2023 (1) TMI 613 - AT - Income Tax

Bogus LTCG - Disallowance of exemption claimed u/s. 10(38) - SEBI order in the case of the scrip traded in by the assessee - CIT-A deleted addition - HELD THAT - ITAT, Jaipur Bench SH. PRAKASH CHAND SHARMA, SMT. KALAWATI SHARMA 2020 (11) TMI 902 - ITAT JAIPUR in an identical case of addition made of bogus long term capital gains arising in trading of shares of the same scrip as in the present case, i.e MFTL , wherein ITAT deleted the addition on the basis of the final order of the SEBI. The facts and circumstances of the caseare identical to the present case. DR was unable to point out any distinguishing fact, and therefore, the said decision is squarely applicable to the present case. CIT(A) s order deleting the addition in the present case is fortified by the said decision of the ITAT. As for the decision of the Hon ble Calcutta High court in the case of Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT assessee has rightly distinguished the same on facts pointing out that in those case there was no reference to any order of SEBI in the scrips traded in. That accordingly the Hon ble High Court had dealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transactions. DR was unable to controvert the factual distinction pointed out by the Ld.Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon ble Calcutta high court is not applicable in the present case. No infirmity in the order of the Ld.CIT(A) deleting the addition made on account of alleged bogus long term capital gains - Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made by AO on account of disallowance of exemption claimed under Section 10(38) of the Income Tax Act.
2. Consideration of SEBI report and remand report by AO.
3. Justification of high increase in share price by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by AO on Account of Disallowance of Exemption Claimed under Section 10(38) of the Income Tax Act:
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition made by the Assessing Officer (AO) regarding the exemption of Rs. 8,90,28,838/- claimed under Section 10(38) of the Income Tax Act. The AO had disallowed the exemption, alleging that the long-term capital gain (LTCG) was a bogus transaction designed to book illegitimate gains without paying taxes. The AO's case relied heavily on an interim SEBI report that indicated manipulation in the price of the scrips involved. However, the CIT(A) deleted the addition based on a final SEBI order absolving the company of all charges.

2. Consideration of SEBI Report and Remand Report by AO:
The AO's addition was primarily based on the interim SEBI order, which alleged that the company's shares were manipulated to benefit shareholders by booking illegitimate gains exempt from tax. The CIT(A) found that the AO did not consider the final SEBI order, which absolved the company of these charges. The CIT(A) noted that the AO failed to provide any independent evidence of manipulation apart from the interim SEBI report. The final SEBI order, which was crucial, was not given due consideration by the AO, leading to the deletion of the addition by the CIT(A).

3. Justification of High Increase in Share Price by the Assessee:
The AO issued a show-cause notice mentioning the unreasonably high price at which the shares were sold but did not provide a detailed analysis or basis for this conclusion. The CIT(A) observed that the AO did not discuss the financials of the company or establish why the sale price was suspiciously high. The CIT(A) relied on the final SEBI order and the fact that all transactions were conducted through proper banking channels, with shares held in the demat account for over 12 months. The CIT(A) also referenced several case laws supporting the assessee's claim and noted that the SEBI's final order carried significant weight in establishing the legitimacy of the transactions.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no merit in the Revenue's contentions. The AO's reliance on the interim SEBI report without considering the final SEBI order was a significant oversight. The CIT(A) correctly relied on the final SEBI order, which absolved the company of manipulation charges. The Tribunal also noted that similar cases had been decided in favor of the assessee, and the decision of the Hon'ble Calcutta High Court cited by the Revenue was distinguishable on facts. Consequently, the appeal of the Revenue was dismissed, and the deletion of the addition of Rs. 8,90,28,838/- was upheld.