Tejash Ramesh Shah Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, ruled in favor of the assessee, Tejash Ramesh Shah, holding that share transactions verified through DEMAT statements and banking channels cannot be deemed bogus without substantial proof. The appeal challenged the assessment orders treating long-term capital gains (LTCG) from the sale of Midland Polymers Ltd (MPL) shares as unexplained income under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) based the decision on a generalized investigation report from Kolkata’s Directorate of Income Tax (Investigation), which alleged that certain penny stocks were used for price manipulation and tax evasion. However, the tribunal found that the AO failed to establish a direct link between the assessee’s transactions and such alleged manipulation.
The assessee provided comprehensive documentary evidence, including broker’s notes, bank statements, DEMAT statements, share price movement data, and company annual reports, all of which supported the legitimacy of the transactions. The Securities and Exchange Board of India (SEBI) had not flagged MPL shares for irregularities, and the AO did not produce any concrete evidence contradicting the assessee’s submissions. The ITAT referenced multiple judicial precedents, particularly PCIT vs. Indravadan Jain (HUF) (Bombay High Court, ITA 454/2018) and Shyam R. Pawar (229 Taxman 256, Bombay High Court), which held that if share transactions are conducted through stock exchanges, backed by DEMAT accounts, and settled via banking channels, they cannot be arbitrarily treated as bogus without independent proof.
