ITAT Mumbai Rejects Suspicion-Driven Additions, Upholds LTCG Exemption In Rutron Shares Case

Background

The Income Tax Appellate Tribunal Mumbai Bench has once again cautioned tax authorities against branding genuine stock market gains as sham transactions merely on the basis of market trends and investigation reports, by allowing long-term capital gains (LTCG) claimed by Raj Sharadkumar Agarwal from the sale of shares of Rutron International Ltd. The Assessing Officer had treated the gains as bogus accommodation entries, relying on factors such as preferential allotment of shares, sharp price appreciation, regulatory suspension of trading by SEBI, and non-responses from purchasers to notices issued under Section 133(6). However, the Tribunal found that the assessee had produced complete documentary evidence establishing the genuineness of the transactions, including share application and allotment documents, demat account statements, contract notes issued by the broker, and corresponding bank entries reflecting receipt of sale proceeds. None of these materials were shown to be false or manipulated.

The Bench underlined that volatility in share prices or regulatory action against a company cannot, by itself, justify treating lawful capital market transactions as colourable devices. Once purchases and sales are routed through recognized stock exchanges and banking channels, the evidentiary burden shifts to the Revenue to prove that unaccounted money was introduced or that the assessee was part of any price-rigging arrangement.

Finding no direct incriminating material linking the assessee to any alleged accommodation entry operation, the Tribunal held that additions under Section 68 were founded on suspicion rather than proof, and accordingly deleted the entire addition along with consequential disallowances.