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2020 (2) TMI 313 - AT - Income Tax


Issues: Disallowance of exemption claimed u/s.10(38) of the Income-tax Act, 1961 for long term capital gain on sale of equity shares of Pine Animation Limited.

Issue Analysis:

1. Background and Assessment by AO:
The appeal pertains to the disallowance of exemption claimed under section 10(38) of the Income-tax Act, 1961, regarding long term capital gain earned on the sale of equity shares of Pine Animation Limited (PAL) during the assessment year 2015-16. The Assessing Officer (AO) initiated scrutiny due to suspicious sale transactions in shares, specifically focusing on the assessee's declaration of exempt long term capital gain. The AO raised concerns about the genuineness of the transaction, considering the history of PAL's shares, their trading suspension, and statements from individuals involved in providing accommodation entries using PAL's shares.

2. Adjudication by CIT(A) and ITAT:
The AO, relying on the judgment of the Supreme Court and the Bombay High Court, concluded that the long term capital gain declared by the assessee was non-genuine and made an addition to the income. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The ITAT, after considering the facts, confirmed the non-genuineness of the transaction, emphasizing the substantial increase in share price without a corresponding financial basis, the suspension of trading activities by SEBI, and statements indicating the use of PAL's shares for accommodation entries.

3. Legal Precedents and Principles:
The ITAT referred to legal precedents such as CIT vs. Durga Prasad More and Sumati Dayal vs. CIT to highlight the importance of establishing the genuineness of transactions and the burden of proof on the taxpayer. The judgments emphasized the need to consider surrounding circumstances and human probabilities to determine the reality behind apparent transactions, especially in cases involving suspicious income sources.

4. Final Decision and Rationale:
Considering the evidence, including the significant increase in share price, the involvement of PAL in accommodation entries, and the lack of financial justification for the gain, the ITAT upheld the addition made by the AO. The decision was supported by the judgments of the Bombay High Court and the Delhi High Court in similar cases, where dubious share transactions were treated as undisclosed income. The ITAT dismissed the appeal, aligning with the lower authorities' findings and legal principles.

In conclusion, the ITAT affirmed the disallowance of the exemption claimed for long term capital gain on the sale of PAL's shares, emphasizing the non-genuineness of the transaction based on substantial evidence, legal precedents, and the lack of financial justification for the gain.

 

 

 

 

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