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Facts
The appeals are filed by the DCIT against the order of the Ld. CIT(A) for AY 2017-18 and 2018-19. The Ld. CIT(A) had deleted additions made by the Ld. AO under Section 147 read with Section 143(3) of the Income-tax Act, 1961. The additions pertained to disallowing long-term capital gains claimed as exempt under Section 10(38) and consequential deletion of unexplained commission expenditure under Section 69C, by treating the share transactions as bogus.
Held
The Tribunal upheld the Ld. CIT(A)'s decision to delete the additions. It relied on its own prior decision in the assessee's individual case involving the same scrip, where similar additions were deleted. The Tribunal noted that the assessee fulfilled the conditions for Section 10(38) exemption, and the share transactions, conducted on a regulated stock exchange with STT payment and proper documentation, could not be treated as bogus, especially in the absence of adverse findings from regulatory bodies like SEBI.
Key Issues
Whether the Ld. CIT(A) was justified in deleting the addition made by the Ld. AO on account of disallowance of long-term capital gains claimed as exempt under Section 10(38) and consequential deletion of unexplained commission expenditure under Section 69C, by treating the share transactions as bogus.
Sections Cited
147, 143(3), 10(38), 69C, 115BBE, 68, 69, 69A, 69D, 142(3), 144, 133(6), 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI C. N. PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in & 2034/Del/2024 for AY 2017-18 & 2018-19, arises out of the order of the Commissioner of Income Tax (Appeals)-26, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 10757/2016- 17 dated 27.02.2024 against the order of assessment passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 23.03.2022 by the Assessing Officer, ACIT, Central Circle-15, New Delhi (hereinafter referred to as „ld. AO‟).
Identical issues are involved in both these appeals and hence, they are taken up together and disposed of by this common order for the sake convenience.
The only identical issue to be decided in this appeal is as to whether the ld CIT(A) was justified in deleting the addition made by the ld AO on account of Page | 1 disallowance of long term capital gains claimed as exempt u/s 10(38) of the Act by treating it as bogus and consequential deletion of unexplained commission expenditure u/s 69C of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. At the outset, we find that the very same issue in dispute before us came up for adjudication before this Delhi Tribunal in the case of assessee Shri Sanjeev Agarwal in his individual capacity in connection with sale of shares of Capital Trade Link Ltd for AY 2016-17 and AY 2017-18 in and 1519/Del/2021 respectively dated 20.09.2023 wherein, the Tribunal deleted the disallowance made on account of exemption of long term capital gain u/s 10(38) of the Act on sale of shares of Capital Trade Link Ltd. On perusal of the order of this Tribunal and from the financials of the Capital Trade Link Ltd, it could be seen that the said company scrip cannot be treated as penny stock at all, as is evident from the financials. It is a fact that assessee had sold the shares in the secondary market in the recognized stock exchange through a registered share broker after duly suffering Securities Transaction Tax (STT). We find that the ld CIT(A) had indeed placed reliance on the Tribunal decision in Sanjeev Agarwal‟s individual case dated 20.09.2023 referred supra and after duly taken into account the complete circumstances and modus operandi adopted therein. The relevant observations of the ld CIT(A) in this regard are reproduced as under:-
7.2 I have considered the fact of the case and the submission filed by the appellant. The assessing officer stated that the assessee has claimed bogus capital on account of sale of equity share through stock exchange and made addition of Rs. 1,28,81,091/-. The appellant has earned long term capital gain of Rs. 1,25,17,146/- on sale of 3,63,945 shares of M/s Capital Trade Links Ltd and by virtue of section 10(38) of the Act, the same has been claimed as exempt income by the appellant. Details of which is as under: Sr. Name No of Sale of shares Cost of shares LTCG ( in no of shares Rs.) share Date Amount (in Date Amount Rs.) (in Rs.) Capital 3,63,945 1.3.2017 1,28,81,091 13.06.2024 3,63,945 1,25,17,146 1. Trade to Links 7.3.2017 Ltd Page | 2 The appellant submitted that the issue involved in the instant appeal is no longer res- integra as identical additions made in the case of Sanjeev Aggarwal for Assessment years 2016-17 and 2017-18 stands deleted by the Hon„ble Income Tax Appellate Tribunal Delhi Benches. Delhi in ITA Nos). 1518 and 1519/D/2021 dated 20.9.2023 wherein Hon‟ble Bench has deleted the addition made towards long term capital gain on sale of shares of M/s Capital Trade Link Ltd. 7.2.1 The appellant had made payment against purchase of shares by proper banking channel. The appellant sold shares through online trading platform alter the payment of securities transaction tax. The said shares were sold by the appellant through Rajgul Securities Pvt Ltd (Broker firm) by online trading platform of Bombay Stock Exchange and all the taxes i.e. Securities Transaction Tax, Service Tax, Brokerage, Stamp Charges, Education Cess and Transaction Charges have been duly paid on each and every sale transaction. It may also be noted that entire transaction was executed as per normal share trading procedure prescribed by the SEBI and/or BSE.Details of sale are as under: Sr. Date Qty STT Service Net amount Rate Value Transaction & (Brokerage (Brokerage Other No. Tax Paper Charges adjusted) adjusted) book page no for contract note 27.2.2017 94.700 34.46 32,63,100 3,273 3,729.17 32,54,297.51 142 - 1 1,800 147 2 28.2.2017 56,140 35.42 19,88,595.60 1,995 1,153.80 2,277.19 19.83.169.6! 148-150 3 1.3.2017 34,067 35.70 12,16,165.03 1,220 701.52 1,392.01 12,12,851.50 91 - 95 4 2.3.2017 99,968 35.84 35,82,853.12 3,594 2,060.62 4,118.29 35,73,080.21 96 -100 5 3.3.2017 79,070 36.24 28.65,496.80 2,874 1,634.44 3,296.19 28,57,692.17 101-103 Total 3,63,945 177.66 12,19,16,210.55 12,95 7350.70 14,812.85 1,28,81,091 6 Further, from the price trend of the script it is evident that the price of the share was almost same for almost two years after listing and the appellant has not sold the shares at the highest price band. At present also the script is active and being traded online in the share market. Further, the appellant has also submitted financial statement of M/s Capital Trade Links Ltd. which reflects fixed assets together with high amount involved in inventories, cash and cash equivalents and short-term loans and advances togetherwith incremental Revenue from operation running in crores and incremental profit before taxes since 2013 onwards. The total asset of the company Capital Trade Link Limited is 159.51 crores during the Financial Year ending 31.03.2023 and the net profit after tax was Rs.2.5 crores. It has also declared dividend during the Financial Years 2017-18 and 2018-19. 7.2.2 Further, on perusal of the submissions filed by the appellant it is found that the appellant is a habitual investor having portfolio of investment in shares and has earned capital gain both in preceding and succeeding years. Details of investment and capital gain in preceding and succeeding years also furnished (Para 7.1.3 above). 7.2.3 From the facts discussed above, it has been observed that the assessee has not made purchases at the lowest price and sold the shares at highest price to claim bogus pre-arranged Long Term capital Gain. Just because the sale of shares fetched a handsome price, which price is supported by official quotation cannot be any reason to doubt the genuineness of the sale transaction of the shares. Further, Hon'ble ITAT (Delhi Bench- H) vide order and 1519/D/2021 dated 20.09.2023, on the identical issue has deleted the addition made on account of long term capital gain on sale of shares of same company i.e. M/s Capital Trade Link Ltd. by holding as under:
8. We have heard the rival contentions and perused the material on record. We have also given our thoughtful consideration to several contentions raised by the ld. Counsel along with judicial precedents referred by him. Fact of the case and detailed arguments made by the parties are all captured in the above paragraphs which are not repeated for the sake of brevity. We first look to the chronology of events which transpired in the present case, the same is extracted below: 8.1. In the above paragraphs, observations and conclusion drawn by the ld. AO have been extracted. Ld. Counsel has countered and made detailed submission for each of the observations and conclusion drawn by the ld. AO. We find it more meaningful and comprehensible to present the same in a tabulated form for better understanding to arrive at our finding. The chart presented by the Id. Counsel effectively summarises multiple contentions raised in support of the claim made by the assessee. The same is reproduced as under for ease of reference: 8.2. We find force in the multi-fold contentions raised by the id. Counsel as stated above, supported by corroborative evidence and relevant judicial precedents, all of which is discussed in detail. Assessee has sufficiently explained his case with all the cogent evidence and material which have not been rebutted or controverted or found to be false. Having convinced with the submissions made by the Id. Counsel, we list down the summary of them to give our affirmation to the same and uphold the claims made by the assessee in respect of Long Term Capital Gain on sale of shares of CTL. We draw our force from the judicial precedents referred and discussed above relating to the respective contention. Summary of said multi-fold contentions is as under: sr. Particulars no. i Investment and disinvestment in share of Capital Trade Link Ltd. cannot be treated as accommodation entries in the garb of Long Term Capital Gain when the transaction of sale and purchase of shares has been explained by placing sufficient documentary evidence on record. Revenue has not disproved the documentary evidences furnished by the assessee. No efforts have been made by the ld. Assessing Officer to examine the correctness of various proof, filed by the assessee by carrying out any investigation. ii Off-market purchase transaction made by the assessee is not an illegal transaction iii Off-market purchase transaction made by the assessee is not an illegal transaction iv Transactions carried out by the assessee through Stock Exchange are without any physical interaction between buyer and seller. v Assessee is a habitual investor having portfolio of investment in Page | 4 shares and has earned capital gain both in preceding and succeeding years. vi Neither the trading in shares of Capital Trade Link Ltd. is suspended as on date nor the share is delisted by SEBI vii Status as per ROC and Financial viability of Capital Trade Link Ltd. is corroborated by demonstrating its Incremental Revenue from operation running in several crores and incremental profit before taxes since 2013 onwards viii There is range bound movement in the share price of Capital Trade Links Ltd. much less the share has been listed with Bombay Stock Exchange at Rs.98 in June 2014 which reached to highest of Rs.132 within a period of 2 years and 3 months and as such no abnormal increased. Assessee sold shares at prices ranging from Rs.69 to Rs. 95, which are not the highest prices ix Assessing Officer arrived at adverse conclusion without making any independent inquiries either from SEBI or stock exchange or broker or share company to ascertain genuineness of the impugned transaction. x Name of scrip appearing in the list of penny stock of income tax department cannot be a basis to make addition. xi No addition can be made on the basis of adverse material, when neither such purported material was shown nor referred and confronted or supplied to the assessee in the course of assessment proceedings. xii No opportunity was afforded to assessee to cross examine the purported statements relied upon by Assessing Officer in the order of assessment violating the principles of natural justice.
Further, from the perusal of the note from the office of Directorate of Income Tax (Invext), New Delhi, referred by the id. DR in his submission and as extracted above we find that it does not in way suggest that scrip of CTL is suspended or has failed to comply with listing requirements of the stock exchange so as to conclude on an adverse finding recorded by the authorities below. 8.5. Also, under section 1.2(3), it is incumbent upon the Id. AO to give an opportunity of being heard in respect of any material gathered by him and proposed to be utilised for the purpose of the assessment. We note that compliance of provisions of sec 142(3) is a mandatory statutory procedural requirement in completing the assessment proceeding, failure of which may vitiate the entire assessment itself since this sub-section uses the word "shall". The only exception to this requirement is where an assessment is made ws 144 which is not so in the present appeal before us. In the present case before us, requirement mandated by section 142(3) has not been complied with by the ld. AO in completing the impugned assessment 8.6. On careful reading of the show cause notice issued by the Id. AO as reproduced in the impugned assessment order, we observe that nowhere, Id. AO has mentioned any specific section under which the Page | 5
income is proposed to be added/disallowed. In the words of ld. AO, it is stated in para 4 as "It is beyond no doubt that the price of the shares of Capital Trade Links were rigged & manipulated and were increased through circular transaction by unscrupulous elements. Keeping in view you are requested to explain why not gain (LTCG) amounting to Rs. 30305713/- to be assessed as undisclosed income while considering as escape assessment." In para 5. Id. AO has again stated as "Therefore, you are asked to show cause as to why the accommodation entries obtained amounting to Rs.3,03,05,713/- in shape of sale of shares of Capital Trade Links should not be added in your total income for the year under consideration." Further, while drawing conclusion in para 7 for making the assessment, id. AO again writes in similar manner as - "In view of the elaborate discussion made above. I hereby hold the amount of Rs. 3.03,05,713/- introduced/credited by the assessee in the shape of Long Term Capital Gain out of these purported share sale receipts during the financial year 2015-16 (A.Y. 2016-17) in his computation of total income (taxable at the rate of 60% as provided ws 115BBE). This would resultant of addition of Rs. 3.03.05.713/- in the total income of the assessee." Lastly, in para 8 while arriving at the total assessed income, Id. AO made the addition of Rs. 3,03,05,713/- for which he noted as "Bogus LTCG elaimed u/s 10(38) held to be Income from Other Sources, as discussed above." 8.6.1. From the above extraction of the impugned assessment order, it is not at all discernible whether the addition is made by applying provisions of section 68 or a disallowance is made of the claim of exemption of LTCG ws 10(38) of the Act by the Id. AO. 8.6.2. Taxable rate of 60% u/s 115BBE is stated to be applied by the ld. AO on the addition made. From the perusal of section 115BBE, it is noted that the said section applies only when total income of an assessee includes any income referred to in section 68, 69, 694 to 69D. Considering this, if an inference is drawn that Id. AO has applied one of these specified sections for making the addition of LTCG on sale of shares of CTL, we find that in the entire assessment order, there is no whisper by him on the three vital limbs of establishing identity and creditworthiness of the buyers of the shares sold by the assessee and genuineness of the said transaction. We do not find any action taken by the Id. AO to enquire on these three vital aspects from the assessee either by issuing notices/summons under section 133(6) or 131 of the Act. In this context, it is worth noting that impugned share sale transaction 8.6.3. undertaken by the assessee is on the online digital trading platform of stock exchange of BSE which is a regulated market under the aggies of a regulator viz. SEBI. There is nothing on record from the market regulator SEBI which establishes the 'tainted' status of the scrip of CTL so as to hold the share sale transaction as bogus/accommodation entry by the id. AO. Also, the operations and modus operandi of this regulated market does not in any way provide for any mechanism by which assessee can bring forth the identity of the buyers of its shares and their creditworthiness. Further, sale proceeds are received through the stock market processing into the pre-identified bank account of the seller i.e. the assessee which cannot be tainted as 'unexplained or unaccounted or undisclosed. Thus, it cannot be inferred that Id. AO has made the addition under the specified sections of 68, 69 and 69.4 to 69D though he has stated to apply tax rate as per section 115BBE. 8.6.4. If the inference is drawn that Id. AO has made a disallowance of claim of exemption by the assessee u/s 10(38), then, first and foremost, his statement of applying the rate of 60% under section 115BBE does not hold good. Further, for claiming exemption under section 10(38) on the LTCG of equity share in a company, only two conditions are prescribed in the said section, viz. first, transaction of sale of such equity share should be entered into on or after 01.10.2004 and second, such transaction is chargeable to securities transaction tax (STT). In the present case, assessee has established compliance of both the conditions which is not in dispute even by the Id. AO. Also, in the show cause notice, while proposing for the addition as well as in the impugned assessment order, while making the addition, ld. AO has made no such reference to section 10(38) about its non-fulfillment. Thus, even this inference fails. 8.7. Considering the totality of the facts and circumstances of the case, factual matrix and submissions of parties narrated above and judicial precedents relied upon as discussed as well as discussion and observations made herein above, we set aside the orders of the authorities below and delete the addition made towards Long Term Capital Gain on sale of shares of CTL. Accordingly, grounds taken by the assessee in this respect are allowed. 8.8. Also, addition made by resorting to enhancement of income by ld. CIT(A) towards brokerage/commission as unexplained expenditure u/s 69C by treating the LTCG as bogus and accommodation entry is deleted since it is consequent to the addition made towards LTCG. Accordingly, grounds taken by the assessee in this respect are allowed.
Grounds taken in the appeal for AY 2017-18 are also allowed which are similar to the ones taken in appeal for AY 2016-17 except for variation in their amounts in terms of our observations and findings stated above while disposing the appeal for AY 2016-17.
In the result, both the appeals of the assessee are allowed." It is evident from the aforesaid findings that additions made on account of bogus LTCG were deleted by the Hon'ble ITAT involving same script. It is held that it cannot be treated as accommodation entries when the transaction of sale and purchase of shares has been explained by placing sufficient documentary evidence on record, which are not disproved by revenue, where also assessee sold shares through Online Trading platform after payment of STT, and assessee is a habit investor having portfolio of investment in shares and has earned capital gain both in preceding and succeeding years, farther neither the trading in shares of Capital Trade Link Ltd. is soqpended as on date nor the share is delisted by SEBI, also status as per ROC and financial viability of Capital Trade Link Ltd. is corroborated by deencestrating its Incremental Revenue fauts operation running in crores and incremental profit before taxes since 2013 onwards, further there is range bound movement in the share price of Capital Trade Links Lud. much less the share has been listed with Bombay Stock Exchange at Rs.98 in June 2014 which reached to highest of Rs.132 within a period of 2 years and 3 months and as such no abnormal increase. Assessee sold shares at prices ranging from Rs.34 to Rs.36.24, which are not the highest prices. It is further noted that by Hon'ble tribunal that it is not a case where purchased shares are credited in the DMAT account just prior to the date of sale and remain in the pool account of the broker until then, even though shares were purchased in an off-market transaction, the same were dematerialized and credited in the DMAT account at the earliest possible date, immediately after its actual purchase. Hon'ble Tribunal also noted that note from the office of Directorate of Income Tax (Inv.), New Delhi, does not in way suggest that scrip of CTI. is suspended or has failed to comply with listing requirements of the stock exchange so as to conclude on an adverse finding recorded by the authorities below. It is also noted by Hon'ble Tribunal that impugned share sale transaction undertaken by he assessee is on the online digital trading platform of stock exchange of BSE which is a regulated market under the aggies of a regulator viz. SEBI. There is nothing on record from the market regulator SEBI which establishes the "tainted' status of the scrip of CTL so as to hold the share sale transaction as bogus/accommodation entry by the Id. AO. Also, the operations and modus operandi of this regulated market does not in any way provide for any mechanism by which assessee can bring forth the identity of the buyers of its shares and their creditworthiness. Further, sale proceeds are received through the stock market processing into the pre-identified bank account of the seller i.e. the assessee which cannot be tainted as 'unexplained or unaccounted or undisclosed. Thus, it cannot be inferred that Id. AO has made the addition under the specified sections of 68, 69 and 69A to 69D though he has stated to apply tax rate as per section 115BBE. 7.2.4 In this case also appellant has sold of 3,63,045 shares of NU's Capital Trade Links Lad for Rs. 1.28.81,091/ on which appellant earned long term capital gain of Rs. 1.25.17.146/- and by virtue of section 10(38) of the Act the sanse has been claimed as exempt income by the appellant. In support of transaction of sale of shures of 's Capital Trade Links Ltd., appellant has filed below mentioned documents before Assessing officer during assessment proceedings: i) Copy of bank statement of appellant reflecting payment for purchase and receipt on sale of shares through proper banking channel. ii) Copy of broker account statement reflecting sale of shares ii) iii) Copy of Contract note in respect of sale of shares iv) Copy of DMAT Account statement.
7.2.5 It is also noted that appellant is a habitual investor having portfolio of investment in shares and has earned capital gain both in preceding and succeeding years. Further neither the trading of the shares Capital Trade Link Ltd. is suspended nor delisted by SEBI. Further in the instant case even though shares were purchased in an off-market transaction, the same were dematerialized and credited in the DMAT account at the earliest possible date, immediately after its actual purchase and not just prior to the date of sale, also there is range bound movement in the share price of Capital Trade Links Ltd. Further there is nothing on record to suggest that scrip of Capital Trade Link is suspended or has failed to comply with listing requirements of the stock exchange or the price has been rigged up artificially. The Assessing officer has made the addition by forming an opinion on the basis of general observation about, however without performing due diligence specifically in the case of the appellant. The AO has not mentioned any shortcoming in the documentary evidences filed by appellant, and has also not proved if any cash was involved in the transaction and has passed the order under suspicion. In a recent judgement the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax v. Renu Aggarwal [2023] 153 taxmann.com 579 (SC)has dismissed an SLP and upheld the order of the High Court on the similar issue wherein High Court by impugned order had held that where Assessing Officer disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in pennystock which were being misused for providing bogus accommodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted.
7.2.6 Considering the above facts and submissions and the decision of the Hon'ble ITAT Delhi on the identical issue of LTCG on the sale of same script wherein it was held that since the assessee has fulfilled the twin conditions laid down under Section10(38) of the Income Tax Act and the AO had made no reference of non- fulfillment of such conditions, the addition was deleted, I am of the considerate view that a transaction evidenced by payment / receipt of share transaction value through banking channel and transfer of shares through demat account through online trading platform after payment of STT cannot be treated as bogus transaction. Further the Assessing Officer has not carried out any investigation of the facts of the case which are specific to the appellant. There is nothing on record from the market regulator SEBI which establishes the dubious status of the scrip of Capital Trade Link Ltd. so as to hold the shares sale transaction as bogus/accommodation entry by the Assessing Officer. At present also the script is active and being traded online in the share market. It has also declared dividend during the Financial Years 2017-18 and 2018-19. Therefore, it has been held that the assessing officer is not justified in making addition of Rs. 1,28,81,091/- on account of bogus LTCG u/s 10(38) of the IT Act, 1961 and thus the same is deleted. Accordingly, the grounds taken by the appellant are allowed.”
Since, the very same scrip has been adjudicated by this Tribunal in assessee‟s individual hands wherein relief has been granted to the assessee and the ld CIT(A) had heavily relied on the said Tribunal order while granting relief in the case of assessee HUF herein, we do not find any infirmity in the order of the ld CIT(A). Accordingly, ground raised by the revenue for both years are dismissed.
In the result, both the appeals of the revenue are dismissed.
Order pronounced in the open court on 29/08/2025.