By TIOL News Service

JAIPUR, SEPT 26, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether increment in market price of shares at the time of sale in comparison to the purchase, is no reason to doubt genuineness of transaction, when sale price was in confirmity with the prevailing market price. YES IS THE ANSWER.

Facts of the case:

The assessee is a private limited company engaged in manufacturing of nutrition food to be supplied in various Government schemes. For the relevant A.Y, it had filed the return declaring loss of Rs. 4,36,62,802/- and long term capital gain of Rs. 2,65,27,020/- which was claimed as exempt u/s 10(38). This long term capital gain claimed by assessee was arising from sale of 98,000 shares of M/s. Well Pack Papers & Containers Ltd. The AO however disallowed such claim by treating the same as bogus and holding that the assessee had introduced its unaccounted income in the shape of long term capital gain.

On appeal, the CIT(A) though confirmed the action of AO, however, allowed the claim of purchase consideration and sustained the addition to the extent of capital gain instead of full amount of sale proceeds made by the AO.

Tribunal held that,

++ it is clear that the assessee has purchased 2300 shares of M/s. Well Pack Papers & Containers Ltd. @ Rs. 6.37 per share and produced the copy of purchase bill issued by M/s. Arihant Securities & Shares. The total consideration for purchase of shares was paid at Rs. 1,47,839/- which included brokerage, STT etc. The assessee also produced the ledger account showing the transaction of purchase and payment to M/s. Arihant Securities & Shares Ltd. Thereafter the shares were dematerialized and assessee produced the D-mat account reflecting the balance of securities of various companies including 2300 shares of M/s. Well Pack Papers & Containers. It is found that this is not an isolated transaction of purchase & sale of shares by the assessee but there are number of transactions in the D-mat shares of different companies through IPO as well as other transactions. It is also not in dispute that this company M/s. Well Pack Papers & Containers Ltd. was listed in the Stock Exchange and the AO has not disputed the prevailing market price of these shares at the time of purchase as well as at the time of sale. Though there is an increase of many fold in the market price of the shares at the time of sale in comparison to the purchase, however, the said price was not disputed as the prevailing market price at the relevant point of time. Since this company was listed in the Stock Exchange, therefore, there was no hurdle in ascertaining the prevailing market price of the shares at the point of purchase as well as sale. Since the market price and the price at which the assessee purchased the shares and subsequently sold are not in dispute, then merely because there is huge capital gain earned by the assessee on the transaction cannot be a basis for holding the same as bogus transaction;

++ the sales of shares are not in dispute as the same were sold from the d-mat account against the consideration which was received by assessee through banking channel. The dematerialization of shares in the d-mat account is also not in dispute hence the holding of the shares in the dmat account by the assessee prior to the sale as well as the sale transaction are not in dispute. Once holding of the shares prior to the sale and the sale transaction itself are not in dispute, then the same cannot be held as bogus transaction though may be a case of introducing unaccounted income of the assessee for depressing the purchase price of the shares. However, in the absence of any material or the fact to show that the assessee has introduced his own unaccounted money in the name of long term capital gain, the mere suspicion is not enough to deny the claim of assessee. Therefore, addition made by AO by treating the long term capital gain as bogus is not sustainable and accordingly the same is deleted.

(See 2018-TIOL-1636-ITAT-JAIPUR)