PCIT Vs The Hamlet (Karnataka High Court)
In a recent ruling, the Karnataka High Court dismissed an appeal by the Principal Commissioner of Income Tax (PCIT), upholding an Income Tax Appellate Tribunal (ITAT) decision concerning a ₹7 crore share sale. The court affirmed that the transaction was genuine and could not be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The case, PCIT Vs The Hamlet, pertained to the assessment year 2012-2013.
The dispute arose after the assessee, The Hamlet, reported a short-term capital loss from the sale of shares in M/s. Kemwell Biopharma Private Limited to three entities: M/s. Newedge Realtors Private Limited, M/s. Swift Residency Private Limited, and M/s. Rootstar Builders Private Limited. The Assessing Officer (AO) doubted the transaction’s authenticity and added the ₹7 crore received from the sale to the assessee’s income, invoking Section 68, which addresses unexplained cash credits. This decision was initially upheld by the Commissioner of Income Tax (Appeals).
However, the ITAT reversed this finding, ruling that the transaction was genuine. The Revenue subsequently appealed to the High Court, raising three substantial questions of law. The primary arguments put forth by the Revenue’s counsel were that the assessee had failed to prove the identity, creditworthiness, and genuineness of the purchasing entities. The Revenue also argued that the ITAT had improperly relied on additional evidence submitted for the first time without remanding the matter back to the AO for fresh scrutiny.
