Chintan Harshad Kanakia Vs ITO (ITAT Mumbai)
The appeal before the Income Tax Appellate Tribunal, Mumbai concerned the validity of reassessment proceedings and the disallowance of long-term capital gains (LTCG) exemption under section 10(38) for Assessment Year 2015–16.
The assessee, an individual, filed a return declaring income of ₹10.06 lakh and claimed exemption of about ₹1.41 crore on sale of shares of Parag Shilpa Investments Ltd. The assessment was reopened based on information from the Principal Commissioner of Income Tax that, during a search on KCGP Share Broking Services Pvt. Ltd., the assessee was identified as a beneficiary of alleged bogus LTCG from penny stock transactions in shares of Global Cap. A notice under section 148 was issued on 23.06.2021 and, following directions of the Supreme Court in Ashish Aggarwal, was treated as a deemed notice under section 148A. After issuing a show cause notice and passing an order under section 148A(d), reassessment proceedings were initiated.
During reassessment, the Assessing Officer (AO) did not make any addition relating to Global Cap, which was the sole basis of reopening. Instead, the AO examined the assessee’s claim of LTCG exemption on shares of Parag Shilpa Investments Ltd. The AO alleged discrepancies in the purchase date of shares, noting that the assessee claimed to have purchased shares from Conquer Barter Pvt. Ltd. on 22.07.2013, whereas the shares were allotted to Conquer Barter only on 10.09.2013. The assessee failed to furnish a demat account to conclusively establish the holding period. On this basis, the AO held that the assessee failed to prove holding of shares for more than 12 months and disallowed the exemption under section 10(38), adding the LTCG to income.
