The burden of proof for the genuineness of long-term capital gains claims lies with the assessee, especially in cases involving penny stocks, where mere documentation is insufficient without evidence of legitimacy.

ORDER

PER GAGAN GOYAL, A.M:

This appeal by assessee is directed against the order of NFAC, Delhi dated 27.07.2023 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -

1. Erroneous Disallowance of LTCG Exemption ( Section 10 (38))

The CIT (A) improperly disallowed the Assessee's LTCG exemption despite genuine, well-documented share transactions (supported by contract notes, Demat statements, and bank records) executed on recognized stock exchanges and subject to STT. The Assessing Officer's reliance on generic assumptions and unsubstantiated allegations, rather than concrete evidence, is contrary to established precedents (e.g., Parasmal Bhandari and Reena Kumari ). Hence, the denial of the exemption is legally unsustainable.

2. Violation of Natural Justice by Denying Cross-Examination

The Assessing Officer failed to provide the Assessee an opportunity to cross- examine witnesses or review the material evidence underlying the assessment. By relying on third-party statements and investigation reports without affording a fair hearing, the procedure violated principles of natural justice and relevant provisions under Section 250 (6) of the Income Tax Act. This approach is inconsistent with judicial mandates, as seen in Parasmal Bhandari and Reena Kumari , warranting the deletion of the contested additions.

3. Arbitrary Addition of Fictitious Commission

The addition of Rs. 4, 01,680/- as commission for accommodation entries is unsupported by any documentary evidence or identification of a specific transaction. This presumption-based addition violates the requirements under Sections 37 and 69C, as the burden to prove such expenditure lies with the Revenue. Precedents such as Parasmal Bhandari and Reena Kumari confirm that unsupported presumptions cannot justify such an addition.

Your Assessee reserves the right to add, alter or amend any grounds of appeal on or before the date of hearing of appeal.

2. The brief facts of the case are that the assessee filed her original return of income on 30.03.2016 u/s. 139(4) of the Act declaring total income at Rs. 7,56,610/-. The case of the assessee was selected for complete scrutiny under CASS. It is observed that the assessee has claimed exempt long term capital gain of Rs. 66, 94,676/- on account of subscribing the IPO of M/s. HPC Bio Sciences Ltd. and consequently, sale of the same. Of late, Searches have been conducted by the Investigation Wing of the Department at various places throughout the country.

During the searches & as per the information made public by the SEBI, it is discovered that various syndicates have arranged accommodation entry of bogus LTCG, Bogus STCG, Bogus Long/short term Capital Loss through trading of shares of Penny Stocks. The modus operandi found is that the investors/beneficiaries hold these shares for one year or so and then sale it to one of the shell private limited companies of the operator. These facts were confirmed by the stake holders’ viz. Operators/Syndicate members/Brokers which were providing accommodation entries in statements recorded during action u/s. 133A of the I.T. Act. It has been manifestly accepted by them that such penny stock companies are the conduit for converting untaxed money brought on record by paying no taxes in the garb of exempted income. It is further detected that M/s. HPC BIO SCIENCES LTD. (Scrip Code-535217) is a penny stock listed company. It has very small capital base but its market capitalization is multifold to its capital base. Further, information in respect of trading in penny stock i.e. M