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.
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