This case involves Manoj Kumar Gupta’s appeal against the order by CIT(A)-12, New Delhi, which confirmed the addition made by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961, regarding the assessment year 2015-16. The primary contention was the denial of capital gains tax exemption claimed under Section 10(38).
The assessee, Manoj Kumar Gupta, faced an addition of Rs.9,41,843 attributed to alleged long-term capital gains from Kappac Pharma Ltd., deemed taxable under Sections 68 and 115BBE of the Income Tax Act. The initial ruling was upheld by CIT(A)-12, leading to this appeal.
The appellant challenged the CIT(A)’s decision on multiple grounds, asserting that the transactions were legitimate, carried out through proper banking channels, and complied with stock exchange and SEBI regulations. However, the tribunal noted the transaction involved penny stocks, traditionally viewed with suspicion due to volatility and potential for price manipulation.
The tribunal, referencing similar precedents, especially the notable Delhi High Court’s decision in Mr. Udit Kalra vs. Income Tax Officer, found that the evidence provided did not substantiate the genuineness of the transactions. It was emphasized that the financial dealings and stock movements of Kappac Pharma Ltd. did not support the exponential growth in share prices, indicative of potential manipulation.
The case highlights the rigorous scrutiny applied to claims of capital gains tax exemptions, particularly involving penny stocks. It underscores the importance of providing concrete evidence to support the legality and legitimacy of such transactions.
The ITAT’s decision to dismiss the appeal reinforces the need for transparency and thorough documentation in stock market transactions claimed for tax exemptions. This ruling serves as a critical reminder of the stringent requirements for proving the authenticity of such claims under the Income Tax Act.
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