2018 (7) TMI 1403 - AT - Income Tax

Addition rejecting the claim of long term capital gains - exemption u/s. 10(38) eligibility - Held that - From the point of view of the assessee, he has purchased and sold the shares through an authorized share broker, who has executed the transactions by furnishing broker notes. The report given by BSE only shows that there may be some irregularities on the part of the share broker. In our view, such kind of irregularities, if any, committed by share broker cannot be a ground to suspect the genuineness of purchase and sale of shares undertaken by the assessee. We noticed that the assessee has furnished copies of contract notes in support of the purchase and sale of shares. He has also furnished copies of demat account which shows entry and exit of shares. The assessee has also received payment towards sale of shares though it was received from two other persons on behalf of DPS Shares and Securities P. Limited. In our view, so far as the assessee is concerned, he has proved the genuineness of purchase and sale of shares of M/s. Prraneta Industries Ltd., and hence long term capital gains arising on sale of above said shares cannot be doubted with. We also noticed that the Assessing Officer did not make inquiries with regard to demat account furnished by the assessee and also could not disprove the affidavit filed and statement given by DPS Shares and Securities P. Limited. Hence, decision rendered in the case of Shyam R. Pawar (2014 (12) TMI 977 - BOMBAY HIGH COURT) fully supports the case of the assessee. Accordingly, we set aside the order passed by the CIT(A) and direct the Assessing Officer to accept the claim of long term capital gains of ₹ 42.22 lakhs and allow exemption u/s. 10(38) of the Act claimed by the assessee. - Decided in favour of assessee

Summary

Issues:
Challenge to addition of long term capital gains - genuineness of transactions

Analysis:
The appeal was filed challenging the addition of long term capital gains amounting to ?42.22 lakhs by the Assessing Officer, which was confirmed by the CIT(A). The issue revolved around the genuineness of the transactions related to the sale of shares of M/s. Prraneta Industries Ltd. The Assessing Officer reopened the assessment to verify the claim of long term capital gains made by the assessee, which led to discrepancies in the information provided by the Bombay Stock Exchange regarding the sale of shares. The Assessing Officer rejected the claim of long term capital gains, considering the transactions as non-genuine.

In the set-aside proceedings, further investigations were conducted, and statements from the authorized representative of the share broker were recorded. Despite the affirmation of genuineness by the representative, the Assessing Officer remained unconvinced due to discrepancies in the information obtained from the Bombay Stock Exchange. The Assessing Officer rejected the claim of long term capital gains again, which was upheld by the CIT(A).

The assessee contended that the transactions were genuine, supported by the purchase and sale details in the demat account. The AR argued that irregularities by the share broker should not discredit the genuineness of the transactions, citing a relevant decision by the Bombay High Court. On the other hand, the Department supported the CIT(A)'s decision, referring to an order by SEBI highlighting irregularities in trading.

After considering the arguments, the Tribunal found that the assessee had provided substantial evidence, including contract notes and demat account details, to support the genuineness of the transactions. The Tribunal emphasized that the Assessing Officer failed to disprove the evidence presented by the assessee and the share broker. Relying on the Bombay High Court's decision, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to accept the claim of long term capital gains and grant the exemption under section 10(38) of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the importance of the evidence provided and the failure to establish any wrongdoing in the transactions.