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Facts
The assessee purchased shares of Panchshul Marketing Ltd., which were later merged with Kailash Auto Finance Ltd. (KAFL). The assessee sold shares of KAFL and claimed exemption under Section 10(38) of the Income Tax Act for long-term capital gains. The Assessing Officer (AO) disallowed this claim.
Held
The Tribunal held that the amalgamation of CPAL with KAFL was approved by the High Court, and the AO was not justified in questioning its validity based on third-party statements. The Tribunal found no adverse material to implicate the assessee or their broker in any suspicious transactions and concluded that the transactions were bonafide and genuine.
Key Issues
Whether the assessee is eligible for exemption under Section 10(38) on long-term capital gains from the sale of shares of KAFL, and whether the AO was justified in treating the sale proceeds as undisclosed income under Section 68.
Sections Cited
10(38), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI LAXMI PRASAD SAHU
(नििाारण वर्ा / Assessment Year : 2015-2016) Puja Agarwal, Vs ITO Ward-1, Rourkela O-18, Civil Township, Rourkela-769004 PAN No. : AGWPA 5744 K (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) नििााररती की ओर से /Assessee by : Shri Ayush Agarwal, AR राजस्व की ओर से /Revenue by : Shri Vijay Singh, Sr. DR सुनवाई की तारीख / Date of Hearing : 04/02/2026 घोषणा की तारीख/Date of Pronouncement : 04/02/2026 आदेश / O R D E R Per George Mathan, JM :
This is an appeal filed by the assessee against the order dated 25.08.2025 passed by the ld. Addl/JCIT(A)-2, Vadodara, for the assessment year 2015-2016.
The appeal of the assessee is filed belatedly by 12 days. In this regard, the assessee has filed condonation application along with affidavit stating therein sufficient reasons for condonation of delay. Ld. Sr. DR did not raise any objection to condone the delay. Accordingly, we condone the delay of 12 days in filing the appeal and the appeal of the assessee is admitted for hearing.
At the outset, ld. AR submitted that the assessee purchased shares of Panchshul Marketing Ltd. from Overflow Merchyandise Pvt. Ltd. via a SEBI-registered stockbroker and made payment through an account payee cheque. It was the submission that pursuant to the decision of the Hon’ble Allahabad High Court dated 09.05.2013, the shares of Panchshul Marketing Ltd. were merged with Kailash Auto Finance Ltd. and the assessee received shares of Kailash Auto Finance Ltd. It was submission that the exemption u/s. 10(38) of the Act in respect of long term capital gains arising on the sale of shares of Kailash Auto Financial Ltd. was now squarely covered by the decision of the coordinate bench of this tribunal in the case of Manish Kumar Baid Vs. ACIT, passed in dated in 18/08/2017 wherein the coordinate bench of this tribunal in para 6 as held as follows :- 6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the ld AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the ld AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon’ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon’ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross –examination. Moreover, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law.
We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI’s interim order supra. We find that the SEBI’s orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in roder to have a good return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI’s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd’s name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI’s order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon’ble Jurisdictional High Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee.