ITAT Quashes Rs. 1.34 Crore Section 68 Addition in Alleged Bogus LTCG Case

ITAT Mumbai deleted the Rs. 1.34 crore addition, holding that the senior citizen assessee proved genuine share transactions with proper documents. Additions were based only on suspicion, without evidence of price manipulation or bogus gains.

The present appeal has been filed by a taxpayer named Sindhumati Ramavtar Patha in the ITAT Mumbai, challenging an order dated May 10, 2024, passed by the CIT(A)/NFAC under section 250 of the Income Tax Act, 1961. The case is related to the assessment year 2015-16.

The assessee is a senior citizen widow. On August 10, 2011, she had purchased 50,000 shares of M/s. Conart Trader’s Ltd. Later, due to the amalgamation of M/s. Conart Trader’s Ltd., with Sunrise Asian Ltd., the assessee received 50,000 shares of Sunrise Asian Ltd. After some years, the assessee sold 27451 shares of Sunrise Asian Ltd. at Rs. 1.34 crore and earned LTCG (Long Term Capital Gain) worth Rs. 1.28 crore and claimed exemption on the same under section 10(38) of the Income Tax Act 1961 in the relevant AY.

During scrutiny, the Assessing Officer (AO) treated the transaction as fake, alleging the assessee had made a pre-planned strategy of converting unaccounted money to tax-free gains. In conclusion, the sale proceeds amounting to Rs. 1.34 crore were made in addition to the assessee’s income as unexplained income under section 68, along with an alleged commission amounting to Rs. 537,817 under section 69C. The aggrieved assessee filed an appeal before CIT(A). The CIT(A) upheld the key addition but deleted the commission amount.

The assessee was still not satisfied with the action of CIT(A) and thereafter filed an appeal before the ITAT Mumbai, challenging the addition of Rs. 1.34 crore upheld by the CIT(A). The tribunal heard the arguments of both sides and noted that the assessee had submitted all the relevant documents, such as purchase records, demat statements, contract notes, bank statements, and proof of payment of STT. Did not find any evidence proving price manipulation or any role of the assessee in fake transactions. Hence, the addition made by the AO and confirmed by the CIT(A) was not justified and is liable to be deleted.

The tribunal cited an earlier tribunal judgement titled Jayesh Sojpar Karnia HUF vs. ITO and another Gujarat High Court judgement titled PCIT vs. Divyaben Prafulchandra Parmar, based on the same issue. All the judgments ultimately deleted identical additions based on identical facts and circumstances.

In the final ruling, the tribunal held that the assessee had discharged her burden of proof and that the additions were based only on suspicion. Therefore, the addition under section 68 was deleted, and the appeal was allowed.