ITAT Provides Relief in Capital Gains Case as Taxman Denies Exemption on Share Transactions

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favor of a taxpayer, deleting additions of approximately Rs 79 lakh related to the sale of shares. The case involved a woman who claimed an exemption on long-term capital gains amounting to Rs 65.41 lakh from her share transactions. The Income Tax Department had initially rejected her claim, leading to an appeal at the ITAT.

Case Background

The taxpayer purchased 60,000 shares of a company between March 3 and March 15, 2011, for Rs 13,52,850 at Rs 22.55 per share. Following a bonus share issuance in a 1:1 ratio, her holdings increased to 1.2 lakh shares. She sold these shares between August 31 and December 24, 2012, for around Rs 77,47,600 through the Bombay Stock Exchange, with all transactions routed via banking channels and subject to securities transaction tax (STT). Despite providing documentation to support her claim for long-term capital gains exemption under Section 10(38) of the Income Tax Act, the assessing officer rejected her exemption claim and treated the sale proceeds as unexplained.

ITAT’s Ruling

The central issue for the ITAT was whether the transactions could be classified as bogus, given that the taxpayer had provided substantial documentation tracing the purchase, holding, and sale of the shares. The tribunal noted that the Income Tax Department had not disproved the authenticity of the documents submitted. Furthermore, there was no evidence linking the woman to any alleged price manipulation or collusion. The ITAT emphasized that the taxpayer’s transactions were legitimate, having been conducted through recognized channels and supported by valid records.

The tribunal’s order, pronounced on September 8, 2026, concluded that the additions made by the Income Tax Department could not be sustained. It deleted the Rs 77,47,600 addition related to the entire sale consideration and the separate Rs 1,54,952 addition for alleged commission expenditure.

Akhil Chandna, Partner and Global People Solutions Leader at Grant Thornton Bharat, noted that the ruling underscores the necessity for the department to provide evidence of a taxpayer’s involvement in any alleged manipulation for claims to be rejected.

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