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2022 (5) TMI 226 - AT - Income TaxDeduction u/s 10(38) - Long Term Capital Gain earned from sale of 50000 shares of M/s Kailash Auto Finance Limited - Denial of deduction as assessee has earned a return of approximately 3763% over a very short period of just over 15 months and the financial results of M/s Kailash Auto Finance Limited are not very good - HELD THAT - As in the case of Vidhi Malhotra vs ITO 2019 (2) TMI 226 - ITAT DELHI where identical issue was the subject matter before the Tribunal. We find the Tribunal after considering the final order of SEBI revoking the ban on M/s Kailsh Auto Finance Ltd. has allowed the claim of Long Term Capital Gain u/s 10(38) of the Act on account of sale of shares of M/s Kailash Auto Finance Ltd. Thus we set-aside the order of the Ld. CIT(A) and direct the AO to delete the addition made by him rejecting the claim of deduction u/s 10(38) - Decided in favour of assessee.
Issues Involved:
1. Confirmation of addition of Rs.18,81,961/- by disallowing the claim under Section 10(38) of the Income Tax Act. 2. Confirmation of addition of Rs.94,099/- under Section 69C of the Income Tax Act for unexplained expenditure on obtaining accommodation entry. Issue-wise Detailed Analysis: 1. Confirmation of Addition of Rs.18,81,961/- by Disallowing the Claim under Section 10(38): The assessee, an individual deriving income from house property and other sources, filed a return declaring a total income of Rs.6,09,460/-. During scrutiny, the Assessing Officer (AO) noted that the assessee claimed exempt income under Section 10(38) amounting to Rs.18,81,961/- from the sale of shares of M/s Kailash Auto Finance Limited. The AO observed that the assessee earned a return of approximately 3763% over a short period of about 15 months, which seemed unrealistic given the company's financial performance. The AO's investigation revealed that M/s Kailash Auto Finance Ltd. was involved in price manipulation to provide Long Term Capital Gain (LTCG) entries to investors. Consequently, the AO treated the LTCG as a sham transaction and added Rs.18,81,961/- as unexplained credit under Section 68, which was upheld by the CIT(A). The assessee argued that the shares were purchased in 2012, sold in 2014, and the transactions were made through registered brokers with payments via cheques. The assessee also referenced the SEBI's final order from 2017, which revoked the interim order against Kailash Auto Finance Ltd. The assessee cited several tribunal decisions supporting the genuineness of such transactions. The tribunal found the AO's reliance on the SEBI order and price manipulation insufficient to disregard the assessee's documented transactions. It noted that the SEBI had revoked the ban on Kailash Auto Finance Ltd., indicating no adverse findings. The tribunal referenced a similar case (Vidhi Malhotra vs ITO) where LTCG claims on Kailash Auto Finance Ltd. shares were allowed. Thus, the tribunal directed the AO to delete the addition of Rs.18,81,961/-. 2. Confirmation of Addition of Rs.94,099/- under Section 69C for Unexplained Expenditure: The AO also added Rs.94,099/- under Section 69C, assuming it was a commission paid for accommodation entries. Given the tribunal's decision to delete the addition of Rs.18,81,961/-, it consequently deleted the Rs.94,099/- addition as well. Conclusion: The tribunal allowed the appeal filed by the assessee, directing the deletion of both the addition of Rs.18,81,961/- under Section 10(38) and the addition of Rs.94,099/- under Section 69C. The judgment emphasized the importance of documented evidence and consistency in assessing the genuineness of transactions. The order was pronounced in the open court on 29/04/2022.
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