ITAT Upholds Rs 2.76 Lakh Addition, Holds Stock Exchange and Banking Records Alone Cannot Prove Genuine LTCG:

The ITAT Ahmedabad has dismissed two appeals filed by Hetal Vinodchandra Sheth for Assessment Year 2014-15, upholding an addition of Rs 2.76 lakh as unexplained cash credit under Section 68 read with Section 115BBE of the Income Tax Act, 1961. The Tribunal also upheld the penalty of Rs 85,370 imposed under Section 271(1)(c) for claiming bogus long-term capital gains as exempt income.

The assessee, a salaried employee, had filed her income tax return (ITR), declaring a total income of Rs 2.74 lakh. She claimed exemption under Section 10(38) on long-term capital gains earned from the sale of shares of Safal Herbs Ltd., formerly known as Parikh Herbals Ltd. The tax department initiated reassessment proceedings after receiving investigation information following a search conducted in September 2018. The investigation allegedly linked the company to penny-stock transactions used to generate bogus capital gains through accommodation entries.

The Assessing Officer treated the claimed capital gains as unexplained cash credit and added Rs 2.76 lakh to the assessee’s income. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), upheld the addition.

Before the Income Tax Appellate Tribunal (ITAT), the assessee argued that the share transactions were genuine and supported by stock exchange records, contract notes, demat statements and banking transactions. She also contended that the assessment relied on third-party statements without providing an effective opportunity to cross-examine the concerned persons. The Revenue maintained that the investigation findings and abnormal share price appreciation established the transactions as accommodation entries.

The ITAT observed that transactions conducted through recognised stock exchanges and banking channels do not automatically establish genuineness. The surrounding circumstances, investigation findings and unusual price movements must also be considered. Finding no sufficient evidence to rebut the investigation findings, the Tribunal upheld the addition and confirmed the penalty of Rs 85,370. Accordingly, both appeals were dismissed.