ITAT Mumbai Grants LTCG Relief To Taxpayer, Rejects Revenue's Claim That Scrip Was Penny Stock

The Mumbai Income Tax Appellate Tribunal (ITAT) has allowed an individual taxpayer's claim for exemption on long-term capital gains arising from the sale of shares after finding that the transactions were genuine and supported by documentary evidence.

It observed that there was nothing on record to establish that the company whose shares were sold was a penny stock. The tribunal also found no material linking the assessee to any alleged accommodation entry operators.

Judicial Member Sandeep Gosain observed that the revenue had not produced material to show that Shree Shaleen Textile Limited was a penny stock company.

Referring to earlier decisions on the same scrip, he further held that no different view could be taken on identical facts.

"Thus, there is nothing on record to suggest that Shree Shaleen Textile Limited was a penny stock company."

The appeal arose after the tax department denied the exemption claimed by Shripal Roopchand Jain on long-term capital gains earned from the sale of shares of Shree Shaleen Textile Limited.

The revenue alleged that the company was a shell entity used for providing accommodation entries. It also relied on statements of alleged entry providers and contended that proceedings had been initiated by SEBI and the BSE against the company.

The tribunal found that the shares had been purchased through account payee cheques and held for the requisite period. They were sold on the BSE after payment of the Securities Transaction Tax, and the sale proceeds were received through banking channels. The shares were also credited to and transferred through the assessee's demat account. These facts, the tribunal held, established the genuineness of the transactions.

The tribunal observed that the Assessing Officer had failed to establish any clear or live link between Shree Shaleen Textile Limited and the alleged entry providers, Sawan Kumar Jajoo and Akash Agarwal.

It also noted that no adverse orders passed by SEBI or the BSE against the company or its promoters had been placed on record. The statements relied upon by the Revenue were found to be of no assistance because the persons concerned were not shown to be associated with the company.

"Thus, clearly, on the admission of a wrongdoer, the legitimate claim of the assessee could not be denied." the tribunal held.

The tribunal also noted that several coordinate benches had already deleted identical additions in cases involving the same scrip. Applying the principles of judicial consistency and binding precedent, it held that there was no reason to depart from those decisions.

Allowing the appeal, the tribunal directed the assessing officer to delete the addition treating the long-term capital gains as unexplained cash credit. It also deleted the consequential addition towards the alleged commission. Since the appeal succeeded on merits, it left the challenge to the reopening of the assessment open as academic.

For Appellant/Assessee (Petitioner): Sanjay Sharma, Chartered Accountant (CA)

For Respondent (Revenue): Pradeep Singh Saktawat, Senior Departmental Representative (Sr. DR)