Case Law Details
PCIT Vs Sanjaykumar Damjibhai Gangani (Supreme Court of India)
Supreme Court Dismisses Revenue Appeal Due to Lack of Evidence of Bogus LTCG; No Addition Under Section 68 Without Direct Proof of Accommodation Entries; Penny Stock Allegation Rejected as Share Transactions Were Through Banking Channels; Bogus LTCG Addition Deleted as SEBI Did Not Identify Scrip as Rigged.
Read also HC Judgment in thie case:- PCIT Vs Sanjaykumar Damjibhai Gangani (Gujarat High Court)
In this case, the Revenue challenged the order of the Income Tax Appellate Tribunal (ITAT), Surat Bench, which had deleted additions made against the assessee relating to alleged bogus Long Term Capital Gains (LTCG) claimed as exempt under Section 10(38) of the Income Tax Act. The additions arose from transactions involving shares of Sunrise Asian Ltd., which the Assessing Officer treated as penny stock transactions allegedly used for accommodation entries. The Revenue argued that the share price movement was not supported by the company’s financial fundamentals, that entry operators had admitted manipulation of the scrip, and that commission expenses connected with the transactions were unexplained. The Revenue also contended that the Tribunal ignored evidence relating to manipulation and wrongly deleted additions made under Sections 68 and 69C of the Act.
Before the High Court, the Revenue admitted that the facts of the present case were identical to an earlier decision in Principal Commissioner of Income Tax-1 v. Divyaben Prafulchandra Parmar, where similar tax appeals had already been dismissed. The High Court therefore relied upon its earlier ruling.
The Tribunal had earlier observed that the assessee purchased shares through banking channels, reflected the investments in balance sheets, and sold the shares through recognized stock exchange mechanisms using RTGS and NEFT payments. The Tribunal noted that the transactions were supported by documentary evidence including contract notes, Demat records, bank statements, and payment of Securities Transaction Tax (STT). It also found that the Assessing Officer relied heavily on the Investigation Wing’s report without conducting any independent inquiry or establishing any nexus between the assessee and alleged accommodation entry operators.
The Tribunal further held that statements of third parties were recorded behind the assessee’s back without opportunity for cross-examination and that no evidence existed to prove that the assessee paid cash to obtain bogus LTCG entries. It observed that suspicion and presumptions could not replace legal evidence and that no direct material showed manipulation by the assessee. The Tribunal also noted that Sunrise Asian Ltd. was not among the scrips found rigged by SEBI in the investigation referred to by the Revenue.
The Tribunal distinguished the Calcutta High Court decision in Swati Bajaj, holding that Gujarat High Court precedents and jurisdictional ITAT rulings would apply instead. It concluded that the additions under Sections 68 and 69C were based merely on suspicion and probability without direct evidence. Consequently, it deleted the additions relating to alleged bogus LTCG and notional commission expenses.
The High Court upheld the Tribunal’s findings, observing that the Tribunal had reached factual conclusions based on material on record and that the Revenue failed to establish any substantial question of law. It noted that the assessee had held the shares for more than two years and that the transactions could not be treated as bogus merely on presumptions. The Court therefore dismissed the Revenue’s appeals.
The Supreme Court also refused to interfere with the High Court’s order and dismissed the Special Leave Petition filed by the Revenue, holding that no good ground existed to interfere with the impugned order.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Having heard the learned counsel appearing for the Revenue and having gone through the materials on record, we find no good ground to interfere with the impugned order passed by the High Court.
3. The Special Leave Petition is, accordingly, dismissed.
4. Pending applications, if any, also stand disposed of.
Author Bio
