ully following the same, we agree with the conten�ons raised on behalf of the assessee and direct the Page 6 of 8 & 455/Hyd/2020 Tarun Kumar Goyal (HUF) learned Assessing Officer to delete the addi�on made by disallowing exemp�on U/s. 10(38) of the Act. Grounds in are allowed accordingly.
Coming to ITA 455/Hyd/2020, it is the appeal against the proceedings in respect of penalty U/s. 271(1)(c) of the Act levied by the learned Assessing Officer and confirmed by the learned CIT(A). since the quantum addi�on is deleted, penalty has no legs to stand and therefore, the same is deleted. 16. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on this the 28th January, 2025.