ITAT Chennai Upholds Denial of Section 10(38) Exemption on SRK Industries Shares — Bogus LTCG Claims Treated as Unexplained Cash Credits
Background and Overview
The Income Tax Appellate Tribunal (ITAT), Chennai Bench, adjudicated upon a batch of eight interconnected appeals filed by members of the Agarwal family group, all pertaining to Assessment Year 2014-15. These appeals arose from separate orders passed by the Commissioner of Income Tax (Appeals)-12, Chennai, and were heard collectively since the underlying facts and legal questions were substantially identical across all matters. A single consolidated order was passed disposing of all eight appeals.
The central controversy across these appeals revolved around the denial of exemption claimed under Section 10(38) of the Income-tax Act, 1961 on long-term capital gains (LTCG) purportedly earned through the purchase and sale of equity shares of M/s. SRK Industries Ltd. The Assessing Officer had concluded that these transactions were fictitious in nature and, accordingly, brought the gains to tax as unexplained cash credits under Section 68 of the Income-tax Act, 1961.
Appeals Before the Tribunal
The following eight appeals were clubbed and decided together:
| Appeal No. | Assessee | CIT(A) Order No. | Date |
|---|---|---|---|
| ITA 1413 of 2018 | M/s. Pankaj Agarwal & Sons (HUF) | ITA No.192/CIT(A)-12/2016-17 | 23.02.2018 |
| ITA 1414 of 2018 | Smt. Mamta Agarwal | ITA No.185/CIT(A)-12/2016-17 | 01.03.2018 |
| ITA 1415 of 2018 | M/s. Rajnish Agarwal & Sons (HUF) | ITA No.191/CIT(A)-12/2016-17 | 26.02.2018 |
| ITA 1416 of 2018 | Shri Ramkishan Agarwal | ITA No.194/CIT(A)-12/2016-17 | 27.03.2018 |
| ITA 1417 of 2018 | M/s. R. K. Agarwal & Sons (HUF) | ITA No.190/CIT(A)-12/2016-17 | 26.02.2018 |
| ITA 1418 of 2018 | Smt. Sampatti Agarwal | ITA No.187/CIT(A)-12/2016-17 | 28.02.2018 |
| ITA 1419 of 2018 | Shri Rajnish Agarwal | ITA No.184/CIT(A)-12/2016-17 | 27.02.2018 |
| ITA 1420 of 2018 | Shri Pankaj Kumar Agarwal | ITA No.188/CIT(A)-12/2016-17 | 26.02.2018 |
Grounds of Appeal Argued Before the Tribunal
Although the assessees had raised numerous grounds, the following were specifically pressed during the hearing:
Ground 1 — Denial of Section 10(38) Exemption and Addition Under Section 68
All assessees challenged the confirmation by CIT(A) of the Assessing Officer's action in:
- Treating the purchase and sale of equity shares of M/s. SRK Industries Ltd. as sham transactions
- Rejecting the exemption claimed under
Section 10(38)on LTCG arising from such transactions - Adding the entire amount as unexplained cash credits under
Section 68of the Income-tax Act, 1961
Ground 2(ii) — Incorrect Adoption of Total Income
In ITA No. 1416/Chny/2018 (Shri Ramkishan Agarwal), it was specifically alleged that the Assessing Officer had incorrectly adopted the total income at Rs. 5,95,016/- as against the figure of Rs. 5,25,690/- that was declared in the return of income filed by the assessee.
Ground 2(iii) — Erroneous Computation of Sale Consideration
In three separate appeals, the assessees contended that the Assessing Officer had wrongly computed the aggregate sale value of the shares of M/s. SRK Industries Ltd., as reflected below:
| Assessee / Appeal No. | Actual Sale Value (per assessee) | Value Adopted by AO |
|---|---|---|
| Smt. Sampatti Agarwal — ITA No.1418/Chny/2018 | Rs. 63,46,801 | Rs. 64,71,191 |
| Shri Rajnish Agarwal — ITA No.1419/Chny/2018 | Rs. 63,80,898 | Rs. 66,77,520 |
| Shri Pankaj Kumar Agarwal — ITA No.1420/Chny/2018 | Rs. 62,97,298 | Rs. 63,93,702 |
Ground 2(iv) — Denial of Set-Off of Losses
In ITA No. 1419/Chny/2018 (Shri Rajnish Agarwal), an additional ground was raised challenging the Assessing Officer's refusal to grant set-off of losses amounting to Rs. 6,01,730/- arising from sale of shares while computing total income.
Ground 2(v) — Interest Under Sections 234B and 234C
All assessees also challenged the levy of interest under Section 234B and Section 234C of the Income-tax Act, 1961.