2019 (6) TMI 1611 - AT - Income Tax

Bogus LTCG claim - exemption u/s.10(38) denied - HELD THAT - Perusal of the assessment order clearly shows that AO has only made allegation in respect of the company and the modus operandi of the bogus claim u/s.10(38) of the Act. The evidences clearly show that the transactions of purchase and sale of the shares by the assessee herein are through BSE by paying STT. This is not a case for offline purchase, nor is the case of direct purchase. Neither is the assessee s name coming out in the Investigation report, which has been received by the AO from Directorate of Investigation, Kolkata. This being so, the claim of assessee cannot be disallowed merely on presumptions and the AO is directed to grant the assessee benefit of exemption u/s.10(38) of the Act as claimed in respect of long term capital gains generated by purchase and sale of shares of M/s.Sulabh Engineers and Services Ltd., as claimed by the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against Commissioner of Income Tax (Appeals) order for AY 2015-16 disallowing exemption u/s.10(38) of the Act for long term capital gains on shares purchased from M/s. Sulabh Engineers and Services Ltd.

Analysis:
The appeal was filed by the assessee against the CIT (Appeals) order disallowing the claim of exemption u/s.10(38) of the Act for long term capital gains on shares purchased from M/s. Sulabh Engineers and Services Ltd. The AO treated the transactions as non-genuine based on a report from the Directorate of Investigation, Kolkata, regarding a racket generating bogus entries for tax exemption. The assessee's transactions were conducted online through the BSE with payment of STT. The assessee argued that their transactions were legitimate, and they had no connection to the alleged racket. The Revenue contended that the profits made were indicative of penny stock dealings and cited a previous Tribunal decision for similar cases.

The Tribunal found that the AO failed to establish any bogus claim by the assessee regarding long term capital gains. The assessment order mainly focused on the company and the alleged modus operandi of the bogus claims, without concrete evidence against the assessee. The transactions were conducted through the BSE with STT payment, indicating legitimacy. The assessee's name did not appear in the investigation report received by the AO. Therefore, the Tribunal directed the AO to grant the assessee the benefit of exemption u/s.10(38) for the long term capital gains on shares purchased from M/s. Sulabh Engineers and Services Ltd.

In conclusion, the appeal filed by the assessee was allowed, and the Tribunal pronounced the order in Chennai on June 18, 2019.