ITAT Mumbai Quashes Addition on Alleged Bogus Share Transactions

Tribunal Rules in Favor of Hareshkumar Shah, Validating Long-Term Capital Gains and Dismissing Unsubstantiated Allegations

In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench "E" quashed the additions made by the Assistant Commissioner of Income Tax, Circle-19(1), Mumbai, against Shri Hareshkumar Mafatlal Shah. The tribunal's decision, delivered on December 4, 2025, overturned the previous order that treated Shah's share transactions as bogus and unjustifiably included them as unexplained cash credits under Sections 68 and 69C of the Income Tax Act, 1961.

The case centered around Shah's claim of Long-Term Capital Gains (LTCG) amounting to Rs. 2,41,53,979, which he argued were genuine transactions backed by comprehensive documentary evidence. The Assessing Officer (AO) had previously classified these transactions as non-genuine, further adding Rs. 9,66,159 as commission allegedly paid to entry providers.

Shah's legal representatives, Shri K Gopal and Shri Om Khandalkar, effectively demonstrated that the transactions were conducted through proper channels, including the Bombay Stock Exchange, with all requisite taxes duly paid. They argued that the AO failed to provide any corroborative evidence to support the allegations of bogus transactions. The tribunal emphasized that the burden of proof had shifted to the AO, who did not substantiate the claims with evidence.

The judgment underscored the reliance on judicial precedents, notably referring to the Bombay High Court's decisions in "CIT v. Shyam R Pawar" and "CIT v. Jamnadevi Agarwal," which upheld the validity of genuine transactions supported by documentary evidence. The tribunal found that, given the lack of substantial evidence from the AO, the addition of Rs. 2,88,73,138 was unwarranted.

The tribunal's decision is a relief for taxpayers, reaffirming that genuine share transactions, properly documented and executed through legitimate channels, cannot be disregarded based solely on suspicion or uncorroborated allegations. This ruling highlights the importance of due process and the necessity for tax authorities to provide concrete evidence when challenging taxpayers' claims.

Bottom Line:

Income Tax - Share transaction and claim of Long-Term Capital Gain (LTCG) under Section 10(38) of the Income-tax Act, 1961 - Genuine transactions supported by proper documentary evidence cannot be treated as bogus solely based on suspicions or uncorroborated allegations.

Statutory provision(s): Income Tax Act, 1961 Sections 10(38), 68, 69C, 250

Shri Hareshkumar Mafatlal Shah v. ACIT 19(1), Mumbai, (ITAT)(Mumbai Bench "E") : Law Finder Doc Id # 2819744