The Income Tax Appellate Tribunal, (ITAT) Delhi Bench, on 19 March 2021, in the case titled Shri Tapas Kumar Mallick (Appellant) v. The ACIT (Respondent) has quashed an assessment which was merely based on Interim order from Securities Exchange Board of India (SEBI).
The ITAT Judicial Member Bhavnesh Saini and Accountant Member N.K. Billaiya allowed the appeal and ruled that the order of the SEBI was dated 22 December 2020 whereas the transactions under the said appeal occurred in the financial year 2014-15. It held that restrain after a gap of more than 5 years would do no good to the respondent.
The ITAT stated that "This order has restrained named noticees from accessing security market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for 8 years. This restraint is prospective."
The factual matrix of the case is that the appellant had purchased 40000 equity shares through the Initial Public Offer (IPO) of HPC Bioscience Ltd. on 15 March 2013 and payment was made on 16 March 2013. 39000 equity shares were sold out of 4000, for Rs. 2,10,23,848/- and after deducting the cost of acquisition of Rs. 14 lakhs, the long-term capital gain was declared at Rs. 1,96,23,848/-.
The Assessee claimed exemption of the said long-term capital gain under Section 10(38) of the Income Tax Act, 1961, (IT Act).
The investigation was conducted by the SEBI and the Income Tax Department based on it the Assessing Officer (AO) formed a belief that the share prices of HPC Biosciences Ltd. were rigged by a cartel and discussed the Ad-Interim Order of the SEBI dated 29 June 2015.
The AO concluded that the explanation given by the assessee regarding the source of this capital introduced being share sale transactions, was not satisfactory.
An addition of Rs. 2,10,23,848/- under Section 68 of the IT Act was ordered in the assessment and the assessee was also denied the claim of exemption under Section 10(38) of the IT Act. The Assessee was also aggrieved by the addition of Rs. 14 lakh u/s 69 of the IT Act as an unexplained investment.
An appeal was filed before the Commissioner of Income Tax (Appeals) [CIT(A)] that affirmed the decision of the AO.
The assessee approached the ITAT and it dealt with the issue of whether the assessee has discharged his onus cast upon him by provisions of Section 68 of the IT Act?
The ITAT opined that the AO got carried away by the findings of the SEBI and it did not put independent efforts to conduct a proper inquiry against the assessee.
It stated that the assessee has successfully discharged the onus cast upon him by provisions of Section 68 of the IT Act and it further directed the AO to accept the long-term capital gain declared as such and delete the addition of Rs. 2,10,23,848/-.
It further opined that since the transaction pertained to years 2013-14 and not 2015-16, no addition can be made u/s 69C of the IT Act for the year under consideration. Accordingly, the addition of Rs. 14 lakh is directed to be deleted.