Rajasthan HC upheld deletion of Addition of LTCG on Sale of Share of Kappac Pharma

PCIT Vs Shri Arnav Goyal (Rajasthan High Court)

In a significant ruling, the Rajasthan High Court upheld the decision of the Income Tax Appellate Tribunal (ITAT), which deleted the additions made by the Assessing Officer (AO) concerning the capital gains from the sale of shares. The case, titled “Principal Commissioner of Income Tax (PCIT) Vs Shri Arnav Goyal,” revolves around the allegations of bogus long-term capital gains and the associated undisclosed expenditures. The Income Tax Department’s appeal against the ITAT’s decision was dismissed, reaffirming the tribunal’s findings.

Issues Raised:

1. Whether the Tribunal was justified in deleting the addition of Rs.31,70,080/- under Section 68 of the Income Tax Act, pertaining to alleged bogus long term capital gains.
2. Whether the Tribunal was justified in deleting the addition of Rs.63,402/- under Section 69C of the Income Tax Act, related to commission paid for acquiring accommodation entries.
3. Whether the Tribunal was justified in upholding the claim of long term capital gain exemption under Section 10(38) of the IT Act without finding it to be a manipulative or deceptive device.
4. Whether the Tribunal was justified in deleting the addition related to commission paid for acquiring accommodation entries despite the synchronized trading norms being violated.

Facts and Tribunal’s Decision:

• The respondent filed an income tax return declaring an income of Rs. 5,48,200/-. Subsequently, during scrutiny, the AO made additions totaling Rs. 31,70,080/- and Rs. 63,402/- for alleged bogus long term capital gains and commission paid for accommodation entries, respectively.
• The Commissioner of Income Tax (Appeals) upheld these additions, leading to an appeal before the ITAT.
• The ITAT, in its order dated 03.04.2023, considered the evidence presented by the respondent. It noted that the shares were purchased through account payee cheques and sold through a registered share broker via online transactions.
• The Tribunal found that there was no contradicting evidence from the department to challenge the genuineness of the transactions.
• Statements recorded by the department without allowing cross-examination were not considered as evidence in the eyes of the law by the Tribunal.
• The Tribunal concluded that the AO failed to prove that the transactions were accommodation entries or manipulative in nature.
• Based on the evidence presented and the lack of contradictory material from the department, the Tribunal deleted the additions made by the AO.

Court’s Decision:

• The High Court dismissed the appeal filed by the Principal Commissioner of Income Tax (PCIT), upholding the ITAT’s decision.
• It held that no substantial questions of law arose from the Tribunal’s order, as it was based on an appreciation of evidence and lacked any apparent perversity.
• The High Court emphasized that the AO did not substantiate claims of the transactions being bogus or manipulative adequately.

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT