Background of the Case
The case involved Jayesh Sojpar Karnia HUF, who had filed an appeal against the order passed by the National Faceless Appeal Centre (NFAC) confirming additions made by the Assessing Officer (AO) under Sections 68 and 69C of the Income Tax Act, 1961.
The assessee had purchased 10,000 shares of SantoshimaTradelinks Ltd. in February 2013 through a cheque of ₹2,00,000. After the company merged with Sunrise Asian Ltd., these shares were dematerialized and later sold on the Bombay Stock Exchange in March 2014. The total sale consideration received was ₹25,15,320, resulting in a long-term capital gain (LTCG) of ₹24,04,115, which was claimed as exempt under Section 10(38) of the Act.
However, the AO rejected this claim, citing findings from the Investigation Wing, volatility in share price, and the alleged nature of the shares as “penny stocks.” He treated the sale amount as unexplained cash credit under Section 68 and also added ₹1,00,613 as commission expense under Section 69C.
What Happened at the Tribunal?
Represented by Shri Shashank Mehta, the assessee contested the AO’s conclusion. The defense submitted detailed documentary evidence including:
- Bank statements showing payment for shares and receipt of sale proceeds
- Contract notes and broker documentation
- Share certificates and demat statements
- Allotment letter from Sunrise Asian Ltd. confirming the share transfer due to amalgamation
The Tribunal noted that the assessee had held the shares for nearly 17 months and transacted them through recognized stock exchanges using official banking channels. Importantly, the assessee was not found to have any role in price manipulation, and there was no adverse finding from SEBI or other investigative authorities directly against him.
Precedent and Key Legal Support
The Tribunal also referred to its own recent decision in Rambilas S. Agarwal (ITA No. 3238/M/2023) and the Hon’ble Gujarat High Court’s ruling in PCIT-1 vs DivyabenPrafulchandra Parmar (2024(1) TMI 800). These cases also involved shares of Sunrise Asian Ltd. and held that in the absence of direct evidence of manipulation or fictitious transactions by the assessee, LTCG claims could not be denied merely on assumptions or third-party statements.
Additionally, the Tribunal took note of another relevant decision in Haresh Dilip Vora vs ITO (ITA No. 3646/M/2024), where similar additions were quashed on similar grounds.
Key Observations from the Tribunal
- The assessee had discharged the prima facie onus under Section 68 by furnishing all necessary documents.
- The AO failed to bring any concrete or corroborative evidence linking the assessee to price rigging or any accommodation entry.
- The entire addition was based on conjecture, general reports, and third-party statements, which was insufficient.
- Since the main addition under Section 68 was deleted, the consequential addition under Section 69C for alleged commission was also set aside.
Final Verdict
The Tribunal concluded that:
As the Assessee has been able to discharge his prima-facieonus cast u/s 68 of the Act and the Revenue Department has notrebutted the documents and/or claim of the Assessee by producingany corroborating material concerning directly and thereforerespectfully following the judgment of the Co-ordinate Bench of theTribunal in the aforesaid case and the judgment of the Hon’bleGujarat High Court, wherein the identical scrip was involved, thisCourt is inclined to delete the addition of Rs.25,15,320/- u/s 68 ofthe Act.
As the substantive addition has been deleted and thereforethe addition of Rs. 1,00,613/- being commission @ 4% ofRs.25,15,320/- made on account of commission made u/s 69C ofthe Act also collapsed, consequently, the same is also deleted.
Conclusion
This case sets yet another precedent in favor of taxpayers who have executed genuine, documented share transactions, especially in cases involving stocks flagged by investigation wings without direct evidence. The judgment reinforces that tax authorities must establish a direct nexus with wrongdoing, and cannot rely solely on market trends or unrelated investigation reports.
Have you ever faced a similar notice or disallowance of capital gains? Let us know your thoughts or experiences in the comments.
Citation: Jayesh Sojpar Karnia HUF, Vs Income Tax Officer,ITA No.4034/M/2023Assessment Year: 2014-15
