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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

Karuna Financial Services (P) Ltd., Kolkata vs. ACIT, C.C-2(1), Kol, Kolkata

In the result, appeal of the assessee is partly allowed

ITA 432/KOL/2023[2014-15]Status: DisposedITAT Kolkata06 Jun 2024AY 2014-15

Bench: Dr. Manish Borad, Hon’Ble & Shri Pradip Kumar Choubey, Hon’Blei.T.A. No. 432/Kol/2023 Assessment Year: 2014-15 Karuna Financial Services Pvt. Ltd. Asstt. Commissioner Of Income C/O Subhash Agarwal & Vs Tax, Central Circle – 2(1), Kolkata Associates, Advocates Siddha Gibson 1, Gibson Lane, Suite 213 2Nd Floor Kolkata - 700069 [Pan : Aacck1654M] अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee By : Shri Siddarth Agarwal, Advocate Revenue By : Shri Nicolash Murud, Addl. Cit D/R सुनवाई क" तारीख/Date Of Hearing : 02/05/2024 घोषणा क" तारीख /Date Of Pronouncement: 06/06/2024 आदेश/O R D E R Per Dr. Manish Borad: The Present Appeal Is Directed At The Instance Of The Assessee Against The Order Of The Learned Commissioner Of Income Tax (Appeals), Kolkata – 20, (Hereinafter The “Ld. Cit(A)”) Dt. 23/03/2023, Passed U/S 250 Of The Income Tax Act, 1961 (“The Act”) For Assessment Year 2014- 15. 2. Brief Facts Of The Case Are That The Assessee Is A Private Limited Company & Is A Member Of Bombay Stock Exchange (Bse) & Furnished Return For Assessment Year 2014-15 On 29/09/2014 Declaring Income Of Rs.1,63,110/-. Subsequent To Validly Serving Of Notice U/S 143(2) & 142(1) Of The Act, Scrutiny Proceedings Carried Out & After

For Appellant: Shri Siddarth Agarwal, AdvocateFor Respondent: Shri Nicolash Murud, Addl. CIT D/R
Section 143(2)Section 14ASection 250Section 37

Ground No. 3 is regarding the addition made on account of the commission of Rs. 1,71,998/- received on alleged transactions of penny stock. We note that the assessee is a stock broker of BSE and had made purchases on behalf of its clients. In the audited financial statement ... alleged that some of the companies, namely, M/s. Welcom Procon Pvt. Ltd. and M/s. Electo Coal Pvt. Ltd., had made transactions in selected penny stock companies through the assessee broker. Based on this observation, certain transactions of purchase and sale of the alleged penny stock companies having been carried

Ketan Harilal Mehta HUF by Its Karta Ketan H Mehta, Mumbai vs. ITO Ward-33(2)(2) Mumbai Presently Juridiction With ITO 42(1)(1) Mumbai, Mumbai

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

ITA 770/MUM/2023[2014-15]Status: DisposedITAT Mumbai03 Jun 2024AY 2014-15

Bench: Shri B R Baskaran & Shri Pavan Kumar Gadaleketan Harilal Mehta Huf Vs. Ito-42(1)(1), (By Its Karta Kautilya Bhavan, Ketanmehta)No.B/1101, Bkc,Bandra(E), Siddhi Vinayak Tower, Mumbai-400051. Opp Phoenix Hospital, Chikuwadi, Mumbai-400092. Pan/Gir No. : Aaehk3266N Appellant .. Respondent Appellant By : Shri. Nishit Gandhi.Ar Respondent By : Shri. P.D. Chougule.Sr.Dr Date Of Hearing 02.04.2024 Date Of Pronouncement 03.06.2024 आदेश / O R D E R Per Pavan Kumar Gadale, Jm: The Appeal Is Filed By The Assessee Against The Order Of The National Faceless Appeal Centre (Nfac)(Cit(A)) Delhi Passed U/Sec 143(3) & U/Sec250 Of The Income Tax Act. The Assessee Has Raised The Following Grounds Of Appeal:

For Appellant: Shri. Nishit Gandhi.ARFor Respondent: Shri. P.D. Chougule.Sr.DR
Section 10(38)Section 68Section 69C

same in the year 2005 for Rs.155.04/- per share. It was A.O.'s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been ... section 10(38) - Assessing officer denied claim and made certain additions into assessee's income on grounds that said gains were earned through bogus penny stock transactions and companies to whom sold shares belonged were bogus in nature Tribunal observing that assessee by submitting records of purchase Ketan Harilal Mehta