Farrah Marker Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai addressed the appeal filed by Farrah Marker against the order of the CIT(A) which upheld the Assessing Officer’s (AO) addition of ₹95,12,812 under Section 68 of the Income Tax Act, 1961. This addition was made by treating the sale proceeds of shares of Shukun Constructions Ltd. as unexplained cash credit. The AO had concluded that the long-term capital gain (LTCG) claimed by the assessee on the sale of these shares was not genuine, suspecting a backdated purchase to generate artificial gain, labeling the shares as penny stock. The AO’s assessment was primarily based on the movement of the stock price and a statement recorded from a third party, Shri Niraj Sanghvi, without providing the assessee an opportunity for cross-examination.
The assessee, during the assessment proceedings, had furnished substantial documentary evidence to support the genuineness of the share purchase and sale transactions. This included broker contract notes for purchase and sale, physical share certificates, dematerialization statements showing the shares held in her name before sale, Bombay Stock Exchange (BSE) transaction details confirming the sale at the prevailing market rate, and bank statements showing receipt of sale proceeds through regular banking channels after deduction of Securities Transaction Tax (STT). The assessee argued that she had duly disclosed the purchase of these shares in her audited balance sheet for the relevant earlier assessment year, which was accepted by the department. The ITAT noted that the AO’s conclusion of a backdated and arranged transaction seemed to be based on presumption and suspicion rather than concrete evidence, especially since no action was taken to reopen the assessment for the year of purchase.
The Tribunal found merit in the assessee’s arguments, observing that the AO had not conducted a proper investigation to disprove the evidence provided. The statement of Shri Niraj Sanghvi, relied upon by the AO, was deemed to have no evidentiary value as he was not involved in the purchase, the statement was recorded on the day of assessment order without allowing cross-examination, and no statement was taken from the seller of the shares. The ITAT also noted the absence of any adverse findings by SEBI or BSE regarding price manipulation of the said shares. Considering the documentary evidence establishing the identity of the transacting parties, the source of funds, and the genuineness of the sale through a registered broker and the BSE, the ITAT concluded that the assessee had discharged her onus under Section 68. Consequently, the Tribunal allowed the assessee’s appeal, directing the AO to delete the addition of ₹95,12,812 and accept the LTCG claim as exempt under Section 10(38) of the Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
