Case Law Details
Income Tax Department Vs Gopal Tayal (Madhya Pradesh High Court)
In a significant ruling, the Madhya Pradesh High Court dismissed the appeal filed by the Income Tax Department against Gopal Tayal. The case revolved around the alleged bogus Long Term Capital Gains (LTCG) claim linked to a penny stock company, M/s Life Line Drugs & Pharma Ltd.
The appeal under scrutiny was filed by the Income Tax Department under Section 260A of the Income Tax Act, 1961. The department contested the Income Tax Appellate Tribunal (ITAT) Indore Bench’s decision to delete an addition of Rs. 17,78,822 made by the Assessing Officer (AO), which had been previously confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].
The crux of the department’s argument was based on the findings of the Investigation Wing, which identified M/s Life Line Drugs & Pharma Ltd. as a bogus penny stock company. The company was allegedly used to claim fraudulent LTCG exemptions under Section 10(38) of the Income Tax Act, 1961. The department argued that the ITAT ignored substantial evidence indicating the company’s fraudulent activities and the unnatural increase in its stock prices, which lacked any substantial business foundation or profit-earning capability.
The High Court referred to the main case, ITA No. 56 of 2021, and reiterated its previous dismissal of similar appeals filed by the revenue on April 30, 2024. The court emphasized the consistency of its judgments, applying the same rationale to the present case. The High Court found no merit in the department’s appeal, upholding the ITAT’s decision to delete the addition.
The court also referenced the Supreme Court judgment in Sumati Dayal vs. CIT (1995) 80 Taxman 89 (SC), which dealt with the principles of human probabilities in assessing the credibility of transactions. However, the High Court concluded that the ITAT had adequately considered these principles and found no substantial reason to overturn its decision.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
This appeal is filed by the appellant under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’) being aggrieved by the order dated 27.07.2021 passed by the Income Tax Appellate Tribunal (ITAT), Bench Indore in ITA No.246/Ind/2019 for the Assessment Year 2014-15 proposing following substantial question of laws in this appeal:-
1] Whether on facts and circumstances of the case, the ITAT was justified in law in deleting the addition of Rs.17,78,822/- made by AO, which was confirmed by CIT (A), ignoring the findings of Investigation Wing that M/s Life Line Drugs & Pharma Ltd. was clearly established as a bogus penny stock script company which was used for claiming bogus Long Term Capital Gain as exempt U/s 10 (38) of the Income Tax Act, 1961 ?
2] Without prejudice to the above, on facts and within the legal spectrum of the case, the ITAT was justified in not appreciating the spirit and substance of the rest of human probabilities by ignoring the judgment of Sumati Dayal V/s CIT (1995) 80 Taxman 89 (SC) where astronomical increase in price of share and that too without any substantial business activity or profit earning apparatus ?
02. This issue came up for consideration in bunch of appeals, main case is ITA No.56 of 2021 and this Court has dismissed the appeals filed by the revenue vide common order dated 30.04.2024.
03. In view of the aforesaid, the present appeal is dismissed and the order dated 30.04.2024 passed in ITA No.56 of 2021 shall be applicable mutatis mutandis in the facts and circumstances of the present case also.
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