ITAT Allows LTCG Exemption on Sunrise Asian Shares, Quashes ₹7.41 Crore Addition

Background

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has allowed the appeal of Jayshree Haresh Shah and deleted an addition of ₹7.41 crore made by the Assessing Officer (AO) by treating the assessee’s long-term capital gains (LTCG) from the sale of shares of Sunrise Asian Ltd. as bogus. The Tribunal held that the Revenue failed to produce any concrete evidence linking the assessee to alleged price manipulation or accommodation entry operations. The assessee had purchased 15,000 shares of Conart Traders Ltd. in November 2011 through off-market transactions at ₹20 per share using banking channels. Following the amalgamation of Conart Traders Ltd. with Sunrise Asian Ltd., the assessee received shares of the listed entity. These shares were held for approximately 22 months and later sold on the Bombay Stock Exchange during FY 2013–14 with payment of Securities Transaction Tax (STT). Based on these transactions, the assessee claimed exemption under Section 10(38) of the Income Tax Act on the resulting LTCG. During scrutiny assessment, the AO treated the entire transaction as a penny-stock accommodation entry and denied the exemption, adding the full sale proceeds of ₹7.41 crore to the assessee’s income. The AO primarily relied on investigation reports and general allegations relating to price manipulation in the scrip. The Commissioner of Income Tax (Appeals) upheld the assessment order, prompting the assessee to approach the Tribunal

Findings

The ITAT observed that the assessee had produced all primary documentary evidence, including purchase bills, share certificates, demat account statements, broker confirmations, contract notes, and bank statements reflecting both purchase and sale transactions. None of these documents were found to be false or fabricated by the tax authorities. The Tribunal also noted that the Revenue had not established any nexus between the assessee and alleged entry operators or price-rigging activities. Emphasizing that suspicion cannot replace evidence, the Tribunal held that additions based solely on general investigation reports without specific proof of the assessee’s involvement cannot be sustained. Since the transactions were executed through recognized stock exchanges with proper documentation and payment of STT, the assessee was entitled to exemption under Section 10(38).

Accordingly, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the addition of ₹7.41 crore made on account of alleged bogus LTCG. The appeal of the assessee was therefore allowed.