The Income Tax Appellate Tribunal (ITAT) Delhi bench delivered a significant ruling on ITA Nos.1518 and 1519/Del/2021, where Sanjeev Agarwal, a New Delhi-based individual, contested additions made by the Assistant Commissioner of Income Tax (ACIT), Central Circle-15, New Delhi, related to the assessment years 2016-17 and 2017-18.
Sanjeev Agarwal appealed against the orders of the Commissioner of Income-tax (Appeals) – 26, New Delhi, which confirmed the addition made by the ACIT under Section 143(3) of the Income Tax Act, 1961. These additions pertained to the alleged long term capital gains (LTCG) on the sale of listed shares of M/s Capital Trade Links Ltd., which were claimed to be exempt under Section 10(38) of the Act.
The primary issues revolved around the LTCG claimed by Agarwal from the sale of shares which were contested by the department as bogus due to alleged manipulation in the share price of Capital Trade Links Ltd. The department argued that these were “accommodation entries” meant to convert unaccounted income into tax-free income.
During the tribunal hearings, Agarwal’s legal team presented various documents and evidence to prove the legitimacy of the transactions, including bank statements, transaction statements, and confirmation from the broker. However, the department maintained that these were sham transactions involving penny stocks manipulated to evade taxes.
The tribunal noted several discrepancies in the department’s allegations. They pointed out the lack of concrete evidence tying the transactions to any known modus operandi of tax evasion involving penny stocks. Furthermore, they observed that the shares in question were sold through recognized stock exchanges with all regulatory compliances in place, including payment of Securities Transaction Tax (STT).
The ITAT Delhi ruled in favor of Sanjeev Agarwal, stating that the evidences provided by him substantiated his claims of having held and sold the shares as per regulatory frameworks. They concluded that the gains from these transactions qualified as LTCG, which are exempt from tax under Section 10(38). The tribunal criticized the lower tax authorities for their reliance solely on assumptions and general reports from the Investigation Wing without any specific evidence against Agarwal.
This judgment is significant as it provides clarity on the treatment of LTCG from penny stocks and reiterates the importance of concrete evidence over assumptions in tax litigation. It underscores the need for the tax department to conduct thorough investigations rather than relying on generic reports.
The tribunal’s decision in ITA 1519/DEL/2021 is a crucial precedent for similar cases involving allegations of bogus LTCG through penny stocks. It emphasizes the need for detailed examination of each case based on its merits rather than generalizing based on prevalent scams.
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