CIT Vs Sohanraj Uttamchand (Madras High Court)
Summary: The Madras High Court dismissed the Revenue’s T.C.A.Nos.714 and 721 of 2018 and confirmed the Tribunal’s deletion of additions under Section 68 of the Income-tax Act, 1961 in respect of Long Term Capital Gains claimed as exempt under Section 10(38). The connected appeals arose from transactions in shares of PFL Infotech Limited and Risa International Limited for Assessment Year 2014-15. The Court also dismissed T.C.A.Nos.8 and 9 of 2023 concerning penalty under Section 271(1)(c), and allowed the connected writ petitions to the extent that reopening or reassessment proceedings were founded upon the assessment orders involved in the quantum appeals. The judgment expressly confined its conclusions to the additions made in the hands of the two assessees and did not decide whether the two companies’ shares were generally subject to price manipulation by third parties.
In T.C.A.No.714 of 2018, Sohanraj Uttamchand, engaged in property development and investment, had returned total income of Rs.11,88,22,830/- for AY 2014-15. During scrutiny assessment under Section 143(3), the Assessing Officer noticed the sale of 7,72,000 shares of PFL Infotech Limited for Rs.34,68,10,572/-, resulting in Long Term Capital Gain of Rs.32,90,96,125/-, claimed exempt under Section 10(38). A survey under Section 133A followed market intelligence concerning alleged manipulation and a suspected “pump and dump” operation. The Assessing Officer considered the company’s financial standing, the sharp increase in share price, the assessee’s lack of prior share-trading experience, an undisclosed tip and statements of certain purchasers, and treated the proceeds as unexplained cash credit under Section 68, alternatively as business income under Section 28. The CIT(A) confirmed the assessment.
