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Facts
The assessee, an individual, declared income including short-term capital gain from the sale of 16000 equity shares of Blazon Marbles Limited. The Assessing Officer (AO) added the total sale consideration as unexplained cash credit, which was confirmed by the CIT(A) as income from other sources.
Held
The Tribunal held that the assessee's transactions were conducted through a registered stock broker on a recognized stock exchange and routed through banking channels, and there was no evidence of direct involvement with promoters. The AO's addition was deleted.
Key Issues
Whether the sale consideration of shares in a penny stock company can be added as unexplained cash credit or income from other sources when the transactions are routed through banking channels and a registered stock exchange.
Sections Cited
143(3), 68, 10(38)
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2014-15 is directed against the order dated 15.10.2024 of Addl/JCIT(A)-6, Kolkata arising out of Assessment Order dated 28.12.2016 passed u/s.143(3) of the Income Tax Act, 1961 ( in short ‘the Act’).
Though the assessee has raised as many as Ten grounds of appeal, sole grievance is that ld.CIT(E) erred in confirming the action of the AO making addition of sale consideration from sale of Equity shares of alleged penny stock company namely Blazon Marbles Limited at Rs.5,50,059/-.
Brief facts of the case are that the assessee is an individual and declared income of Rs.23,57,497/- for A.Y. 2014-15 furnished on 13.09.2014 which was subsequently selected for scrutiny under CASS. In the return of income, assessee has declared income under various heads including short term capital gain of Rs.2,87,979/- from sale of 16000 Equity shares of Blazon Marbles Limited. Since this is the only issue for which the grounds of appeal has been raised, facts relating to same are that the assessee furnished the details before the Assessing Officer about the genuineness of purchase and sale of the Equity shares of the alleged company along with claiming that they have been purchased and sold on registered stock exchange through a registered stock broker and the shares have been routed through banking channel and Demat account. However, ld. AO was not satisfied and he observed that the assessee has dealt in penny stock company and therefore added the total sale consideration of Rs.5,50,059/- u/s.68 of the Act.
4. Aggrieved with the addition made by ld. AO, assessee preferred appeal before ld.CIT(A) but failed to succeed. Ld.CIT(A) placing reliance on the judgment of Hon'ble Calcutta High Court in the case of CIT Vs. Swati Bajaj and others (2022) 446 ITR 56 and also referring to the list of 84 companies alleged to be penny stock issued by SEBI, confirmed the addition under the head “Income from other sources” as against ‘unexplained cash credit’ made by the Assessing Officer.
5. Now the assessee is in appeal before this Tribunal assailing the impugned order passed by ld.CIT(A).
6. Ld. Counsel for the assessee vehemently argued referring to the detailed paper book running into 711 pages and also referring to the documents to prove that the Equity shares of the alleged company are through the registered stock exchange and the shares purchased have been transferred to the Demat account and short term capital gain earned from the said transaction has been offered. He also submitted that in most of the decisions referred by ld.CIT(A) the issue is regarding claim of long term capital gain exemption u/s.10(38) of the Act coupled with the fact that shares are mostly purchased through offline market followed by the amalgamations, split and then issue of bonus shares. He submitted that the case of the assessee is only a short term capital gain. He further referred to the decision of Coordinate Bench, Mumbai in the case of Shri Yogesh P. Thakkar Vs. DCIT – and others order dated 03.02.2023 where also the assessee has entered into the purchase/sale transaction of the Equity shares of Blazon Marbles Limited. Referring to the observation of Hon'ble Jurisdictional High Court in the case of CIT Vs. Shyam S. Pawar reported in 54 taxmann.com 108 (Bom.) and other decisions Coordinate Bench decided the issue in favour of the assessee thereby deleting the addition made by AO u/s.68 of the Act.
7. On the other hand, ld. Departmental Representative along with supporting the order of ld.CIT(A) also referred to the decision of this Tribunal in the case of ITO Vs. Splice Biotech Pvt. Ltd. in order dated 27.09.2023 and that of Abhishek Ashok Lohade in order dated 22.11.2022.
We have heard the rival contentions and perused the record placed before us. The grievance of the assessee is that ld.CIT(A) erred in confirming the action of AO denying the assessee’s claim of genuineness of short term capital gain of Rs.2,87,979/- earned during the year from sale of 16000 Equity shares of Blazon Marbles Limited and further making addition for the total sale consideration from sale of Equity shares. We observe that the assessee is regularly engaged in investment in Equity shares and earned income from short term capital gain/long term capital gain. This fact is supported by the computation of income and ledger account of the stock broker through which assessee is carrying on the transactions. We observe that ld. AO has accepted the assessee’s claim of exemption u/s.10(38) of the Act for the long term capital gain earned during the year from other scrips. The only dispute is regarding the transaction of sale of 16000 Equity shares of Blazon Marbles Limited. We notice that the assessee purchased 16000 Equity shares in two parts; 4000 Equity shares vide contract note dated 18.12.2012 and 12000 Equity shares vide contract note dated 04.03.2013. The purchases has been made through registered share broker from recognised stock exchange platform and the shares have been received in the Demat account of the assessee immediately after the purchase. Page 32 of the paper book is the Demat account statement which confirms this fact. After holding the Equity shares in the Demat account for less than a year, assessee sold 6000 Equity shares on 03.10.2012 and 10000 Equity shares on 07.02.2014 which was again through recognised stock exchange and shares transferred through the Demat account. The consideration received through the stock broker itself and there is no evidence putforth by the Revenue authorities that assessee was having any direct connection with the person purchasing/selling the alleged Equity shares. It is also an admitted fact that when the transactions took place, there was no restriction by the SEBI on the purchase and sale of Equity shares of Blazon Marbles Limited.
Before us, Ld. Counsel for the assessee has also distinguished the decisions referred by ld. Departmental Representative stating that in those two decisions namely Splice Biotech Pvt. Ltd.(supra) and Abhishek Ashok Lohade (supra) firstly, that in their cases the issue was regarding claim of long term capital gain exemption u/s.10(38) of the Act and secondly in the case of Splice Biotech Pvt. Ltd. (supra) the shares were purchases through offline mode by way of preferential allotment where there was a direct connection between the buyer and seller. Both these facts are missing in the assessee’s case and therefore these decisions referred by ld. Departmental Representative are not applicable in the present case. We find merit in the contention of ld. Counsel for the assessee and observe that it is not a case of claiming exemption u/s.10(38) of the Act and in the instant case, assessee has not made purchases through offline mode. We also note that ld.CIT(A) has not confirmed the addition u/s.68 of the Act and treated it as ‘Income from Other sources’. Revenue authorities have failed to controvert the fact that the purchases were made through banking channel and the source of the purchases has not been disputed at any stage and therefore deduction of purchase is allowable against the alleged sale consideration. Considering these facts, we find that assessee’s claim of having earned short term capital gain is genuine and needs to be allowed because the assessee has transacted through registered stock broker, purchased/sold through recognised stock exchange and transactions have been routed through banking channel and lastly there is no finding/investigation by Revenue authorities which could prove that assessee was directly involved with the promoters/entry operators managing the price of Equity shares of alleged penny stock company. We therefore reverse the finding of ld.CIT(A) and delete the impugned addition and allow the grounds of appeal raised by the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced on this 03rd day of June, 2025.