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Facts
The Revenue appealed against the order of the CIT(A) deleting an addition made by the Assessing Officer (AO) on account of alleged bogus long-term capital gains from penny stock trading. The AO had added Rs. 1,35,219/- and Rs. 2,704/- based on information that the shares were used for accommodation entries.
Held
The Tribunal held that the appellant had not claimed any long-term capital gains or exempt long-term capital gains under Section 10(38) of the Act. The income from trading in the shares was offered as income by the appellant. Therefore, no addition could be made.
Key Issues
Whether the CIT(A) was correct in deleting the additions made by the AO for alleged bogus LTCG/STCL from penny stock trading when the assessee had not claimed any exempt long term capital gains.
Sections Cited
68, 69E, 253, 10(38)
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Income Tax Appellate Tribunal, Mumbai “J(SMC
Before: Smt. Beena Pillai (JM) & Shri Omkareshwar Chidara (AM)
"Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred In deleting the addition of Rs. 1,35,219/- which has been added by the Assessing Officer u/s 68 of the Act, being traded in penny stock script M/s. Comfort Intech Ltd during the F.Y. 2010-117" 2. "Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition u/s 69C of the L.T. Act of Rs. 2,704/-, being commission paid to entry provider for obtaining of accommodation entries of bogus LTCG/ STCL by trading in penny stock scripts?" 3. "Whether on the facts and circumstances of the case and in law the Ld. CITA) has erred in ignoring the fact that action of Assessing Officerwas based on credible information received from office of Dy. CIT( Central Circle), Unit-3(4), Mumbai that assessee had engaged in trading activities of shares in M/s. Comfort Intech Ltd, which was flagged as a penny stock and allegedly used for accommodation entry purposes in the grab of Long Term Short Term Capital Gain or Loss?" 4. "Whether on the facts and the circumstances of the case and in low the Ld. CIT(A) has erred in ignoring the fact that the assessee has traded in shares of penny stock company M/s. Comfort Intech Ltd, a penny stock company in the disguise of exempt income to reduce taxable income and 2 Nilesh Pranlal Saglani
the transactions carried out were not genuine which was a predetermined move which has a sole aim to bring unaccounted money through bogus LTCG/STCL ?"
"Whether on the facts and the circumstances of the case and in law the Ld. CIT (A) has erred in deleting the addition u/s 68 of the Act of Rs. 1,35,219/ without considering the fact that the Net Worth and the business activity of M/s. Comfort Intech Ltd, a penny stock company, were negligible and the share prices have been artificially rigged by the Exit Operators during the year FY. 2010-11 relevant to AY. 2011-12 to accommodate beneficiaries seeking LTCG.?"
6. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in deleting the additions made of Long-Term Capital Gains of Rs. 1,35,210/- without considering the fact that Assessing Office relying on the report from office of Dy. CIT( Central Circle), Unit -3(4), Mumbai which is credible authority of Income Tax Department and in such transactions the onus is on the assessee to establish the genuineness of the price hike and also has to prove that the price of the share was not manipulated. Reliance is placed on Calcutta High Court decision in the case of Pr.CIT Vs. Swati Bajaj (I.A. No.GA/2/2022 in ITAT No. 6 of 2022 dated 14.06.2022.
7. "Whether on the facts and circumstances of the case and in law the order of the CIT(A) Ignored the direct and circumstantial evidences in view of the decisions in Durga Prasad More(1971) 82 ITR 540(SC) and Sumati Dayal (1995) 80 Taxmann 89(SC)/[1995] 2014 ITR 801(SC) /[1995) 125 CTR 124 (SC), rendered by the Hon'ble Supreme Court, where under it was held that the Court and Tribunal have to judge the evidence before it by applying the test of human probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer?"
8. "The appeal is u/s 253 of the Act being filed before Hon'ble ITAT, this case is covered the exception provided in the CBDT's Circular No. 23/2019 Dated. 06.09.2019, being this case where falls under the clause of Organized Tax Evasion" is noted through bogus LTCG/STCL on penny stock.
The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary?"
The Ld. DR has supported the assessment order by stating that the appellant has indulged in share trading of a penny stock by name M/s. Comfort Intech Ltd. for a total consideration of Rs. 1,35,219/- during A.Y. 2011-12 and hence the Ld. AO made an addition to this extent alongwith the commission paid to entry provider @ 2%. A total addition of Rs. 1,37,923/- was made while completing scrutiny assessment. It was 3 Nilesh Pranlal Saglani stated by Ld. DR that the Ld. AO has received information from the office of Deputy Commissioner of Income Tax, Central Circle that the penny stock M/s. Comfort Intech Ltd. was used to facilitate introduction of unaccounted income as a beneficiary in the form of exempt capital gain and based on this information, the Ld. AO came to the conclusion that the appellant claimed exempt long term capital gains and hence made the addition.
Aggrieved by the addition made by the Ld. AO, the appellant has filed appeal before Ld. CIT(A). The Ld. CIT(A) deleted the addition by stating that the very basis of addition is incorrect as the appellant has not claimed any long term capital gain at all and hence addition could not be sustained. Consequently, the addition made as unaccounted commission for getting accommodation entry was also deleted.
As the Revenue was not satisfied with the order of Ld. CIT(A), an appeal was instituted with the grounds of appeal mentioned in page No. 1 of this order.
5. During the hearing proceedings before the Bench, Ld. DR relied on the assessment order and requested the Bench to sustain the addition by deleting the order of Ld. CIT(A).
Ld. AR of the appellant has vehemently argued that there is no long term capital gain claimed by the appellant in his return of income and hence there is no basis for making any addition and consequently unaccounted commission paid also will have no legs to stand.
After hearing both sides, it is observed that the appellant has not claimed any long term capital gains or exempt long term capital gain under section 10(38) of the Income Tax Act as per return of income filed by him. In fact, there is some positive income while trading in this particular shares of M/s. Comfort Intech Ltd., the same was offered as income while filing return of income. When there is no claim of any exempt income, the same cannot
4 Nilesh Pranlal Saglani be disallowed u/s. 10(38) of the Act and added to the income of the appellant. In view of the above, the order of Ld. CIT(A) is confirmed and addition made by the Ld. AO is deleted.
In the result, Revenue’s appeal is dismissed.
Order pronounced in the open Court on 06/02/2025.