ITAT UPHOLDS LTCG EXEMPTION FROM PENNY STOCK, DISPLAYING NO DEFICIENCY:
Farzad Sheriar Jehani v. ITO [ITA NO. 2065/MUM/2023 (A.Y. 2014-15)] (ITAT Mumbai)
The assessee, on transfer of 7550 shares of KPL, claimed a tax exemption under Section 10(38) of the Income Tax Act, which allows for long-term capital gains from the sale of shares to be tax-free. The assessee provided several pieces of evidence to support this claim, such as contract notes of the share sales, details of a check from their stockbroker, bank statements showing the sale proceeds and proof that the capital gains were genuine.
The Assessing Officer, however, concluded that the transactions were suspicious and that the assessee’s gains were not genuine. They relied heavily on investigations from the Directorate of Investigation, Kolkata.
The assessee’s authorized representative argued that there were no inconsistencies in the documentation provided. The authorities had not found any concrete evidence linking the assessee to illegal activities like price-rigging. The assessee was just an innocent investor trying to make a profit. The tax authorities had made assumptions without solid evidence. There was proof on file that the company’s finances do not match the asking and selling prices in the market.
Nonetheless, there are no inconsistencies in the documentation submitted by the assessee in support of their claim for deductions under Act 10(38).
The Hon’ble ITAT held that despite the fact that the current case has all the characteristics of a penny stock, the revenue has not yet produced any documentation connecting the assessee to any questionable entrance, price-rigging, or exit provider transactions. The assessee’s role was not even mentioned or referenced in the SEBI report. The assessee was one of the transactions’ beneficiaries because they are a gullible investor who joined the market in the hopes of making quick money. Even the assessing officer made changes without any substantial evidence against the assessee by using the concept of human probabilities and assumptions.
In conclusion, the ITAT ruled in favor of the assessee, allowing the tax exemption on the long-term capital gains from the sale of KPL shares. The decision was based on the lack of concrete evidence against the assessee and the consistency of the documentation provided.
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