Chirag Tejprakash Dangi Vs ITO (ITAT Mumbai)
Introduction: In the case of Chirag Tejprakash Dangi Vs ITO, ITAT Mumbai, the tribunal examined the treatment of cash credits and long-term capital gains related to the sale of shares. The dispute arose when the Assessing Officer (AO) treated the sale proceeds of shares as cash credits under section 68 of the Income Tax Act, 1961, and disallowed the exemption claimed under section 10(38) of the Act. The AO also estimated commission expenses incurred on procuring alleged bogus long-term capital gains and assessed them under section 69C of the Act.
Detailed Analysis:
1. Background of the Case: The assessee, Chirag Tejprakash Dangi, sold shares of Radford Global Ltd. (earlier known as PS Global Ltd.), Surbhi Chemicals & Investment Ltd., and Pyramid Trading & Finance Ltd. (now known as Mishka Finance & Trading Ltd.). These transactions were claimed as exempt under section 10(38) of the Income Tax Act.
2. AO’s Findings: The AO, relying on a report from the Investigation Wing in Kolkata, concluded that the shares were penny stocks, and their sale proceeds were cash credits. Additionally, the AO estimated commission expenses associated with alleged bogus long-term capital gains.
3. Assessee’s Defense: The assessee contended that the shares were purchased through legitimate channels, dematerialized, and sold via the Bombay Stock Exchange. Payments were made and received through banking channels. The assessee also produced relevant documents to support the transactions’ genuineness.
4. Tribunal’s Decision: The ITAT Mumbai observed that the AO primarily relied on a generalized report from the Investigation Wing without concrete evidence linking the assessee to manipulated transactions. The tribunal noted that the assessee, a Chartered Accountant, maintained proper records and conducted transactions through legitimate channels.
5. Legal Precedents: The tribunal cited several legal precedents, including PCIT v. Ziauddin A Siddique and PCIT v. Indravadan Jain HUF, where the courts emphasized the importance of genuine transactions supported by documentary evidence.
Conclusion: The ITAT Mumbai, in the case of Chirag Tejprakash Dangi Vs ITO, ruled in favor of the assessee, highlighting the importance of genuine transactions supported by proper documentation. The tribunal emphasized that the burden of proof lies with the tax authorities to establish wrongdoing, which was not fulfilled in this case. As a result, the addition of cash credits and estimated commission expenses was deleted. This ruling provides clarity on the treatment of penny stocks and underscores the significance of evidence in tax assessments.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed this appeal challenging the order dated 14.12.2022 passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 20 14-15. The grievance of the assessee is that the learned CIT(A) was not justified in confirming the addition of Rs. 1.51 crores made by the Assessing Officer under section 68 of the I.T. Act, being sale process of shares alleged penny stock companies.
2. Though the assessee has raised a ground challenging the validity of notice issued under section 148 of the I.T. Act, the learned AR did not press the same at the time of hearing. Accordingly, the said ground is dismissed as not pressed.
3. Facts relating to the addition of Rs. 1.51 crores relating to sale value of shares of alleged penny stocks are stated in brief. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has disclosed long term capital gains of Rs. 1.45 crores arising out of sale of shares and claimed the same as exempt under section 10(38) of the Act. The relevant details thereof are tabulated below:-
