Genuineness Of Company Is Not Dependent On Magnitude Of Profit: Kolkata ITAT Upholds Disallowance Of LTCG

The Kolkata ITAT confirmed the CIT(A)'s order upholding disallowance of claim of long-term capital gain exemption u/s 10(38) of Income tax Act, 1961 by stating that genuineness of the company is not dependent on the magnitude of profit.

The Member of the ITAT comprising Rajpal Yadav (Vice-President) and Girish Agrawal (Accountant Member) observed that “The assessee might have made investment when the shares of the company were already managed to a particular level and he sold his investment very early, but that small profit is earned by the assessee would not result into automatic genuineness of the transaction. It is an incorrect conception conceptualized by the assessee to segregate himself from the treatment of other such investors. It cannot be accepted as fact to distinguish the judgment of the Hon'ble Jurisdictional High Court, simply for the reason that magnitude of profit is on the lower side to the assessee.” (Para 8)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO has found that the assessee has purchased some shares through the broker and sold them in two parts. For the said shares, the assessee claimed consideration and long-term capital gain as exempt under section 10(38) of the Income Tax Act. The AO disallowed his claim with the reason that stocks were manipulated by the experts for granting undue benefits to certain investors. The CIT(A) also confirmed the said disallowance.

The Coram stated that the very credential of the company where investment was made is unreliable, and the genuineness of an investee company is not dependent on the magnitude of profit earned by an investor.

The Bench clarified that the assessee's investment cannot become genuine simply because he earned a lesser amount of profit.

The Bench further observed at the cost of repetition that magnitude of profit, is not a decisive factor about genuineness of existence of an investee company.

Therefore, on finding no error in the order of CIT(A), the ITAT dismissed the Assessee's appeal.

Counsel for Appellant/ Taxpayer: S.S. Gupta

Counsel for Respondent/ Department: B.K. Singh

Case Title: Brajesh Narnolia verses Income Tax Officer

Case Number: I.T.A. No. 799/KOL/2023

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