SMT.PRIYA RAHUL ABHANI,MUMBAI vs. INCOME TAX OFFICER WARD 3(2), MUMBAI

The appeal of the assessee is directed against the order dated 23-05- 2018 passed by Ld CIT(A)-2, Thane and it relates to the assessment year 2014-15. The assessee is aggrieved by the decision of Ld CIT(A) in partially confirming addition relating sale of shares made by the AO rejecting the claim of capital gains.

The facts of the case are that the assessee filed his return of income declaring long term capital gains of Rs.3,63,356/- and claimed the same as exempt u/s 10(38) of the Act. The assessee had sold 1000 shares of M/s NCL Research and Financial Services Ltd for a value of Rs.14,20,000/- in April, 2013. The assessee had purchased the above said shares in April 2012 for a consideration of Rs.1,79,648/-. The assessee had also sold shares of M/s Dhanus Technologies Ltd for a sum of Rs.5000/-. The same had been purchased for Rs.11,40,028/- and hence there was a loss of Rs.11,35,028/- from this transaction. The assessee had received bonus shares from M/s Dhanus Technologies Ltd and the same was sold for Rs.12,000/-. The AO received information from investigation wing that the trading in above said shares falls under the category of suspicious long term capital gains on shares, since they have been put under Surveillance measure by SEBI. The AO, after discussing the modus operandi adopted for booking long term capital gain by rigging the prices, came to the conclusion that the transactions of purchase and sale made by the assessee in the above said shares are not genuine. In support of the same, the AO placed his reliance on the statement given by the director of M/s NCL Research and financial services Ltd during the course of survey operatio. Accordingly he rejected the claim of capital gains and assessed the sale consideration of Rs.14,20,000/- + Rs.11,35,028/- and Rs.12,000/- aggregating to Rs.25,67,028/- as income of the assessee under the head income from other sources.

The Ld CIT(A) gave partial relief by deleting addition of Rs.11,35,028/-, as the said sale transaction has resulted in loss.

The Ld A.R submitted following points:- (a) The ld CIT(A) was justified in deleting the addition of Rs.11,35,028/-. However, the sale value of bonus shares of Rs.12,000/- should have also been deleted by him, since he has deleted the addition relating to original shares.

On the contrary, the Ld D.R submitted that the investigation wing of the department has unearthed huge racket of rigging of prices of the shares with the fraudulent motive of generating tax exempt capital gains. The revenue has identified suspicious share transactions and the shares of M/s Sunrise Asian Ltd were one of such shares. He submitted that the directors of the above said company has admitted the price rigging. Accordingly he submitted that the Ld CIT(A) was justified in confirming the addition.

The Ld A.R, in the rejoinder, submitted that the assessing officer has made the addition entire sale consideration as income. He submitted that the Hon’ble Rajasthan High Court has upheld the order of Tribunal in deleting an identical addition in the case of CIT vs. Smt. Pooja Agarwal (D.B. Income tax Appeal No.385/2011 dated 11.09.2017), since the shares were transacted through Stock Exchange. He submitted that the assessee, in the instant case also, has transacted the purchase and sale transactions through stock exchange only. He further submitted that the assessee has purchased and sold shares of other companies also, list of which is furnished in the paper book.

I have heard rival contentions and perused the record. I notice that the AO has received information about suspicious share transactions and on the basis of the same; he has disbelieved the claim of long term capital gains. I notice that the assessee has purchased shares through a broker named Vijay Vishal Shah and sold shares through Anand Rathi Share and stock brokers Ltd. Thus, I notice that the purchase and sale of shares have been carried out through two different brokers. It is not the case of the AO that both the share brokers referred above have been identified as tainted brokers involved in fraudulent transactions.

The source of purchase of shares have not been doubted by the AO in the immediately preceding year. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the D-mat account only. Hence the delivery of shares also stand proved. The AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any evidence to implicate the assessee or to prove that the transactions are bogus, I am of the view that the capital gains declared by the assessee cannot be doubted with. Accordingly, I am of the view that the Ld CIT(A) was not justified in partially confirming the addition.

Accordingly, I set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned additions.

In the result, the appeal of the assessee is allowed.