Taxpayer successfully challenges I-T official’s denial of LTCGs on sale of shares
Mumbai, Feb 12, 2024
Sarika Bindal, an individual taxpayer, has before the Delhi bench of the Income-tax Appellate Tribunal (ITAT) successfully contested the denial of exemption on Long Term Capital Gains (LTCG) under section 10(38) of the Income-tax (I-T) Act.The I-T officer has resorted to section 69A of the I-T Act and treated the LTCGs arising from sale of shares of CCL International, a listed company to be unaccounted income to the tune of 51.41 lakh. The officer also invoked section 69C and added Rs. 1.02 lakh as unexplained transaction expense.
The individual taxpayer, who had declared a total income of Rs. 10.64 lakh for the financial year 2015-16, found her return subject to scrutiny by tax authorities.
According to the taxpayer's submission, she had purchased 10,000 shares of CCL International at Rs. 40 per share, totaling Rs. 4 lakh from Sai Securities. These shares were acquired through legitimate means, with payments made via banking channels. The shares were subsequently transferred to her demat account with Religare Broking Limited. After holding the shares for more than a year, she sold 9,700 shares for Rs. 51.06 lakh, the proceeds were received through banking channels.
However, the I-T officer raised suspicions regarding the legitimacy of the LTCG, citing an investigation report from the Directorate of Investigation, Kolkata. The report detailed the manipulation of penny stock prices and alleged that the claimed LTCG was an attempt to launder unaccounted income. The actions of the I-T officer were upheld by the Commissioner (Appeals).
Consequently, invoking sections 69A and 69C of the Act, the I-T officer treated the LTCG from the sale of CCL International shares as unaccounted income, making significant additions to the taxpayer's assessed income.
The taxpayer vehemently defended the legitimacy of the transactions, presenting documentary evidence of the purchase and sale of shares conducted through proper banking channels. The Income Tax Appellate Tribunal (ITAT) ruled in favor of the taxpayer, emphasizing the substantial business operations of CCL International and dismissing the abnormal increase in share prices as insufficient grounds to discredit the LTCG.
The tax tribunal relied on an earlier judgment of the Delhi high court, that an astronomical increase in the share price of a company is in itself not a justifiable ground for holding the LTCG to be an accommodation entry.
Thus, the matter was decided in favour of the taxpayer and the additions made by the I-T authorities were quashed.
[The Times of India]
