Mumbai tribunal removes ₹1.93 crore addition after investor produces demat records, bank statements, contract notes and other transaction documents
New Delhi, September 24 (SDNA):
A Mumbai investor who bought shares worth ₹70,000 and later reported a long-term capital gain of nearly ₹1.93 crore has received major relief from the Income Tax Appellate Tribunal (ITAT).
The Income Tax Department had questioned the transactions involving Toyam Industries Ltd, alleging that the shares were part of a penny-stock arrangement used to generate artificial long-term capital gains. The department subsequently treated the reported gain as unexplained income.
The Mumbai Bench of the ITAT has now deleted the addition of ₹1,93,30,395, holding that the investor had produced substantial documentary evidence supporting the purchase and sale of the shares.
Shares bought for ₹70,000
The case relates to Sanjay Kumar Mehta and Assessment Year 2015-16.
According to the case records, Mehta purchased 35,000 shares of Toyam Industries Ltd in April 2013 for ₹70,000. The shares were initially received in physical form.
In August 2014, the investor got the shares converted into dematerialised form through his broker. Between September 2014 and February 2015, he sold the shares on the Bombay Stock Exchange at prices ranging from approximately ₹447 to ₹556 per share.
The transactions generated a substantial gain.
Nearly ₹2.14 crore gain across the portfolio
The sale of shares resulted in a total long-term capital gain of around ₹2.14 crore across Mehta’s portfolio. Of this amount, approximately ₹1.93 crore was attributed to the Toyam Industries shares.
Mehta maintained that the transactions were carried out through recognised market channels. He also stated that Securities Transaction Tax (STT) was paid and that the sale proceeds were transferred through his broker into his bank account.
Why the Income Tax Department questioned the gain
The tax authorities relied on information available through the department’s investigation mechanisms and treated Toyam Industries as one of the stocks suspected of being used in alleged bogus long-term capital gain or short-term capital loss arrangements.
The Assessing Officer also questioned the sharp rise in the company’s share price, pointing to what the department considered weak financial fundamentals.
Based on its assessment, the department invoked Section 68 of the Income Tax Act and treated the reported gain of about ₹1.93 crore as an unexplained cash credit. The addition was subsequently upheld at the first appellate stage.
Investor produces transaction trail before ITAT
When the dispute reached the Mumbai ITAT, Mehta relied on a detailed paper trail to establish that the transactions had actually taken place.
The documents submitted before the tribunal included:
- Share purchase and sale records
- Demat account statements
- Bank statements
- Broker contract notes
- STT-related records
- Other documents connected with the transactions
Mehta also pointed out that he had held the shares for more than one year before selling them, supporting his claim that the gain qualified as long-term capital gains under the applicable rules.
Tribunal finds documentary evidence supporting transactions
The Mumbai ITAT examined the material placed on record and noted that the investor had furnished documentary evidence concerning the purchase, holding and eventual sale of the shares.
The tribunal considered the demat records, bank statements and other supporting documents while examining the department’s allegation that the transaction represented an unexplained credit.
After considering the evidence and circumstances of the case, the ITAT directed that the ₹1,93,30,395 addition made by the Income Tax Department be deleted.
A significant point in the tax dispute
The ruling highlights the importance of documentary evidence in disputes involving share transactions and alleged penny-stock gains. In this particular case, the tribunal’s decision was based on the records and evidence produced before it rather than merely on the substantial increase in the value of the investment.
The case also illustrates how disputes over unusually high returns from small initial investments can move through the tax appeal process when the department questions the genuineness of the underlying transactions.
(SDNA)