This case summary pertains to ITA 5204/DEL/2019, a dispute involving the Income Tax Officer, Ward-28(3), New Delhi (Appellant) and Smt. Shivani Gupta, New Delhi (Respondent), concerning the assessment year 2015-16. The case focuses on the disallowance of long term capital gains exemption claimed under section 10(38) of the Income Tax Act, 1961. The case was filed on June 6, 2019, and the final tribunal order was pronounced on April 6, 2021.
The respondent, Smt. Shivani Gupta, filed her income return for the assessment year 2015-16 on August 31, 2015, declaring an income of Rs. 13,17,580. In her return, she claimed a long term capital gain (LTCG) of Rs. 1,60,98,447 exempt under section 10(38) of the Act on account of trading in shares of M/s Eins Eductech Ltd. The shares were purchased through preferential allotment and were subsequently sold through recognized stock exchanges, with the transactions being subjected to Securities Transaction Tax (STT).
The primary issue raised by the appellant (ITO) was the alleged ‘sham’ nature of the transactions, arguing that the long term capital gains claimed as exempt were not genuine. The assessment officer (AO) added the LTCG amount to the respondent’s income, contending that the transactions were designed to convert unaccounted money into accounted money through bogus LTCG entries.
The AO’s order was based on detailed findings, including the suspicious nature of the transactions and the involvement of various entities in Kolkata providing accommodation entries. The AO noted that the financials of M/s Eins Eductech Ltd. did not justify the high share prices and concluded that the transactions were orchestrated to evade taxes.
The respondent, through her representative, argued that all transactions were conducted through recognized stock exchanges with STT paid and that the sale proceeds were received through banking channels. The respondent presented various documentary evidences, including contract notes, bank statements, and demat account statements, to substantiate the legitimacy of the transactions.
The Income Tax Appellate Tribunal (ITAT) examined the evidence and found that the AO’s conclusions were primarily based on suspicion and the general modus operandi of penny stock transactions without direct evidence against the respondent. The ITAT noted that the respondent had provided sufficient documentation to prove the genuineness of the transactions and that no independent inquiry was conducted by the AO to disprove the respondent’s claims.
In its final order, the ITAT ruled in favor of the respondent, Smt. Shivani Gupta, and deleted the addition of Rs. 1,60,98,447 made by the AO. The ITAT emphasized that the burden of proof to show the transactions as sham was on the AO, which was not adequately discharged. The tribunal also referenced several judicial precedents where similar additions were deleted under comparable circumstances.
The ITAT’s decision reaffirms the principle that mere suspicion cannot replace substantive evidence in tax litigation. The case highlights the importance of thorough and independent investigation by tax authorities before making allegations of bogus transactions.
This case serves as a significant precedent for taxpayers claiming exemptions under section 10(38) of the Income Tax Act, ensuring that genuine transactions conducted through recognized stock exchanges are not unjustly disallowed based on unsubstantiated suspicions.
ITA 5204/DEL/2019: Long Term Capital Gain Dispute – Shivani Gupta vs. ITO
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