CIT Vs Sohanraj Uttamchand (Madras High Court)
Summary: The Madras High Court dismissed the Revenue’s appeals in T.C.A.Nos.714 and 721 of 2018 and upheld the Tribunal’s deletion of additions of Rs.32.90 crore and Rs.38.05 crore made under Section 68 of the Income-tax Act, 1961 in respect of gains claimed as exempt Long Term Capital Gains under Section 10(38). The Court held that although the Revenue’s investigation could give rise to strong suspicion regarding manipulation in the prices of PFL Infotech Limited and Risa International Limited shares, suspicion, however grave, could not substitute proof.
The Court noted that the shares had been purchased and sold through recognised stock exchanges, Securities Transaction Tax had been paid, sale consideration had been received through banking channels, and there was no positive material establishing that either assessee had paid unaccounted cash to an operator or participated in an arrangement to manipulate share prices.
The Court further held that the Tribunal’s findings of fact could not be interfered with under Section 260A in the absence of perversity. The Supreme Court decisions in CIT v. Durga Prasad More and Sumati Dayal v. CIT, dealing with the test of human probabilities, were distinguished on facts. The Court emphasised that the test of human probabilities does not dispense with the requirement of positive material connecting the assessee with an alleged tax-evasion design.
