Minu Gupta Vs ITO (ITAT Kolkata)
The Income Tax Appellate Tribunal (ITAT), Kolkata, has ruled in favor of the assessee, Minu Gupta, allowing her appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]. The tribunal set aside the addition of ₹46,83,790 to Gupta’s total income, which the tax authorities had made by disallowing her claim for Long Term Capital Gain (LTCG) exemption on the sale of shares of M/s. NCL Research Ltd.
The case originated during the assessment proceedings for the Assessment Year 2014-15. The Assessing Officer (AO) had observed that Gupta had claimed LTCG amounting to ₹46,83,790 from the sale of shares in M/s. NCL Research & Financial Services Ltd. and M/s. Unno Industries Ltd. This gain was claimed as exempt under Section 10(38) of the Income-tax Act, 1961, as the sale transactions were subject to Security Transaction Tax (STT). However, the AO, relying on information received from the Directorate General of Income Tax (Investigation) [DGIT(Inv.)] regarding tax evasion through bogus LTCG from penny stocks, and noting a significant rise in the prices of these scrips, deemed the transactions to be sham. The AO added back the entire sale consideration to Gupta’s income, treating it as undisclosed income, a decision that was subsequently upheld by the CIT(A).
During the ITAT hearing, the counsel for the assessee argued that Gupta had indeed sold her shares in the aforementioned companies and had provided all necessary supporting documentation, including purchase bills, broker’s contract notes, demat statements, and bank statements, demonstrating that all transactions were conducted through proper banking channels. The counsel also drew the tribunal’s attention to previous decisions by coordinate benches of the ITAT in similar cases, such as Sri Gaurav Pincha Vs. ITO, Prakash Chand Bhutoria Vs. ITO, and Navneet Agarwal Vs. ITO, where the tribunal had upheld the assessee’s claim of LTCG under similar circumstances. These precedents emphasized that when transactions are supported by documentary evidence and conducted through recognized stock exchanges, they cannot be simply dismissed as bogus based on suspicion or general investigation reports without specific evidence against the assessee.
The Departmental Representative (DR), however, strongly supported the orders of the lower authorities, citing the Supreme Court’s decision in SEBI Vs. Rakhi Trading Pvt. Ltd. The DR argued that this judgment restored penalties levied by SEBI on traders involved in fraudulent and unfair trade practices, suggesting that Gupta’s transactions should also be viewed with suspicion and disallowed. However, the ITAT carefully distinguished the Rakhi Trading case, noting that the Supreme Court’s decision penalized traders who were found to be actively involved in synchronized trading and trade reversals, indicating an intention to manipulate the market and exclude other investors. The tribunal observed that in the present case, the AO had not brought forth any evidence to show that Gupta or her broker had engaged in any such manipulative practices or intended to artificially inflate or depress the prices of the shares.
The ITAT, after considering the arguments and the evidence presented, sided with the assessee. The tribunal noted that Gupta had provided substantial documentary evidence to support the genuineness of the share transactions, and the AO had not found any specific flaws or discrepancies in these documents. The transactions were carried out through a registered broker on the Bombay Stock Exchange, the shares were held in a demat account, and the payments were made through banking channels. The tribunal emphasized that unless the AO could prove that these documents were false or fabricated, a general report from the investigation wing, without any specific findings against the assessee, could not be the sole basis for rejecting the LTCG claim.
The ITAT also highlighted the importance of providing an opportunity for cross-examination when adverse material collected from third parties is used against an assessee, citing several Supreme Court judgments, including Omar Salav Mohamed Sait Vs. CIT and CIT Vs. Daulat Ram Rawatmull. The tribunal noted that the AO had not presented any specific evidence linking Gupta to any wrongdoing by entry operators or stockbrokers mentioned in the DGIT(Inv.) report, nor was Gupta given an opportunity to cross-examine any individuals whose statements were relied upon. The tribunal reiterated the principle that tax assessments cannot be based on mere suspicion, conjectures, or surmises but require concrete evidence to prove that the apparent transaction is not the real one.
Furthermore, the ITAT relied on the decisions of its coordinate benches in similar cases involving the same scrips, such as Gautam Pincha Vs. ITO and Prakash Chand Bhutoria Vs. ITO, where the tribunal had allowed the LTCG claims after finding that the assessees had provided sufficient documentary evidence and the revenue had failed to bring forth specific adverse material. Following these precedents, the ITAT held that Gupta had discharged her onus of proving the genuineness of the transactions, and the AO’s addition under Section 68 of the Income-tax Act could not be sustained. Consequently, the tribunal allowed Gupta’s appeal and directed the deletion of the ₹46,83,790 addition to her income. The order was pronounced in open court on December 12, 2018.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
