The Bombay High Court Ruled against treating Capital Gains as Unexplained Cash Credit for Penny Stock Sales.
Facts
The appeal is impugning an order passed by the Income Tax Appellate Tribunal (ITAT) rejecting two appeals that Revenue had filed against the order of Commissioner of Income Tax (Appeals) (CIT[A]) for Assessment Year 2005-06 in the matter of order passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 against Respondent.
It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act.
Decision
The division bench of Justice Firdosh P. Pooniwalla and Justice K.R. Shriram noted that The A.O. did not accept respondent’s claim of long term capital gain and added the same in respondent’s income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL.
The bench observed that the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange.
Case title: Principal Commissioner of Income Tax v/s Indravadan Jain, HUF
Citation: INCOME TAX APPEAL NO. 454 OF 2018
