The appeal before the Income Tax Appellate Tribunal, Mumbai Bench “C”, was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16, wherein the validity of reassessment proceedings and disallowance of exemption claimed under Section 10(38) of the Income Tax Act, 1961 were upheld.

The assessee had originally filed his return declaring total income of ₹10,06,180 and claimed exemption of ₹1.41 crore on long-term capital gains arising from the sale of shares of Parag Shilpa Investments Ltd. The assessment was reopened based on information received from the Principal Commissioner of Income Tax alleging that the assessee was a beneficiary of bogus long-term capital gains through penny stock transactions in the scrip of Global Cap.

Pursuant to the judgment of the Supreme Court in Union of India v. Ashish Aggarwal, the notice issued under Section 148 was treated as a deemed notice under Section 148A. Reassessment proceedings were thereafter conducted. However, no addition was ultimately made in respect of the alleged transaction in Global Cap, which formed the sole basis of reopening.

Instead, the Assessing Officer proceeded to disallow the exemption claimed under Section 10(38) in respect of shares of Parag Shilpa Investments Ltd., on the ground that the assessee failed to substantiate the date of acquisition and holding period exceeding twelve months. The exemption was denied primarily due to discrepancies between the date of allotment of shares to the transferor and the claimed date of purchase by the assessee, coupled with non-furnishing of the DEMAT account.

On appeal, the Tribunal held that once reassessment proceedings are initiated on specific recorded reasons, and no addition is made on those reasons, the Assessing Officer cannot make additions on unrelated issues. Relying on the binding precedent of the Bombay High Court in CIT v. Jet Airways (I) Ltd., the Tribunal held that such reassessment proceedings are invalid in law.

Independently, on merits, the Tribunal observed that the Assessing Officer had doubted only the date of acquisition and not the genuineness of the transaction, sale through a recognised stock exchange, or payment of Securities Transaction Tax. The share certificates on record clearly evidenced transfer in favour of the assessee on 22.11.2013. Even on a conservative basis, the holding period exceeded twelve months prior to sale in February–March 2015.

The Tribunal further held that mere suspicion regarding timing of acquisition cannot override documentary evidence, especially when statutory conditions for long-term capital gain exemption are satisfied. Reliance was placed on judicial precedents including CIT v. Jamna Devi Aggarwal and PCIT v. Prem Pal Gandhi.

Accordingly, the Tribunal allowed the appeal of the assessee, holding that the reassessment itself was invalid and that, even otherwise, the assessee was entitled to exemption under Section 10(38).

SOURCE LINK:  https://itat.gov.in/public/files/upload/1767671268-mmmfXm-1-TO.pdf

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