2023 (10) TMI 1351 - HC - Income Tax

Bogus LTCG - exemption u/s 10 (38) in respect of LTCG rejected - consideration received by assessee was out of the sale of shares effected on a recognized Stock Exchange - shares had been held for a period of more than twelve months and Securities Transaction Tax (STT) had been paid at the time of transfer - Whether Tribunal has rightly accepted the claim of the assessee as per law regarding exemption u/s 10 (38) with respect to alleged income under the head Long Term Capital Gain on sale of shares of penny stock by ignoring the admission by their group before the Income Tax Authority that complete tax would be paid on the bogus LTCG claimed by the group subsequent to survey operation u/s 133A? - HELD THAT - For claiming the benefit of exemption under Section 10(38) of the Income Tax Act 1961 three requirements need to be fulfilled. Firstly the share should be held for more than one year secondly it should be listed and sold on recognized stock exchange and thirdly on the said sale necessary Security Transaction Tax (STT) has to be chargeable. If all these requirements are satisfied then the benefit of exemption u/s 10 (38) of the Income Tax Act 1961 is admissible. A survey u/s 133A was conducted on 20.08.2015 and without detecting any incriminating documents or evidence against the respondent-assessee recorded the statement that tax will be paid on the claim made under Section 10 (38) in filing the IT return for the AY 2013-14 and to be disclosed as income from other source. But the said statement being without any incriminating evidence against the respondent-assessee cannot be ipso facto decided against the respondent-assessee. The present income tax appeal filed at the instance of the revenue involved no substantial question of law as both the appellate authorities have decided on the basis of evidence and documents produced by the respondent-assessee and the revenue and as such on the basis of the facts both the authorities have come to a conclusion that the respondent-assessee is entitled to the benefit u/s 10 (38) and held that the appellant-revenue had failed to bring any evidence in rebuttal nor was it proved that the documents produced were false fabricated or fictitious hence the findings as recorded by the appellate authorities that the transaction of purchase and sale of shares could not be treated as non-genuine were essentially in the realm of appreciation of evidence and as such no substantial question of law is involved. In Vijaya Kumar Talwar 2010 (12) TMI 2 - SUPREME COURT it has been held that in absence of demonstrated perversity in the finding of the Tribunal interference cannot be warranted when on thorough consideration of the material on record it was found that the transaction of purchase and sale of shares could not be treated as non-genuine. It is worthwhile to mention here that the Security Transaction Tax (STT) under Chapter-VII of Finance (No.2) Act 2004 is a direct tax levied by Government of India on every purchase and sale of securities that are listed on the recognized stock exchanges in India. STT was implemented to curb the tax avoidance on capital gains which is similar to Tax Collected at Source (TCS) to be collected by a recognized stock exchange and both the buyer and seller will pay the said tax as prescribed rate for carrying out the transaction of securities for financial gains are liable to pay STT. All gains from such transactions are called capital gains and are classified as LTCG or STCG depending on the holding period. Income Tax Department laid emphasis on the CBDT Circular No.23 of 2019 dated 06.09.2019 as the matter related to bogus Long Term Capital Gain on Penny stock. But the said circular can only be applied prospectively not retrospectively because the present appeal is for the AY 2013-14. Thereby the circular relied upon by the Senior Counsel appearing for the revenue has no application to the present case.

Summary

Issues Involved:
1. Whether the Tribunal rightly accepted the claim of exemption under Section 10(38) for Long Term Capital Gain (LTCG) on sale of shares.
2. Whether the Tribunal rightly dismissed the revenue's appeal based on the sale of shares through a recognized stock exchange and payment of Securities Transaction Tax (STT).

Summary:

Issue 1: Exemption under Section 10(38) for LTCG

The respondent-assessee filed a return for the assessment year 2013-14, claiming exemption under Section 10(38) for LTCG from the sale of shares of CCL International Limited. The case was selected for scrutiny, and the Assessing Officer included Rs.1,61,09,716/- as income from other sources, initiating penalty proceedings. The First Appellate Authority allowed the exemption claim, stating the shares were sold on a recognized stock exchange, held for more than twelve months, and STT was paid. The Income Tax Appellate Tribunal upheld this decision, noting the lack of evidence from the Assessing Officer to rebut the respondent's claim. The Tribunal dismissed the revenue's appeal, confirming the exemption under Section 10(38).

Issue 2: Dismissal of Revenue's Appeal

The revenue argued that the respondent's LTCG claim was a bogus accommodation entry to disguise unaccounted income. The Tribunal found that the revenue failed to provide evidence to support this claim, relying solely on a statement obtained during a survey under Section 133A, which has no evidentiary value. The Tribunal emphasized that the sale of shares was through a recognized stock exchange with STT paid, thus qualifying for the exemption under Section 10(38). The Tribunal dismissed the appeal, noting the absence of incriminating evidence against the respondent and the compliance with legal requirements for the exemption.

Conclusion:

The High Court upheld the Tribunal's decision, stating that the revenue failed to demonstrate any substantial question of law. The Court confirmed that the respondent-assessee met all requirements for the exemption under Section 10(38), and the orders of the appellate authorities were based on proper evidence and legal principles. The appeals were dismissed with no order as to costs.