Dharamendra Bhandari (HUF) Vs CIT (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT), Delhi Bench, has overturned an assessment order that denied Long Term Capital Gain (LTCG) exemption under Section 10(38) of the Income-tax Act, 1961, to Dharamendra Bhandari (HUF). The Tribunal’s decision, which also set aside an addition of 3% of the transaction amount as unexplained expenditure, critically examined the Income Tax Department’s reliance on general investigation reports and alleged ‘penny stock’ transactions without concrete evidence linking the assessee to price manipulation.
The Dispute: Exempt Income Under Scrutiny
Dharmendra Bhandari (HUF) had filed its income tax return for Assessment Year 2013-14, declaring a total income of ₹72,71,110/- and exempt income of ₹14,07,66,123/- as LTCG from the sale of equity shares of M/s CCL International Ltd. The assessee had paid Securities Transaction Tax (STT) on these transactions.
The acquisition of the shares involved a sequence of events:
- Shri Dharmendra Bhandari (Individual) initially acquired 1,000,000 equity shares of M/s AAR Infrastructure Ltd. for ₹1 crore in February 2011, paid via account payee cheque.
- These shares were credited to his Demat account in April 2011.
- Following the merger of M/s AAR Infrastructure Ltd. with M/s CCL International Ltd. by a Delhi High Court order in February 2012, Shri Dharmendra Bhandari (Individual) was allotted 2,500,000 shares of M/s CCL International Ltd.
- In October and November 2012, Shri Dharmendra Bhandari (Individual) gifted 1,000,000 shares of M/s CCL International Ltd. to his HUF, which were duly credited to the HUF’s Demat account.
- The HUF subsequently sold these 1,000,000 shares through a registered stock broker (M/s HDFC Securities Ltd.) on the Bombay Stock Exchange (BSE) between October and December 2012, realizing a total consideration of ₹14,47,66,123/-. The holding period of these shares exceeded 20 months.
The assessee provided comprehensive documentation, including bank statements for purchase and sale proceeds, Demat statements showing share credits and debits, gift declarations, and sale contract notes, to substantiate the transactions.
