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Facts
The assessee was alleged to have engaged in bogus Long Term Capital Gains (LTCG) transactions by trading in shares of a penny stock company, M/s Yamini Investment Company Ltd. (YICL), amounting to Rs. 55,72,491/-. The AO made an addition under Section 68, asserting the transactions were fictitious and part of a scheme by the Dutta & Tyagi Group to provide bogus LTCG. The CIT(A) deleted the addition.
Held
The ITAT confirmed the order of the Ld. CIT(A), noting that the AO failed to pinpoint how the share price was rigged to benefit the assessee and did not provide evidence of a collusive arrangement. The assessee had been invested in YICL for a considerable period since 2011, and no SEBI investigation against YICL or its brokers was indicated. The ITAT emphasized that the allegation against Dutta & Tyagi Group was a starting point, not a conclusion, and found the specific transaction not to be in doubt.
Key Issues
Whether the CIT(A) erred in deleting additions made by the AO under Section 68 for alleged bogus LTCG from penny stock transactions, given the assessee's long-term investment and lack of concrete evidence of collusion or price manipulation by the AO.
Sections Cited
250, 68, 10(38), 132, 147
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Income Tax Appellate Tribunal, DELHI BENCH “B”NEW DELHI
Before: SHRIMAHAVIR SINGH, HON’BLE & SHRISANJAY AWASTHI
सुनवाईक�तारीख/ Date of hearing: 15.12.2025 19.12.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal arises from order dated 15.10.2024, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), passed by Ld. CIT(A)-NFAC, New Delhi. The main point of contention in this matter is that the assessee apparently traded in the shares of a penny stock company in the name and style of M/s Yamini Investment Company Ltd. (hereafter “YICL”). Admittedly, the Ld. AO was in possession of information to the extent that the assessee was the beneficiary of allegedly fictitious transactions through one M/s Dutta & Tyagi Group. The Ld. AO proceeded ahead with this information and thereafter added an amount of Rs.55,72,491/- u/s 68 of the Act, by way of alleged bogus claim of Long Term Capital Gains (LTCG) by the assessee.
1.1 The assessee carried this matter before the Ld. CIT(A) where he could succeed on the basis of a detailed, but largely generic reasoning, after relying on several case laws.
1.2 Aggrieved with this action of Ld. CIT(A) the Revenue has approached the ITAT with the following grounds:
“1. Whether on facts and circumstances of the case, the Ld. CIT(A) erred in deleting the additions of Rs.55,72,491/- made by AO u/s 68 of the Income Tax Act, 1961.
2. Whether on the facts and circumstances of the case, the Ld CIT(A) erred in deleting the additions of Rs.55,72,491/- made by AO on account of bogus sales proceeds of the penny share ignoring the fact that the assessee is one of the beneficiaries of trading in shares of Yamini Investment Company Limited (YICL) which is a penny stock scrip and assessee is not eligible for LTCG exemption under section 10(38) of the Income Tax Act, 1961.
3. Whether on the facts and circumstances of the case ,the Ld CIT(A) erred in ignoring the facts brought on record by the AO, including that YICL had been established to be a manipulated penny stock by Dutta and Tyagi group as a consequence of search u/s 132 of the IT Act carried out in that case, as well as the non- existential fundamentals of YICL combined with humanly- improbable price surges/manipulations in that scrip which was admittedly done to provide bogus LTCG to intended beneficiaries.
4. The appellant reserves right to add, alter or amend ground of appeal on or before the date of disposal of appeal.”
Before us the Ld. DR argued that the assessee had come to the adverse notice of the Department due to a search carried out on the Dutta & Tyagi Group on 16.05.2018. During the course of further enquiries it was found that the scrip of M/s YICL was allegedly use to provide bogus capital gains to interested parties. It was the further submission that the assessee was one of the beneficiaries of M/s Dutta & Tyagi Group and also generating fake LTCG from trading in the shares of M/s YICL. The Ld. DR read out various portions from the order of Ld. AO and pointed out that the balance sheet, etc. of M/s YICL were sub-par.
It was pointed out that the Ld. AO has mentioned on pages 9 & 10 that there was surprising movement in the price of the M/s YICL scrip.
Thereafter, the Ld. DR also pointed out that there is a finding in the Ld. AO’s order that the price movement in the said scrip was not justified on the basis of its weak financials. The Ld. DR assailed the impugned order on the ground that the fact finding done by the Ld. AO had not been controverted effectively.
2.1 Per contra, the Ld. AR argued that the assessee had purchased 20,000 shares of one FIDELO Power & Infrastructure Company on 15.11.2011. The Ld. AR took pains to point out that this purchase of shares was affected through banking channels and thereafter certain bonus shares were allotted to the assessee. Later on this company merged with another company to form M/s YICL. After this amalgamation the assessee got 1,60,000 shares of M/s YICL, out of which 97,000 shares have been sold in the present assessment year (AY 2016- 17). The Ld. AR referred to a paper book and pointed out that the shares allotment letter, bank statement showing payment, and share certificates had been placed before the authorities below. The Ld. AR also placed before us for perusal contract notes pertaining to the shares sold and copy of bank statements indicating the said transaction.
Thereafter, the Ld. AR argued that the Ld. AO has not brought on record any evidence to show that the assessee had a collusive arrangement to earn bogus LTCG. It was also pointed out that the assessee still held 63,000 shares of M/s YICL as investment. In conclusion the Ld. AR relied on several case laws of the Hon’ble Delhi High Court and some orders of the ITAT.
We have carefully considered the rival submissions and have gone through the documents before us. Right at the outset, it deserves to be mentioned that the Ld. AO has given considerable details about the price movement, financials etc. of M/s YICL but has not been able to pin point how the share price was rigged to benefit the assessee. It is worthwhile to remember that the shares are traded on the stock exchange(s), with SEBI as the primary market regulator. It is understood that SEBI has a surveillance mechanism to flag suspicious trading activity. There is nothing before us to indicate any investigation that might have been carried out by SEBI against M/s YICL or even some brokers. Furthermore, considering the peculiar facts of this case, without any sort of generalization regarding any other client of M/s Dutta & Tyagi, it is seen that this assessee has been invested in M/s YICL for a considerable period of time from the year 2011. Furthermore, 63,000 shares of M/s YICL were left with the assessee at the end of this assessment year. Also the Ld. AO has not brought on record anything to show that transaction between the assessee and M/s Dutta & Tyagi were non-genuine. It is also understood that the allegation against M/s Dutta & Tyagi and M/s YICL could be the starting point of investigations and certainly not the conclusion thereof, as has been done by the Ld. AO. We also find that the Ld. CIT(A) has heavily relied on case laws to grant relief and has not conclusively dealt with the factual aspects of the case. However, an analysis of the facts which emanate from the documents before us, it is clear that at least this particular transaction cannot be in doubt.
Accordingly, the action of Ld. CIT(A) is confirmed for the reasons given above.
3.1 At this stage, it may also be relevant to cite the case of CNB Finwiz Ltd. reported in 174 taxmann.com 918 (Del.). The headnotes would support our decision rendered above:
“Section 68, read with section 147 of the Income-tax Act, 1961 - Cash credit (share transactions) Assessment year 2011-12 - Assessee-company was engaged in business of trading in share securities, equity and currency derivatives, mutual funds, etc. - Assessee filed its return of income which was accepted and an assessment order was passed - Subsequently, Assessing Officer issue a reopening notice against assessee on ground that assessee had traded in penny stock company and said transactions were sham transactions done only to create an adjustment or a set off in book of account and same was assessee's own money which was routed through closely held perm stock and assessee had entered into these transactions to evade payment of due taxes - It was note that information provided by Investigation Wing was of a general nature and it was more in nature t flag trading transactions in listed stock of penny stock company as against credible and definite information that all transactions in shares of penny stock company were sham transactions - Further there was no indication that this information was applicable or related in any manner to assessee There was also no indication of range of sharp increase in price or movement of price of shares ( penny stock company during relevant period - Information did not disclose period during which share prices of penny stock company were stated to have widely fluctuated - Further, information clearly furnished no reason for Assessing Officer to believe that assessee's income for relevant assessment year had escaped assessment - Whether, on facts, impugned order and notice were t be set aside - Held, yes [Paras 33, 35, 43 and 44] [In favour of assessee].”
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 19.12.2025