Case Law Details
Sarika Bindal Vs ITO (ITAT Delhi)
Introduction: In a pivotal decision by the Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Sarika Bindal vs. Income Tax Officer, it was held that capital gains arising from the sale of shares cannot be regarded as sham profits. This ruling came as a significant relief for taxpayers, especially in the light of additions made under section 69A of the Income Tax Act, 1961, challenging the legitimacy of Long Term Capital Gains (LTCG) on share sales. The tribunal’s order, dated 13.12.2023, delves into the complexities surrounding the treatment of capital gains in the context of alleged accommodation entries and underscores the necessity of substantiating tax evasion claims with concrete evidence.
Detailed Analysis: The crux of the dispute centered around the denial of exemption of LTCG claimed under section 10(38) of the Act and the subsequent additions of Rs.51,41,219/- as LTCG under section 69A, alongside an additional Rs.1,02,824/- for unexplained transaction expenses under section 69C by the Assessing Officer (AO). The AO’s skepticism was primarily fueled by an investigation report from Kolkata, which outlined a general modus operandi for inflating the prices of penny stocks to launder money as exempt income through exaggerated capital gains.
However, the ITAT’s examination of the facts and evidence presented by Sarika Bindal painted a different picture. The tribunal noted that the transactions were supported by documentary evidence, including the demat account transactions and banking channel records, affirming the genuineness of the share purchase and sale. Furthermore, the tribunal highlighted the financial stability and business operations of CCL International Ltd., the company whose shares were transacted, which contradicted the AO’s classification of the company’s shares as penny stocks used for generating sham profits.
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