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Facts
The assessee declared income and claimed long-term capital gains exempt under Section 10(38) on the sale of shares of M/s CCL International Ltd. The AO, suspecting the shares were from a penny stock company used for routing unaccounted income, treated the entire sale consideration as bogus and disallowed the exemption. The CIT(A) deleted the addition, finding no evidence that M/s CCL International Ltd. was a penny stock or involved in rigging.
Held
The Tribunal upheld the order of the CIT(A), noting that no evidence was presented to demonstrate that M/s CCL International Ltd. was a penny stock company or engaged in share rigging. The Tribunal also observed that the tax effect of the appeal was below the prescribed limit for filing appeals before the ITAT.
Key Issues
Whether the sale of shares from M/s CCL International Ltd. constituted genuine long-term capital gains or was part of a penny stock scheme to introduce unaccounted income, and if sufficient evidence was provided to prove the latter.
Sections Cited
10(38), 69, 147, 148, 144, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DELHI
Before: SHRI MAHAVIR SINGH, HON’BLE
ORDER This appeal by the Revenue is directed against the order of the NFAC, Delhi passed relating to assessment year 2013-14. The Revenue has raised the following grounds:-
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition of Rs. 36,85,075/- made by the AO by treating entire receipts from the sale of shares of M/s CCL International Ltd. As unaccounted income u/s. 69 of the Act, without considering the fact that M/s CCL International Limited was one of the identified penny stock company as established by the Investigation Wing of the Department which was used for providing accommodation entry and creation of bogus capital gains exempt u/s. 10(38) of the I.T. Act, 1961.
2. Briefly stated, facts are that in this case, the assessee e-fled its ITR for A.Y. 2013- 14 on 29.7.2013 declaring total income of Rs.7,94,940/-. During the year the assessee claimed a sum of Rs. 35,75,075/- as exempt u/s 10(38) of the I.T. Act, 1961. The name of the assessee was flagged as a person who had traded in Penny Stock scrip of M/s. CCL International Limited by the Investigation Wing of the Department. Thus, the assessment was re-opened by issuing the notice u/s 148 of the IT Act, 1961. In response to the notice assessee did not file any ITR for the year under consideration. Therefore, assessment was completed u/s 147 r.w.s 144 of the Act. The AO also ascertained that shares of M/s. CCL International Limited was managed by accommodation entry providers and used by the assessee to route their undisclosed income through transactions in these penny stock and claimed exempt Long Term Capital Gain as per the provisions of section 10(38) of the I.T. Act, 1961. M/s. CCL International Limited was one of the identified penny stock by the Investigation Wing which was used for such purpose. With the aforesaid observation, the AO concluded that assessce's own money was being routed in through the mechanism of penny stocks/long term capital gain, the claim u/s. 10(38) of the Act in ITR for the year under consideration to the tune of Rs. 35,75,075/- on sale of shares, entire sale consideration of Rs. 36,85,075/- was treated as bogus and disallowed. In appeal, Ld. CIT(A) held that as no evidence was brought on record to show that M/s CCL International Ltd. deals in penny stock and rigging up of shares, hence, he deleted the addition in dispute by allowing the appeal of the assessee. Aggrieved, the Revenue is in appeal before the Tribunal.
3. At the time of hearing, Ld. DR submitted that the order of Ld. CIT(A) is not acceptable as he has not considered the fact that as per the enquiry conducted by investigation wing of the Department and also from NSE. It had been established that there were scrip which were managed by accommodation entry providers and were used by the assessee to route their undisclosed income through transactions in these penny stock and to claim exempt Long Term Capital Gain as per the provisions of section 10(38) of the Act and CCL International Limited was one of the identified penny stock Company by the Investigation Wing of the Income Tax Department which was used for such purpose. In such facts and circumstances, the amount as claimed exemption u/s. 10(38) of the Act by the assessee on sale of shares of M/s. CCL International Ltd. for a total consideration of Rs, 36,85,075/-, is not justifiable, hence, the same deserve to be upheld.
4. Per contra, Ld. AR has relied upon the order of the Ld. CIT(A) and submitted that he has passed a well reasoned order which does not need any interference on my part.
5. I have heard the rival contentions and gone through the facts of the case. I find that Ld. CIT(A) has discussed the issue in dispute elaborately by observing as under:-
The appellant has placed before me all the fact related to this instant case and the same was found to be in order as not evidence was brought on record to show that M/s CCL International Ltd. deals in penny stock and rigging up of shares. Hence, in view of the discussion made above, I found that the sale of 3 shares for a consideration of Rs. 36,85,075/- is genuine and rightly claimed u/s. 10(38) in his return of income filed for the year and therefore, I direct the AO delete the addition of Rs. 36,85,075/- made under unexplained cash credit u/s. 68 of the Act and give relief to the appellant.
In the background of the aforesaid discussions and upon careful perusing the finding of the Ld. CIT(A), as reproduced above, I note that Ld. CIT(A) has rightly deleted the addition of Rs. 36,85,075/- made by the AO, keeping in view of the fact that no evidence was brought on record to show that M/s CCL International Ltd. deals in penny stock and rigging up of shares. Hence, in view of the discussion made above, I found that the sale of shares for a consideration of Rs. 36,85,075/- is genuine and rightly claimed u/s. 10(38) in his return of income filed for the year. Further, it is noted that Ld. Pr. Commissioner of Income Tax (OSD), Ghaziabad while submitting the Statement of Facts has admitted that the tax effect involved is Rs. 11,38,688/- which is below the prescribed limit of Rs. 60 lakhs for filing the appeal before the ITAT as provided in CBDT’s Circular No. 09/2024. In view of the aforesaid factual matrix and in the interest of justice, I affirm the action of the Ld. CIT(A) and accordingly reject the grounds raised
by the Revenue.
7. In the result, the Revenue’s appeal stands dismissed.