HITESH MANGILAL JAIN,MUMBAI vs. ITO 19(1)(5), MUMBAI

Facts

The assessee claimed Long Term Capital Gains (LTCG) from the sale of shares in various companies (Radford Global Ltd, Sunrise Asian Ltd, Pine Animation Ltd, PSIT Infra Ltd) as exempt under section 10(38) of the Income Tax Act for AYs 2014-15 and 2015-16. The Revenue authorities and CIT(A) treated these as unexplained credits under section 68, alleging they were bogus penny stock transactions orchestrated for tax evasion based on an Investigation Wing report. An addition for commission under section 69C was also made by the AO.

Held

The Income Tax Appellate Tribunal (ITAT) found that the assessee had furnished sufficient documentary evidence (contract notes, bank statements, D-mat statements, STT payment) proving the genuineness of the share purchases and sales. The Tribunal emphasized that additions cannot be made solely based on general investigation reports, suspicion, or uncross-examined third-party statements, especially when the AO failed to provide specific material linking the assessee to price rigging. Citing numerous High Court and ITAT precedents, including cases of the assessee's family members with similar facts, the Tribunal held the LTCG to be genuine and eligible for exemption, also deleting the estimated commission addition under section 69C.

Key Issues

1. Whether Long Term Capital Gains from the sale of penny stocks, claimed exempt under Section 10(38), can be treated as unexplained cash credit under Section 68 based on general investigation reports without specific evidence of assessee's involvement in price rigging. 2. Whether an estimated addition for commission on such transactions under Section 69C is justified without a clear basis for estimation.