ITAT Allows LTCG Claim on Sale of Shares Under Section 10(38); Rejects Revenue’s Appeal Alleging Bogus Gains

The assessee, Deepti Agrawal, filed her ITR reporting an income of Rs 2,72,93,110. Her case was reopened by the AO based on the assumptions of jurisdiction. The assessee had claimed exemption on long-term capital gain amounting to Rs 3,73,18,458 under section 10(38) of the Income Tax Act, 1961. The LTCG was earned by the assessee on the sale of shares of Capital Trade Link and Alankit Limited.

The AO alleged that the assessee’s claim under section 10(38) of the Income Tax Act is not genuine. Treating this as bogus capital gain, the AO added the full sale consideration of Rs 3,73,18,458 to the income of the assessee, treating it as unexplained expenditure under section 69C of the Income Tax Act for the alleged cost of arranging accommodation entry by the assessee.

The assessee filed an appeal before the CIT(A), which ruled in her favour. Therefore, the revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT).

The Revenue argued that the company M/s Capital Tradelink Pvt Ltd was under SEBI’s “Additional Surveillance Measure (ASM) Grade 1” when the transaction occurred, and this company’s share had shown an abnormal price hike in a short period. The revenue further argued that the CIT(A) has ignored the SEBI’s Circular No. SMDRP/Policy/CIT-21/99, which had restricted all the negotiated deals, including the cross deals, based on which the shares purchased by the assessee at the price of Rs 1 per share were not a genuine transaction.

The AO argued that the SEBI had flagged the scrips of M/s Capital Tradelinks Ltd to be suspicious. However, the assessee argued that the CIT(A)’s findings are correct and the same scrips were treated as genuine in the case of the assessee’s husband. Further, in the assessee’s own case, the Tribunal had earlier held that the assessee’s claim of LTCG on the sale of shares of Capital Trade Link Ltd was genuine, rejecting the appeal filed by the revenue.

Regarding the claim of shares of Alankit Limited, the CIT(A) has found that the AO had said that this company is a leading e-Governance Service Provider of India, and there is no finding that the assessee has booked the capital gain in collusion with the promoters of the company. The CIT(A) held that the addition cannot be made based on suspicion.

The Tribunal agreed with the decision of CIT(A) and dismissed the appeal filed by the revenue.