Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(ITAT) 4542

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
S. Rifaur Rahman, Accountant Member, Vimal Kumar, Judicial Member
Jaya Singh – Appellant
Versus
ACIT – Respondent
ITA (Assessment Year: 2015-16)

Advocates:
For the Appellants/Petitioners: P.K.Jain, CA, Akshit Jain, CA
For the Respondents: Harpreet Kaur Hansra, Sr. DR

Long-term capital gains exemption cannot be denied on penny stock transactions based solely on price surge, poor financials, or general investigation reports without specific evidence linking assessee to manipulation.

Headnote:(A) Income Tax Act, 1961 - Section 10(38) - Exemption on long term capital gains from sale of listed shares - Assessment Year 2015-16 - Assessee claimed exemption on gains from purchase through preferential allotment and sale on recognized stock exchange - Assessing Officer treated transactions as bogus penny stock based on investigation reports, financial mismatch, and huge price rise, added gains as unexplained income plus 2% commission - CIT(A) sustained and enhanced disallowance of acquisition cost - Tribunal held that mere huge profit, financials not matching price, investigation reports, and subsequent regulatory actions against company do not prove assessee's involvement in manipulation without specific material linking assessee to dubious activities - Transactions genuine as supported by contract notes, demat statements, banking channels, STT payment - No independent evidence of cash recycling or collusion - Onus discharged under Section 68 - Reliance on human probabilities or suspicion insufficient without cogent material - Exemption allowed. (Paras 13, 14, 16)

(B) Income Tax Assessment - Burden of proof - Assessee discharged initial onus by producing purchase/sale documents, demat records, bank statements - Revenue failed to bring material showing assessee's connivance in entry, price rigging, or exit - General modus operandi reports and third-party statements without confrontation or corroboration inadequate - No opportunity for cross-examination where relied upon - Additions based on conjecture unsustainable. (Paras 10, 13, 14)

Facts of the case:
Assessee filed return declaring income including exempt long term capital gains on shares of listed company purchased in 2012-13 via preferential allotment and sold in 2014 on stock exchange through banking channels. Scrutiny noticed suspicious transactions per CASS; AO relied on investigation wing inputs, company financials, price surge, SEBI actions to treat as bogus, added gains and commission. CIT(A) confirmed and enhanced.

Findings of Court:
Additions deleted; exemption under Section 10(38) allowed; transactions held genuine based on documents and lack of incriminating material against assessee.

Issues: Whether long term capital gains on penny stock transactions can be treated bogus solely on price surge, poor financials, investigation reports without specific evidence against assessee; adequacy of assessee's documentation.

Ratio Decidendi: Astronomical price rise and general reports create suspicion but insufficient without evidence of assessee's involvement in manipulation or cash recycling - Decisions must rest on proof, not probabilities or conjecture - Documents like demat, contract notes, bank statements prove genuineness where no defects found.

Result: Assessee's appeal allowed.

Table of Content
1. assessee claimed ltcg exemption on goldline shares; provided transaction documents. (Para 2 , 3 , 4 , 5)
2. assessee argued genuine transactions via stock exchange, banking channels. (Para 6 , 9 , 10)
3. ao/cit(a) treated ltcg as bogus based on investigation reports, financials. (Para 7 , 8 , 11)
4. tribunal holds no evidence links assessee to manipulation; follows krishna devi. (Para 12 , 13 , 14 , 15 , 16)
5. assessee's appeal allowed. (Para 17)

ORDER

PER S. RIFAUR RAHMAN, A.M.:

The Assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-34, New Delhi [“Ld. CIT(A)”, for short] dated 25.03.2019 for the Assessment Year 2015-16.

2. Brief facts of the case are that the assessee filed its return of income on 28.08.2015 declaring total income of Rs. 79,79,450/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (For short ‘the Act’). Subsequently, the case was selected for scrutiny through CASS. Accordingly, notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In response, the Ld. AR of the assessee attended from time to time and filed the relevant information as called for.

3. During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed exemption u/s 10(38) of the Act to the extent of Rs. 4,62,18,791/- on account of long term capital gains from purchase and sale of shares of M/s. Goldline International Finvest Ltd. and observed that the reasons for scrutiny itself that there were suspicious sale transactions in shares. In order to ascertain the genuineness of the transactions, specific query was made vide order sheet entry dated 05.09.2017, the assessee was asked to give complete details of shares purchased and sold on which capital gains was claimed as exempted. In response, the assessee submitted as under:

“The Shares bought and sold are of a listed company. Gold Line International Finvest Ltd. share is purchased on December 2012 and March 2013 and sold on various dates from May 2014 to September 2014 by cheques as mode of payment made and receipts. The shares are transfer in and out in demat account and the transactions are floated on the floor of BSE (Bombay Stock Exchange) i.e. recognized stock exchange through SEBI & BSE registered broker. Also please appreciate during this period BSE Sensex increased from 18568 as on 28/03/2012 to 27319.85 as on 08/09/2014, which justifying the capital gain.

Gold Line International Finvest Ltd company is listed with BSE with all permission and companies of SEBI, BSE and is being traded on stock exchange till now. Also, the circuit filter's are changed by stock exchange on daily basis. Thus, the stock is under monitor by SEBI, BSE and earlier no actions were taken by SEBI, BSE on this script.

The abstract of share transactions is supported by contract notes for sale and purchase of shares, demat account statement showing transfer in and transfer out of shares. Also, please appreciate.

Further, there are various instances when the shares prices fluctuate a lot Following are the examples of share price increase during the period of two to three years period: -

i) Himachal Futuristic Communications Ltd. as on 20/10/1998 at Rs.26.20/-and as on 13/12/2000 at Rs.1572.60/-.

ii) Motilal Oswal Financial Services Ltd. as on 31/01/2014 at Rs.80.90/- and as on 11/09/2017 at Rs.1293.10/-.

iii) Apollo Tyres Ltd. as on 15/12/2013 at Rs.65.05 and as on 05/12/2016 at Rs.229.75/-."

4. After considering the above submissions, another letter was issued to the assessee vide letter dated 06.10.2017 and called for the detailed queries mentioned in the above letter which had ten queries. In response, the assessee has submitted as under: -

“In reference to the captioned notice and on further requirements by your goodself and under the instructions from our client we have to submit as under.

1) Yes, the assessee has been regular in trading of shares and securities.

2) No, the assessee has not derived an

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2026 Supreme(Online)(ITAT) 4542

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)S. Rifaur Rahman, Accountant Member, Vimal Kumar, Judicial MemberJaya Singh – AppellantVersusACIT – RespondentITA (Assessment Year: 2015-16)

Long-term capital gains exemption cannot be denied on penny stock transactions based solely on price surge, poor financials, or general investigation reports without specific evidence linking assessee to manipulation.

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
S. Rifaur Rahman, Accountant Member, Vimal Kumar, Judicial Member
Jaya Singh – Appellant
Versus
ACIT – Respondent
ITA (Assessment Year: 2015-16)