Case Law Details
PCIT Vs Jagat Pravinbhai Sarabhai (Gujarat High Court)
The Gujarat High Court dismissed a tax appeal filed by the Revenue under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The Revenue challenged the Tribunal’s decision deleting an addition of ₹2,10,474 made on account of alleged bogus long-term capital gains claimed as exempt under Section 10(38) of the Income Tax Act from the sale of shares of Devika Proteins Ltd., which the Assessing Officer treated as a penny stock transaction.
The assessee had filed the return of income for Assessment Year 2011-12 declaring total income of ₹3,11,490. The assessment was subsequently reopened based on information that the assessee had dealt in shares of a shell company and had claimed exempt long-term capital gains of ₹2,10,474. The Assessing Officer treated the entire transaction as bogus, categorized it as a penny stock transaction, and added the amount under Section 68 of the Act, assessing total income at ₹5,21,964.
On appeal, the Commissioner of Income Tax (Appeals) re-examined the matter and found that the assessee had produced evidence showing that the shares were acquired as a genuine investment during the financial year 2000-01. The appellate authority observed that the shares were old investments and, therefore, could not be treated as penny stocks.
The ITAT affirmed this view, noting that the shares had been purchased in 2001 and sold only in the financial year 2010-11 after being held for more than ten years. The assessee substantiated the genuineness of the investment by producing transaction statements covering the period from 1 June 2001 to 1 October 2010. The long holding period and supporting records demonstrated that the shares were purchased as an investment and not for generating exempt income through short-term trading or manipulative transactions.
The High Court observed that both the Commissioner (Appeals) and the Tribunal had recorded findings based on the material available on record. The Court held that these were findings of fact and found no error in the conclusion that the investment was genuine, longstanding, and not a penny stock transaction. The Court further held that no question of law, much less a substantial question of law, arose from the Tribunal’s order.
Accordingly, the appeal filed by the Revenue was dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
The present Tax Appeal preferred under Section 260A of the Income Tax Act is directed against judgment and order dated 1.12.2021 of Income Tax Appellate Tribunal, Ahmedabad, ‘B’ Bench, Ahmedabad in ITA No.1505 of 2019.
2. As submitted by learned senior advocate Mr.M.R.Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination.
“Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex-facie perverse because the Appellate tribunal deleted the addition of Rs.2,10,474/- made on account of bogus long term capital gain, without appreciating the entire gamut of fact that the assessee transacted in penny stock namely M/s. Devika Proteins Ltd. thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Income Tax Act?”
3. The assessee filed the return of income for the assessment year 2011-12 on 29.3.2012 declaring his total income Rs.3,11,490/-. Subsequently the assessment was reopened as information was received that assessee has indulged into script of shell company and had claimed long term capital gain on sale of shares of Devika Proteins Limited to the tune of Rs.2,10,474/- and that the amount was claimed as exemption under Section 10(38) of the Income Tax Act, 1961 (hereafter referred to as ‘the Act’)
3.1 The Assessing Officer made addition of the said amount. The entire transaction was treated as bogus and in the nature of penny stock. By adding Rs.2,10,474/- under Section 68 of the Act, total income was assessed at Rs.5,21,964/-.
3.2 In appeal by the assessee before the Commissioner of Income Tax (Appeals), the issue was re-examined. According to the appellate authority the appellant assessee had furnished evidence to show that the shares were brought as genuine investment which was long back in the year 2000-01. As the shares were in the nature of old investment, they could not be treated as penny stock by any stretch of imagination.
4. The Income Tax Appellate Tribunal further examined the question in appeal preferred by the revenue and confirmed the view of the appellate authority noticing that the shares were purchased in the year 2001 and they were sold after long time in the year 2010-11.
5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span.
6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed.
6.1 On the facts of case, no question of law much less substantial question of law arises.
7. Resultantly, appeal is dismissed.
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