ITO Vs Mahaveer Sukhanraj Kawar (ITAT Mumbai)
The case involves three appeals—one filed by the Revenue and two by the assessee—arising from separate orders of the first appellate authority for Assessment Years (AY) 2014–15 and 2015–16. Since the issues involved were substantially similar, the appeals were heard together and disposed of through a common order.
The central issue relates to the denial of exemption under Section 10(38) of the Income Tax Act, 1961, claimed by the assessee on Long Term Capital Gains (LTCG) arising from the sale of shares. An ancillary issue concerns the addition made on account of alleged commission paid for obtaining accommodation entries through such gains.
The assessee, an individual earning income from salary, other sources, and capital gains, had acquired 15,000 shares of a company through preferential allotment at a premium, which later resulted in holding 1,50,000 shares after a stock split. During the relevant assessment years, the assessee sold a portion of these shares on the Bombay Stock Exchange (BSE) through SEBI-registered brokers. The transactions yielded substantial LTCG, which was claimed as exempt under Section 10(38).
During assessment proceedings, the Assessing Officer (AO) relied on a report of the Investigation Wing, Kolkata, which categorized the company’s shares as “penny stock.” The AO noted an abnormal rise in the share price inconsistent with the company’s financials and concluded that the LTCG claimed was not genuine but an accommodation entry. Consequently, the AO denied the exemption, treated the gains as unexplained cash credit under Section 68, and added an amount as commission allegedly paid for arranging such entries.
