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“penny stock”

Cash Credits & Unexplained ItemsSection 68Section 681,661 judgments

The decision most relied on for penny stock is Sumati Dayal v. CIT (214 ITR 801), cited in 1,967 judgments on BharatTax.

Leading authorities on penny stock

Sumati Dayal v. CIT
214 ITR 801 · 1995 · Supreme Court
1,967
citing judgments

The Revenue is entitled to look behind the apparent form of a transaction to discover its true nature, applying the test of human probabilities and surrounding circumstances. If transactions defy logic or are unnatural, they can be treated as bogus, even if supported by some documentation, especially in cases of cash credits or unexplained investments.

PCIT v. Swati Bajaj
139 Taxmann.com 352 · 2022 · High Court
443
citing judgments

Tax authorities are entitled to examine surrounding circumstances and apply the test of human probabilities to determine the genuineness of long-term capital gains arising from the sale of manipulated penny stock, even if prima facie documents appear to support the transaction.

CIT v. Shyam R. Pawar
54 Taxmann.com 108 · 2015 · High Court
279
citing judgments

Transactions involving the purchase and sale of shares cannot be considered bogus where the assessee provides documentary evidence, unless the revenue brings substantial evidence on record to reject such proof. This principle is consistently applied in cases concerning claims of bogus long-term capital gains arising from penny stock transactions.

Sanjay Bimalchand Jain v. PCIT-1, Nagpur
89 Taxmann.com 196 · 2018 · High Court
251
citing judgments

The exemption for long-term capital gains on share transactions is unavailable if the assessee fails to discharge the onus of proving the genuineness of gains arising from dubious share transactions designed to convert unaccounted income into tax-exempt capital gains. Courts will uphold an assessment based on the Revenue's evidence of price rigging or penny stock manipulation if the assessee cannot provide cogent evidence for the abnormal rise in share value.

PCIT v. Krishna Devi
126 Taxmann.com 80 · 2021 · High Court
249
citing judgments

The genuineness of share transactions, particularly those generating long-term capital gains, cannot be rejected solely based on general investigation reports, third-party statements, or a mere increase in share price, when the assessee provides comprehensive documentary evidence, without the Revenue bringing substantial evidence to the contrary.

CIT v. Jamnadevi Agarwal
328 ITR 656 · 2010 · High Court
230
citing judgments

When faced with allegations of bogus long-term capital gains from penny stocks, the Assessing Officer must discharge the onus of proving that the assessee's transactions were not genuine. The assessee can rely on the principle of preponderance of probability, and the Revenue must present substantial evidence to establish that the transactions were a colourable device or that the assessee was an entry operator.

ITO, 19(3) (4) Mumbai v. Shamim M Bharwani
69 Taxmann.com 65 · 2016 · Reported
142
citing judgments

Long Term Capital Gains (LTCG) from penny stock transactions are liable to be treated as bogus and added back under Section 68 as unexplained cash credits, especially when evidence suggests the involvement of entry operators providing accommodation entries.

Mukesh R.Marolia v. Addl. CIT
6 SOT 247 · 2006 · ITAT
139
citing judgments

The department must substantiate its allegations of a bogus long term capital gain scheme; if not substantiated, the addition made by the Assessing Officer for purported bogus LTCG derived from the purchase/sale of shares cannot be sustained. An assessee's claim for long term capital gains exemption on share transactions should be allowed where documentation supports the transactions.

Judgments citing penny stock

Manjula H. Vira, Mumbai vs. ACIT 27(2), Mumbai, Navi Mumbai

In the result, the appeal filed by the assessee is allowed

ITA 2923/MUM/2023[2015-2016]Status: HeardITAT Mumbai09 Dec 2024AY 2015-2016

Bench: Justice (Retd.) Shri C.V. Bhadang & Shri B.R. Baskaranassessment Year : 2015-16 Manjula H. Vira, Acit-27(2), 1201, Kailash Palace, Tower No. 6, 4Th Floor, Upashray Lane, Vs. Vashi Railway Station Complex, Ghatkopar (East), Vashi, Mumbai. Navi Mumbai. Pan : Anips5867Q (Appellant) (Respondent) For Assessee : Shri Neelkanth Khandelwal, For Revenue : Shri R.R. Makwana, Sr.Dr Date Of Hearing : 04-12-2024 Date Of Pronouncement : 09-12-2024 O R D E R Per B.R. Baskaran, A.M : The Assesseee Has Filed This Appeal Challenging The Order Dated 04-08-2023 Passed By The Ld.Cit(A)-Nfac, Delhi & It Relates To The Assessment Year (Ay.) 2015-16. The Assessee Is Aggrieved By The Decision Of The Ld.Cit(A) In Confirming The Addition Of Rs.3.28 Crores Relating To Sale Prices Of Shares Added By The Ao U/S 68 Of The Income Tax Act, 1961 („The Act‟) & Also The Addition Of Rs.9,83,123/- Relating To Estimated Commission Expenses Made U/S 69C Of The Act.

For Appellant: Shri Neelkanth KhandelwalFor Respondent: Shri R.R. Makwana, Sr.DR
Section 10(38)Section 131Section 68Section 69C

carried out investigation with regard to the price manipulations and generation of bogus long term capital gains in number of stocks, classified as penny stocks. The AO noticed that the shares of the above said company was also identified as one of the penny stocks. The AO noticed that ... recorded a statement from him. According to the AO, the assessee could not explain as to why she invested in a Kolkatta based penny stock company, even though the assessee is a regular investor, when the fundamentals and financial position of above said company were weak. Accordingly, he took

Amey Pravinbhai Bhahmbhatt, Ahmedabad vs. The ITO, Ward-7(1)(5), Ahmedabad

In the result, the appeal of the assessee is partly allowed

ITA 1587/AHD/2024[2011-12]Status: DisposedITAT Ahmedabad05 Dec 2024AY 2011-12

Bench: Ms. Suchitra Kamble, Judical Member & Shri Narendra Prasad Sinhaआयकर अपील सं./I.T.A. No. 1587/Ahd/2024 ("नधा"रण वष" / Assessment Year : 2011-12) बनाम/ Amey Pravinbhai Ito Brahmbhatt Ward-7(1)(5), Ahmedabad Vs. C/O. Divyang J Shah 201, 2Nd Floor, Devashish Complex, Nr. Regenta Central Antarim Hotel, Off. C. G. Road, Ahmedabad - 380006 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aelpb9923J (Appellant) .. (Respondent) अपीलाथ" ओर से /Appellant By : Shri Divyang Shah, A.R. ""यथ" क" ओर से/Respondent By : Shri Sudhakar Verma, Sr. Dr Date Of Hearing 21/11/2024 Date Of Pronouncement 05/12/2024 O R D E R Per Shri Narendra Prasad Sinha, Am:

For Appellant: Shri Divyang Shah, A.RFor Respondent: Shri Sudhakar Verma, Sr. DR
Section 144Section 147Section 148

Rs.3,87,630/-. Subsequently, an information was received by the AO that the assessee had made share transactions of Rs.49,10,402/- in penny stock scrip, namely M/s. Swarna Sarita ITA No. 1587/Ahd/2024 [Amey Pravinbhai Brahmbhatt Vs. ITO] A.Y. 2011-12 - 2 – Gems Ltd., and that the assessee had obtained ... case was reopened for escapement of income in respect of accommodation entry of Rs.49,10,402/- by entering into transaction in shares of penny stock of M/s. Swarna Sarita Gems Ltd. In the assessment order there is no discussion of alleged accommodation entry of Rs.49,10,402/- taken