In a recent ruling, the Rajasthan High Court upheld the order of the Income Tax Appellate Tribunal ( ITAT ), observing that the income tax department failed to provide any contradictory evidence against the taxpayer’s proof of Long-Term Capital Gains ( LTCG ) from the sale of shares.
The brief facts of the case are that the respondent-Arnav Goyal filed an income tax return for the assessment year 2015-2016, declaring an income of Rs. 5,48,200/-. The case was taken up for scrutiny, and on 21.12.2017, an addition of Rs. 31,70,080/- was made for bogus long-term capital gains from the sale of shares of M/s. Kappac Pharma Limited. An additional Rs. 63,402/- was added for undisclosed expenditure towards commission payments for the sale of the company’s shares.
The respondent’s appeal to the Commissioner of Income Tax (Appeals) [CIT(A)] was not successful. However, the Tribunal, in its order dated 03.04.2023, allowed the respondent’s appeal and deleted the additions. Hence, the department filed an appeal before the High Court under Section 260A of Income Tax Act against the order passed by the Jaipur ITAT Bench.
The department raised 4 grounds, including the ITAT’s error in deleting the addition of Rs. 31,70,080/- made by the AO under Section 68 of the Income Tax Act, for bogus short-term capital gains. Additionally, the Tribunal overlooked the reports from SEBI and the SIT.
The income tax department’s counsel argued that the Tribunal erred in allowing the appeal, asserting that they had material evidence in the form of statements from Jai Kishan Poddar and Anil Kumar Khemka, indicating that the company provided accommodating entries disguised as long-term capital gains.
Additionally, they argued that the steep rise in share prices within a short period raised doubts about the transaction, which was not supported by any documents.
The court noted that the Tribunal, while allowing the appeal, considered that Goyal had purchased 12,500 shares of the company in the financial year 2012-2013 for Rs. 1,87,500/-. After more than a year, upon selling the shares, Goyal reported a capital gain of Rs. 29,75,725/-.
The purchase payment was made through an account payee cheque, and the transactions were conducted through a Demat account maintained by an independent agency and sold via an online transaction through a registered share broker, adhering to the prevailing share prices on that day.
The Assessing Officer failed to contradict the evidence provided by Goyal to support his claim of long-term capital gains, clearly noted by the High Court.
It was further observed that the statements recorded without allowing the respondent- assessee the opportunity for cross-examination were not valid evidence.
Moreover, the statements did not specifically assert that assessee’s transactions regarding the sale and purchase of the company’s shares were accommodating entries. It was also noted that the second addition for undisclosed commission expenditure was a consequence of the long-term capital gain addition.
The High Court bench of Justice Shubha Mehta and Justice Avneesh Jhingan dismissed the petition stating that the income tax tribunal allowed the appeal based on the evidence presented by assessee and the lack of contrary material from the department.
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