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2021 (6) TMI 925 - AT - Income TaxBogus LTCG - penny stock purchases - genuineness of claim of exempt income u/s 10(38) of the Act from Long Term Capital Gain ( In short LTCG) arising from sale of equity shares - HELD THAT - We note that the original purchase of equity share of Conart Traders Limited was made on 17.9.2011 and this company was subsequently merged to M/s Sunrise Asian Limited by the order of Hon'ble Bombay High Court and assessee received the converted equity shares of M/s Sunrise Asian Limited in their Demat account. Thereafter during the year under appeal the shares were sold through recognized stock exchange at the price appearing on the portal of the exchange. The shares were transferred from Demat account and consideration was received. All the evidences in support of above stated transactions have been filed before the lower authorities and their genuineness are not in doubt. As relying on Dipesh Ramesh Vardhan 2020 (8) TMI 405 - ITAT MUMBAI Sunrise Asian Limited is neither a penny stock nor a paper company, are of the considered view that as all the five assessee(s) namely Kumari Ayushi Nyati ,Smt. Vijay Nyati, Shri Vijay Kumar Radheshyam Nyati (HUF), Shri Manish Kumar Radheshyam Nyati (HUF), Smt. Mamta Nyati have discharged necessary onus casted upon them in terms of claim of exemption of Long Term Capital Gain u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the Long Term Capital Gain so arisen has been rightly claimed as exempt u/s 10(38) of the Act. Since we have held the transaction of Long Term Capital Gain as genuine no addition for estimated brokerage expense is thus called for in the case of Miss. Ayushi Nyati. We therefore allow the common issues raised in all the instant appeals in favour of the assessee(s) and set aside the order of Ld. CIT(A) and allow the claim of LTCG exemption u/s 10(38) of the Act from sale of equity shares of SAL and delete the addition. - Decided in favour of assessee.
Issues Involved:
1. Genuineness of the claim of exempt income under Section 10(38) of the Income Tax Act from Long Term Capital Gain (LTCG) arising from the sale of equity shares of M/s Sunrise Asian Limited. 2. Addition for brokerage expenses deemed to have been incurred by Miss Ayushi Nyati for arranging accommodation entry of LTCG. Summary of Judgment: Issue 1: Genuineness of the Claim of Exempt Income under Section 10(38) of the Act from LTCG The main contention revolves around whether the LTCG claimed by the assessees from the sale of equity shares of M/s Sunrise Asian Limited (SAL) is genuine or a sham transaction. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] have treated the transaction as bogus, alleging that SAL is a penny stock company, and the LTCG claimed is an accommodation entry to convert unaccounted money into exempt income. 1. Assessees' Argument: - The assessees purchased shares of Conart Traders Ltd., which later merged with SAL. - The shares were held for over 12 months, sold through a recognized stock exchange, and transferred from the Demat account, fulfilling all conditions under Section 10(38). - All transactions were supported by documentary evidence, including share certificates, bank statements, demat account statements, and contract notes. - The assessees argued that the AO's conclusions were based on conjectures and the statement of a third party (Shri Vipul Vidur Bhatt) without providing an opportunity for cross-examination, violating principles of natural justice. 2. Revenue's Argument: - The AO relied on information from the Investigation Wing about bogus entries and manipulation through penny stock companies. - The AO concluded that SAL is a penny stock company, and the LTCG claimed is an accommodation entry for converting unaccounted money into exempt income. - The AO and CIT(A) relied on the modus operandi of entry providers and the statement of Shri Vipul Vidur Bhatt, who admitted to rigging the price of SAL shares. 3. Tribunal's Analysis: - The Tribunal noted that the assessees provided all necessary documentary evidence to support the genuineness of the transactions. - The Tribunal emphasized that the AO's conclusions were based on suspicion and conjectures without any tangible evidence. - The Tribunal referred to several judicial precedents, including decisions by the Coordinate Benches of Mumbai and Jaipur, which held that SAL is not a penny stock company, and the transactions were genuine. - The Tribunal also referred to the judgment of the Delhi High Court in PCIT vs. Krishna Devi & Others, which supported the assessees' position. 4. Conclusion: - The Tribunal held that the assessees discharged the necessary onus to prove the genuineness of the transactions. - The Tribunal allowed the claim of LTCG exemption under Section 10(38) of the Act and deleted the additions made by the AO and CIT(A). Issue 2: Addition for Brokerage Expenses Miss Ayushi Nyati was subject to an additional issue regarding the addition for brokerage expenses deemed to have been incurred for arranging accommodation entry of LTCG. 1. Assessee's Argument: - The assessee argued that the brokerage expense addition was baseless as the transactions were genuine and supported by documentary evidence. 2. Revenue's Argument: - The AO added an estimated brokerage expense of ?72,281, calculated at 2% of the LTCG, alleging it was incurred for arranging accommodation entries. 3. Tribunal's Analysis: - Since the Tribunal held the transactions as genuine, it found no basis for the addition of brokerage expenses. 4. Conclusion: - The Tribunal deleted the addition for brokerage expenses. Final Judgment: The Tribunal allowed the appeals of all the assessees, holding that the LTCG from the sale of shares of SAL is genuine and eligible for exemption under Section 10(38) of the Act. The Tribunal also deleted the addition for brokerage expenses in the case of Miss Ayushi Nyati.
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