Heaven Mahendra Shah Vs ACIT (ITAT Mumbai)
Conclusion: Addition under section 68 for Long-term capital gains (LTCG) from sale of shares allotted pursuant to a demerger scheme as bogus and alleged that price manipulation based on a report from the Investigation Wing of the Income tax Department was not justified as the assessee proved genuineness by comprehensive documentary evidence.
Held: Assessee filed return of income for Assessment Year (AY) 2015-16, claiming exemption on LTCG of Rs. 26,02,806 from sale of shares in Pearl Agriculture Ltd (PAL) and Pearl Electronics Ltd (PEL). These shares were allotted in January 2011 pursuant to a Bombay High Court approved demerger scheme of the Pearl Vision Pvt Ltd, in respect of assessee’s holding of 4,000 shares. AO treated the LTCG as bogus and alleged that price manipulation based on a report from the Investigation Wing of the Income tax Department and added the amount under Section 68 as unexplained cash credit. AO issued notices under Section 133(6) to purchasers, which returned unserved, and denied the assessee cross-verification. Aggrieved by AO’s order, assessee appealed to CIT(A). CIT(A) upheld the addition, relying on judicial precedents like Principal Commissioner of Income tax v. Nand Kishore Agarwala, and held the transactions as sham penny stock dealings intended to claim bogus exempt LTCG. Aggrieved by CIT(A)’s order, assessee appealed to ITAT. Assessee’s counsel argued that the shares were acquired through a legitimate demerger process, and all transactions were conducted on the BSE platform via banking channels. Assessee furnished demat statements, bank statements, sale bills, allotment documents, and client master data from the depository participant and therefore, Revenue’s addition was solely based on the Investigation report without discrediting the assessee’s evidence. It was held that assessee had discharged the primary onus by submitting unchallenged documents proving the genuineness of the demerger and sales. The bench noted that the shares were credited to the demat account, proceeds received through banking channels, and no evidence linked the assessee to price manipulation. The addition under Section 68 was not sustainable, as the demerger followed a legal process, and Revenue failed to bring adverse material on record.
