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Facts
The assessee claimed Long Term Capital Gain (LTCG) of Rs. 70,33,182/- on sale of equity shares of Sunrise Asian Ltd., claiming exemption under Section 10(38). The Assessing Officer (AO) treated the entire sale proceeds as unexplained cash credit under Section 68, relying on investigation wing information about penny stock manipulation. The Ld. CIT(A) upheld the addition under Section 68 but deleted an addition made under Section 69C.
Held
The Tribunal noted that the assessee provided evidence of purchase through banking channels, reflected in demat accounts, and sale through a recognized stock exchange with STT payment. The AO's addition was based on general investigation reports about penny stocks, and the CIT(A) had confirmed this without specific evidence linking the assessee to manipulation. The Tribunal found that the burden of proof was not discharged by the revenue.
Key Issues
Whether the LTCG on sale of shares of Sunrise Asian Ltd. is bogus and unexplained cash credit under Section 68, and whether the assessee has discharged the onus of proving the genuineness of transactions when the scrip is alleged to be a penny stock.
Sections Cited
10(38), 68, 69C, 250, 115BBE
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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: DR. B.R.R. KUMAR, VICE-MS. SUCHITRA KAMBLE
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:
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This appeal has been filed by the assessee against the order dated 09.06.2025 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the “Ld. CIT(A)” for short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as the “Act” for short) for Assessment Year 2015-16. 2. The assessee has raised following grounds of appeal :-
“1. Ld. CIT(A), NFAC. Delhi has erred in law and on fact to upheld AO's disallowance u/s 10(38) of the Act for Rs. 70,33,182/- w.r.t. LTCG on EQUITY shares of listed company namely Sunrise Asian LTD (SUNASIAN), only on the basis of presumptions and surmises. He further erred in ignoring the fact that AO has failed to prove the transactions as non-genuine as well as any evidence as bogus or fabricated.
Ld. CIT(A), NFAC, Delhi has erred in law and on fact to upheld AO's addition u/s 68 of the act for Rs. 70,33,182/- on factually incorrect assumption that the appellant has credited her capital account by share sale receipts in F.Y. 2014-15. Rameshkumar Karsanbhai Patel Vs. ITO Asst. Year : 2015-16 - 2–
Ld. CIT(A), NFAC, Delhi has erred in and on fact to upheld AO's action of levy of Income-Tax@ 30% u/s 115BBE of the Act.”
The assessee has also raised following additional grounds of appeal:-
“Ld. CIT(A), NFAC, Delhi has erred in law and on fact to upheld AO's action of levy of income-Tax @ 30% u/s 115 BBE of the Act.”
The brief facts of the case are that the assessee is an individual, filed return of income for AY 2015-16 declaring total income of Rs.6,78,620/-. The case was selected for scrutiny under CASS on the issue of ‘suspicious sale transaction in shares and exempt Long Term Capital Gains (penny stock) shown in return. During the year under consideration, the assessee earned Long Term Capital Gain of Rs.70,33,182/- on sale of 15,000 equity shares of Sunrise Asian Ltd. (SUNASIAN), which was claimed exempt under section 10(38) of the Act. Before the Assessing Officer, the assessee explained that the shares were originally acquired in FY 2011-12 for Rs.3,00,000/- by purchasing shares of Conart Traders Ltd. from Santoshima Tradelinks Ltd. through banking channels. Subsequently, pursuant to a scheme of amalgamation approved by the Hon’ble Bombay High Court, Conart Traders Ltd. merged with Sunrise Asian Ltd., and the assessee received equivalent shares of Sunrise Asian Ltd., which were later credited in the assessee’s demat account. The Assessing Officer, relying upon information received from the Investigation Wing regarding penny stock manipulation, held that the scrip of Sunrise Asian Ltd. was used for generating bogus LTCG entries. The Assessing Officer observed that the price of the scrip had increased abnormally without any commensurate financial performance of the company and that the purchase transaction was an off-market transaction. According to the Assessing Officer, the assessee had failed to substantiate the genuineness of the transaction with complete documentary evidence; therefore, the Assessing Officer treated the entire sale proceeds of Rs.70,33,182/- as unexplained cash Asst. Year : 2015-16 - 3–
credit u/s 68 of the Act. Further, an amount of Rs.35,166/- was added u/s 69C towards the commission paid for obtaining accommodation entries.
Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who confirmed the addition u/s 68 of the Act but deleted the addition made u/s 69C of Rs. 35,166/- of the Act by observing as under:-
“I have considered the submission of the appellant and gone through the AD's observation & decision in assessment order and find that the appellant have claimed to have established the genuineness of transaction [purchase and Sales of shares of M/s Sunrise Asian Limited undoubtedly But I find from the assessment order that the AO has doubted genuineness of said transactions not only in assessment order but also he has established how the price of shares of the penny stock companies are rigged and are raised through circular trading. It is observed that the appellant is unable to file any satisfactory reply to justify the logic behind genuine purchase & sale of the above shares vis-a-vis failed to justify the genuineness of sudden increase and decrease of the prices of the shares. The appellant cannot escape from the burden cast upon him and unfortunately in this case the burden is heavy as the facts establish that the shares which were traded by the appellant had phenomenal and fanciful time in price in a short span of time. Despite availing adequate opportunity the appellant is unable to establish and prove that there was no manipulation in the other end and whatever gains the appellant has reaped was not tainted I find during the course of assessment the Assessing Officer (AO) has culled out proximate facts in each of the case took into consideration the surrounding circumstances which came to light after the investigation assessed the conduct of the appellant by recording statement issuing summon took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion. On this issue Hon'ble High Court of Calcutta has held: [2022] 139 taxmann.com 352 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax Asst. Year : 2015-16 - 4–
INCOME TAX DEPARTMENT Swati Bajaj T.S. SIVAGNANAM AND HIRANMAY BHATTACHARYYA, JJ. IA NO. GA/2/2022 AND OTHERST ITAT/6/2022 & OTHRS JUNE 14 2022 Section 68, read with section 10(38), of the Income-tax Act, 1961- Cash credit (Share dealings) Assessment year 2014-15 Whether if there is information and data available of unreasonable rise in price of shares of penny stock companies over a short period of time of little more than one year, genuinity of such steep rise in prices of shares needs to be established and onus is on assessee to do so as mandated in section 68 Held, yes Assessee made investments in shares of company, 'S' During relevant assessment year, assessee sold said shares and claimed exemption on long term capital gains Assessing Officer received information from Investigation Wing that prices of some shares of penny stock companies which included company, 'S' were artificially rigged to benefit shareholders through bogus claim of LTCG Consequently, notices were issued by Assessing Officer for scrutiny and on analyzing documents submitted by assessee it was observed that assessee purchased shares of 'S' for Rs. 1 lakh and when investments in shares became eligible for LTCG it was sold for Rs. 29 lakhs during period when general market trend was recessive -He thus, opined that shares of 'S' matched all features of companies which were providing bogus LTCG and made additions under section 68 by treating LTCG as unaccounted income- Whether since assessee failed to establish credit worthiness of companies and that rise of price of shares within a short period of time that too when market trend was recessive was genuine, genuineness could not be established merely on basis of documents like bank details, purchase/sell documents and detail of d-mat account Held, yes Asst. Year : 2015-16 - 5–
For all the above reasons, I hold that the alleged transaction is obviously made for tax evasion, therefore, such transactions are not genuine but pre- conceived resulting in creation of bogus claim and, therefore, are sham transactions. Accordingly I find no infirmity in the order of the AO and I am of opinion that AO's decision of invoking provision of section 68 of the I.T. Act is justified in absence of satisfactory explanation on the part of the appellant
Accordingly I hold alleged LTCG for sale of share of M/s Sunrise Asian Limited as bogus and not eligible to exemption u/s 10(38) of the IT Act and the addition of Rs.70,33,182/-by invoking provision of section 68 of the I.T Act stand confirmed. This ground of the appellant is dismissed.
I have considered the submission of the appellant in respect of ground relating to commission paid and gone through the AO's observation & decision in assessment order. I find merit in the contention of the appellant on this ground in as much as the AO is unable either to establish any basis of estimation how he estimated the said 0.5% commission and not 5% or 6 оr 10% commission of unexplained expenditure for the said transaction or the AO is unable to bring any cogent materials of 0.5% expenditure incurred by the appellant before invoking provision of section 69C of the I.T. Act. Accordingly the estimated addition made of Rs.35,166/-[0.5% of 70,33,182/-] by the AC invoking provision of section 69C of the I.T Act stand deleted. Thus this ground is allowed.”
Aggrieved by the order of the Ld. CIT(A) confirming the addition u/s 68 of the Act, the assessee is now in appeal before the Tribunal. Before us, the Ld. AR submitted that the Assessing Officer relied only on 7. general investigation reports without bringing any direct evidence linking the assessee with the alleged accommodation entry operators. The Ld. AR also contended that no opportunity of cross-examination was provided in this case. The Ld. AR further contended that :- Asst. Year : 2015-16 - 6–
iv. All documentary evidences such as contract notes, demat statements, and bank statements were furnished before the Revenue Authorities.
The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that the scrip involved was penny stock used for providing bogus LTCG entries and the price movement of the scrip was abnormal. He also argued that the assessee has failed to produce complete evidence of purchase and transfer of shares and, therefore, the addition u/s 68 was rightly made in this case.
We have heard the rival contentions and perused the material available on record. The genesis of the case is as under:-
1 The shares of the company “SUNRISE ASIAN LIMITED” were listed 06.08.2001. Sunrise Asian Limited was registered at