Just a moment...

Report
FeedbackReport
×

By creating an account you can:

Logo TaxTMI
>
Feedback/Report an Error
Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters0/2000
Make Most of Text Search
  1. Put words in double quotes for exact word search, eg: "income tax"
  2. Avoid noise words such as : 'and, of, the, a'
  3. Sort by Relevance to get the most relevant document.
  4. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  5. Text Search
  6. The system will try to fetch results that contains ALL your words.
  7. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  8. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Expand ❯❯
Close ✕
🔎 TMI Notes - Adv. Search
    Act Rules Bills
    Legislative Continuity and Change in Tax Treatment of Specified Articles : SCHEDULE-XIII of the Inco...
    Act Rules Bills
    Statutory Classification of Minerals under Indian Income Tax Law : SCHEDULE-XII of the Income Tax Bi...
    Act Rules Bills
    Modernising Provident, Superannuation, and Gratuity Fund Regulation and Taxation : SCHEDULE-XI of th...
    Act Rules Bills
    Practical Perspectives on Insurance Business Taxation in India : SCHEDULE-XIV of Income Tax Bill, 20...
    Act Rules Bills
    Transitional Powers and Executive Discretion in Indian Tax Statutes : Clause 535 of the Income Tax B...
    Act Rules Bills
    The Jurisprudence of Repeal and Savings in Indian Income Tax Law : Clause 536 of the Income Tax Bill...
    Act Rules Bills
    Legislative Scrutiny of Delegated Legislation in Indian Tax Law : Clause 534 of the Income Tax Bill,...
    Act Rules Bills
    Rule-Making Powers under Indian Income Tax Law : Clause 533 of the Income Tax Bill, 2025 Vs. Section...
    Act Rules Bills
    The Legal Evolution of Tax Exemptions for Union Territories : Clause 531 of the Income Tax Bill, 202...
    Act Rules Bills
    Evolution and Analysis of Interim Tax Charging Provisions : Clause 530 of the Income Tax Bill, 2025 ...
    Act Rules Bills
    Evolution of Executive Scheme-Making Powers in Indian Income Tax Law : Clause 532 of the Income Tax ...
    Act Rules Bills
    Withdrawal of Statutory Approvals under Indian Income Tax Law : Clause 529 of the Income Tax Bill, 2...
    Act Rules Bills
    Legal Perspectives on Condonation of Delay in Income Tax Approvals : Clause 528 of Income Tax Bill, ...
    Act Rules Bills
    Executive Discretion and Tax Incentives in India's Mineral Oil Sector : Clause 527 of the Income Tax...
    Act Rules Bills
    Immunity and Jurisdictional Bar in Tax Administration : Clause 526 of the Income Tax Bill, 2025 Vs. ...
    Act Rules Bills
    Authorisation and Assessment in Multi-Person Search Cases : Clause 525 of the Income Tax Bill, 2025 ...
    Act Rules Bills
    Rebuttable Presumptions in Tax Searches : Clause 524 of the Income Tax Bill, 2025 Vs. Section 292C o...
    Act Rules Bills
    Deeming Service of Notice in Tax Proceedings Under Income Tax Law : Clause 523 of the Income Tax Bil...
    Act Rules Bills
    Technicalities vs. Substantive Justice : Clause 522 of the Income Tax Bill, 2025 Vs. Section 292B of...
    Act Rules Bills
    Exclusion of Probationary Relief for Tax Offenders : Clause 521 of the Income Tax Bill, 2025 Vs. Sec...

Are you sure you want to delete "My most important" ?

NOTE:

Back

All TMI Notes

Showing Results for : Law : All
Reset Filters
Showing
Records
ExpandCollapse
    Back

    All TMI Notes

    Showing Results for : Law : AllReset Filters
    Case ID :

    Long-Term Capital Gains and Unexplained Cash Credits in Stock Transactions: A Legal Perspective

    📋
    Contents
    Acts
    Rules & Regulations
    Plus +
    Summary
    Note

    Note

    Note

    Bookmark

    print

    Print

    Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

    Reported as:

    2023 (7) TMI 1091 - BOMBAY HIGH COURT

    2016 (7) TMI 16 - ITAT MUMBAI

    Introduction

    The case under analysis pertains to an appeal impugning an order passed by the Income Tax Appellate Tribunal (ITAT), concerning the treatment of long-term capital gains and unexplained cash credits under Section 68 of the Income Tax Act 1961 (the Act). This complex matter involves the interpretation of capital gains on share transactions, allegations of accommodation entries, and the application of the provisions of the Income Tax Act.

    Factual Matrix

    The heart of the dispute lies in the sale of shares by the respondent, claimed as long-term capital gains and exempt under the Act. The respondent reported purchasing shares of Ramkrishna Fincap Ltd. (RFL) at a low price in 2003, which were sold in 2005 at a significantly higher price, thus claiming a long-term capital gain. The Assessing Officer (AO), however, treated this gain as an unexplained cash credit under Section 68 of the Act, suspecting the shares to be penny stocks and the gains as accommodation entries facilitated by a broker, Basant Periwal & Co., known for price manipulation. This decision was overturned by the Commissioner of Income Tax (Appeals) (CIT[A]), a stance later upheld by the ITAT and the High Court.

    Legal Issues and Analysis

    1. Treatment of Long-Term Capital Gains: The core legal issue revolves around the treatment of gains from penny stock transactions. The respondent's claim falls under the exemptions provided by the Act for long-term capital gains. The AO's classification of these gains as unexplained cash credits challenges this exemption.

    2. Application of Section 68 of the Act: Section 68 deals with unexplained cash credits. The AO's application of this section suggests a belief that the capital gains declared were not genuine but were merely entries to mask undisclosed income.

    3. Role and Reliability of Broker Conduct: The involvement of Basant Periwal & Co., a broker with a history of price manipulation, adds a layer of suspicion. The AO's view was that the respondent's gains were the result of artificial price inflation, a common tactic in penny stock fraud.

    4. Burden of Proof and Evidentiary Standards: The case also brings into focus the evidentiary standards required to treat a transaction as genuine or as an accommodation entry. The CIT(A) and ITAT found sufficient evidence in the form of bills, bank statements, and contract notes to establish the genuineness of the transactions.

    5. Principle of Natural Justice and Fair Hearing: The respondent’s opportunity to present evidence and the lack of concrete evidence from the AO against the genuineness of the transactions underscore the principles of natural justice and a fair hearing.

    Court's Decision and Reasoning

    The High Court, affirming the ITAT's decision, found no substantial questions of law arising from the appeal. The key findings can be summarized as follows:

    1. Genuineness of Transactions: The transactions were held to be genuine based on the evidence provided, including the manner of purchase and sale of shares, payment through cheque, and adherence to stock exchange protocols.

    2. Lack of AO's Concrete Evidence: The Court noted the absence of concrete evidence from the AO to prove that the transactions were mere accommodation entries.

    3. Precedents and Jurisdictional Consistency: The decision aligns with similar cases where transactions through brokers, even those with questionable practices, were treated as genuine in the absence of direct evidence implicating the taxpayer in the broker's malpractices.

    Conclusion

    The High Court’s decision reinforces the principle that for a transaction to be treated as an unexplained cash credit, there must be concrete and direct evidence against the genuineness of such transaction. Mere suspicion or the broker's tainted history is insufficient. This judgment is a testament to the robust evidentiary standards required in tax proceedings and underscores the importance of a thorough examination of transactions on a case-by-case basis.

     


    Full Text:

    2023 (7) TMI 1091 - BOMBAY HIGH COURT

    2016 (7) TMI 16 - ITAT MUMBAI

    Topics

    ActsIncome Tax