Section 10(38) of the Income Tax Act

Income-tax Act, 2025: s.11

Section 10(38) falls under section 10 of the Income-tax Act, 1961, which corresponds to section 11 (Incomes not included in total income) of the Income-tax Act, 2025.

Read section 11 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 10(38) is (Central)-1 v. NRA Iron & Steel (P) Ltd. (103 Taxmann.com 48), cited in 696 of the 3,113 judgments on BharatTax that turn on this section.

Leading authorities on Section 10(38)

(Central)-1 v. NRA Iron & Steel (P) Ltd.
103 Taxmann.com 48 · 2019 · Supreme Court
696
citing judgments

When assessing cash credits, share capital, or loans, the assessee bears the onus to prove the identity, creditworthiness, and genuineness of transactions. This burden is not discharged merely by documentary evidence if field inquiries reveal accommodation entries or dealings with paper/shell companies.

PCIT v. Swati Bajaj
139 Taxmann.com 352 · 2022 · High Court
443
citing judgments

Tax authorities are entitled to examine surrounding circumstances and apply the test of human probabilities to determine the genuineness of long-term capital gains arising from the sale of manipulated penny stock, even if prima facie documents appear to support the transaction.

CIT v. Shyam R. Pawar
54 Taxmann.com 108 · 2015 · High Court
279
citing judgments

Transactions involving the purchase and sale of shares cannot be considered bogus where the assessee provides documentary evidence, unless the revenue brings substantial evidence on record to reject such proof. This principle is consistently applied in cases concerning claims of bogus long-term capital gains arising from penny stock transactions.

CIT v. Gopal Purohit
336 ITR 287 · 2011 · High Court
254
citing judgments

The gain from delivery-based share transactions, where shares are consistently treated as investments and valued at cost in the books, is assessable as capital gains and not business income. An assessee's consistent stand on classifying share transactions should generally be followed by the assessing officer in subsequent years.

Sanjay Bimalchand Jain v. PCIT-1, Nagpur
89 Taxmann.com 196 · 2018 · High Court
251
citing judgments

The exemption for long-term capital gains on share transactions is unavailable if the assessee fails to discharge the onus of proving the genuineness of gains arising from dubious share transactions designed to convert unaccounted income into tax-exempt capital gains. Courts will uphold an assessment based on the Revenue's evidence of price rigging or penny stock manipulation if the assessee cannot provide cogent evidence for the abnormal rise in share value.

PCIT v. Krishna Devi
126 Taxmann.com 80 · 2021 · High Court
249
citing judgments

The genuineness of share transactions, particularly those generating long-term capital gains, cannot be rejected solely based on general investigation reports, third-party statements, or a mere increase in share price, when the assessee provides comprehensive documentary evidence, without the Revenue bringing substantial evidence to the contrary.

CIT v. Jamnadevi Agarwal
328 ITR 656 · 2010 · High Court
230
citing judgments

When faced with allegations of bogus long-term capital gains from penny stocks, the Assessing Officer must discharge the onus of proving that the assessee's transactions were not genuine. The assessee can rely on the principle of preponderance of probability, and the Revenue must present substantial evidence to establish that the transactions were a colourable device or that the assessee was an entry operator.

Jai Steel (India) v. ACIT
259 CTR 281 · 2013 · High Court
224
citing judgments

Under Section 153A, for completed assessments (under Section 143(1) or 143(3)) where no incriminating material is found during a search under Section 132, the Assessing Officer cannot make additions to the income already assessed. Additions are only permissible if based on undisclosed income or assets discovered during the search.

P.V. Doshi v. CIT
113 ITR 22 · 1978 · High Court
179
citing judgments

The lack of jurisdiction to initiate reassessment proceedings under Section 147/148 cannot be waived and can be challenged at a later stage, even if not raised initially. An invalid reassessment due to such jurisdictional defects cannot sustain subsequent penalty proceedings.

CIT v. J.H. Gotla
156 ITR 323 · 1985 · Supreme Court
176
citing judgments

The Supreme Court holds that for income tax purposes, the term 'income' includes 'loss,' allowing for the set-off of a spouse's or minor child's business losses when their income is clubbed with the assessee. This decision emphasizes interpreting tax statutes, especially benevolent provisions, by considering the legislative scheme over a strict literal construction.

Judgments on Section 10(38)

Tejas Nagindas Ambavi, Mumbai vs. Asst CIT Cr 21(2), Mumbai

In the result, appeal of the assessee is allowed

ITA 6410/MUM/2014[2010-11]Status: DisposedITAT Mumbai21 Apr 2017AY 2010-11

Bench: Shri D. Karunakara Rao & Shri Ram Lal Negitejas Nagindas Ambavi, फनाभ/ Acit, Circle-21(2), 401, Kelawala Tower, Mumbai. Vs. 28, Swastik Society, N.S. Road No.2, Juhu Scheme, Mumbai-56. स्थामी रेखा सं./ Pan : Adzpa0369G (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent) अऩीराथी की ओय से / Appellant By : Shri Vishwas Mehandale प्रत्मथी की ओय से/ Respondent By : Shri Vishwas Mundhe, Dr सुनवाई की तायीख / Date Of Hearing : 20.04.2017 घोषणा की तायीख /Date Of Pronouncement : 21.04.2017 आदेश / O R D E R Per D. Karunakara Rao, Am: This Appeal Filed By The Assessee On 17.10.2014 Is Against The Order Of The Cit (A)-32, Mumbai Dated 14.08.2014 For The Assessment Year 2010-2011. 2. In This Appeal, Assessee Raised Four Grounds In Toto. Ground No.1 Relates To The Granting Of Adequate Opportunity To The Assessee & The Same Is Not Pressed. After Hearing The Ld Dr, The Said Ground No.1 Is Dismissed As Not Pressed. 3. Referring To Grounds No.2 & 3, Ld Counsel For The Assessee Submitted That The Assessee Earned Long Term Capital Gains Amounting To Rs. 7,31,572/- On Sale Of Shares. Assessee Claimed Exemption In Respect Of The Same U/S 10(38) Of The Act. However, Ao Treated Entire Amount As Bogus Capital Gains. No Addition Was Made In Respect Of Original Investment Of The Said Shares. In The Process, Ao Ignored The Documents Such As Contract Notes, Correspondence Of The Broker, Confirmations By The Broker, Payment Transactions Etc. Matter Travelled To The Faa. After Considering The Submissions Of The Assessee, Cit (A) Confirmed The Said Decision Of The Ao. Cit (A) Actually Enhanced The Assessment To The Tune Of Rs. 20,683/-, The Original

For Appellant: Shri Vishwas MehandaleFor Respondent: Shri Vishwas Mundhe, DR
Section 10(38)