Facts of the Case

  • The assessee, Smt. Bindu Garg, purchased shares of two companies and later sold them, earning long-term capital gains of ₹39,78,101.
  • The Revenue alleged that the transactions were bogus penny stock transactions based on a report of the Investigation Wing, Kolkata.
  • The Assessing Officer added the amount under Section 68 without conducting independent verification.
  • The ITAT deleted the addition, holding that the AO failed to conduct proper inquiry and merely relied on third-party information.

Issues Involved

  1. Whether long-term capital gains from sale of shares can be treated as unexplained income under Section 68 based solely on an Investigation Wing report.
  2. Whether absence of independent inquiry by the Assessing Officer invalidates the addition.
  3. Whether findings of fact recorded by ITAT can be interfered with by the High Court.

Petitioner’s Arguments (Revenue)

  • The assessee’s transactions were sham penny stock transactions.
  • The Investigation Wing report revealed manipulation in such scrips.
  • The capital gains claimed were accommodation entries and not genuine.

Respondent’s Arguments (Assessee)

  • Shares were purchased and sold through proper banking channels.
  • Transactions were duly recorded in demat accounts.
  • No evidence linked the assessee with any fraudulent activity.
  • No independent inquiry was conducted by the Assessing Officer.

Court’s Findings / Order

  • The High Court upheld the ITAT’s findings and dismissed the Revenue’s appeal.
  • It held that:
    • The Assessing Officer failed to conduct independent inquiry and merely relied on the Investigation Wing report.
    • No corroborative evidence was brought on record to disprove the assessee’s documents.
    • The transactions were carried out through banking channels and demat accounts.
    • The assessee’s name did not appear in SEBI’s list of suspicious entities.
    • Findings of fact recorded by ITAT cannot be interfered with.
  • Accordingly, the appeal of the Revenue was dismissed.

Important Clarifications

  • Mere reliance on Investigation Wing reports is insufficient without independent verification.
  • Section 68 requires proper inquiry and evidence before making additions.
  • Transactions routed through banking and demat channels carry evidentiary value.
  • Findings of fact by ITAT are binding unless shown to be perverse.

Sections Involved

  • Section 68 of the Income Tax Act, 1961
  • Section 142(2) of the Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS08122022ITA5192022_231303.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.