ITO Vs Neelam Mor (ITAT Mumbai)
In this case, the Revenue challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had deleted an addition of Rs. 13,57,75,985 made under Section 68 of the Income-tax Act, 1961. The addition related to long-term capital gains (LTCG) claimed as exempt under Section 10(38) on the sale of shares of Pine Animation Pvt. Ltd., which the Assessing Officer (AO) treated as bogus penny stock transactions.
The assessee had acquired shares of Pine Animation Pvt. Ltd. through preferential allotment in March 2013 by investing Rs. 20 lakh through banking channels. The shares were subsequently dematerialized and sold through recognized stock exchanges during the relevant assessment year. On sale of 12,98,500 shares, the assessee earned LTCG of Rs. 13,57,75,985 and claimed exemption under Section 10(38).
The Revenue’s case was based primarily on information received from the Investigation Wing, Delhi, which had identified Pine Animation Pvt. Ltd. as a penny stock company allegedly involved in providing accommodation entries in the form of exempt LTCG. The AO also relied upon an interim order issued by SEBI, wherein certain entities, including the assessee, had been restrained from dealing in securities pending investigation. According to the AO, the substantial increase in the share price lacked commercial justification, indicating that the transactions were arranged to convert unaccounted money into tax-exempt gains. Consequently, the AO treated the sale proceeds as unexplained cash credits under Section 68 and also made an addition under Section 69C towards alleged commission paid for obtaining accommodation entries.
