DCIT Vs Suresh Kumar Jain (ITAT Delhi)
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), dated 27.11.2024 for Assessment Year 2014–15.
The assessee had purchased 6000 shares of M/s. Kappac Pharma Ltd. on 27.11.2012 at ₹13 per share for a total consideration of ₹78,000 in physical form. These shares were later transferred to the demat account of the assessee. During February 2014, the assessee sold 4300 shares for a total consideration of ₹29,94,700 and claimed the resulting Long-Term Capital Gain (LTCG) as exempt.
The Assessing Officer reopened the assessment under Section 147 read with Section 144B and disallowed the exemption claimed on LTCG. The addition was made solely on the basis of information received from the Investigation Wing, Kolkata, which classified the shares of M/s. Kappac Pharma Ltd. as penny stock. The Assessing Officer treated the entire LTCG as bogus and added the amount as unexplained money under Section 69A.
In the assessment order, the Assessing Officer elaborated on the general characteristics of penny stock transactions, including price manipulation, role of brokers, and artificial rigging of share prices to reduce tax liability. However, the order did not establish any direct link between the assessee or its broker and such alleged activities. There was no finding that the transactions were premeditated or manipulated.
The assessee challenged the addition before the CIT(A). Upon examining the entire transaction, including purchase and sale of shares, the CIT(A) deleted the addition. The assessee had furnished supporting evidence such as contract notes, demat account statements, and banking transaction details to substantiate the genuineness of the transactions.
Before the Tribunal, the Revenue argued that since the shares were categorized as penny stock, the exemption claim on LTCG should be denied. Reliance was placed on a judgment of the Delhi High Court where similar transactions were treated as bogus.
The Tribunal examined the records and noted that the Assessing Officer’s conclusion was based primarily on general observations regarding penny stock transactions and the investigation report. However, no specific evidence was brought on record to demonstrate the involvement of the assessee in price rigging or manipulation.
The Tribunal further observed that the assessee had discharged the burden of proof by producing documentary evidence, including contract notes, demat statements, and banking details. In contrast, the Revenue failed to provide any material to contradict these findings or establish that the transactions were not genuine.
It was also noted that there was no allegation in the assessment order that the transactions of purchase and sale were arranged or predetermined. The absence of such findings weakened the Revenue’s case.
The Tribunal concluded that the Assessing Officer had not established any nexus between the assessee and the alleged penny stock manipulation. Consequently, the addition made under Section 69A was not sustainable.
Finding no infirmity in the order of the CIT(A), the Tribunal upheld the deletion of the addition and dismissed the appeal filed by the Revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘the CIT(A)) dated 27.11.2024, for AY 2014-15.
2. Narrating facts of the case Shri Mayank Patawari appearing on behalf of the assessee/respondent submits, that during the period relevant to assessment year under appeal, the assessee had sold 4300 shares of M/s. Kappac Pharma Ltd. for a total consideration of Rs.29,94,700/-. The Long-Term Capital Gain (LTCG) on sale of said shares was claimed as exempt by the assessee. The assessee had purchased 6000 shares of M/s. Kappac Pharma Ltd. from Om Swaroop Commodities P. Ltd. @ Rs.13 per share on 27.11.2012 in physical form for a total consideration of Rs.78,000/-. Subsequently, the shares were transferred to De-mat account of the assessee. Thereafter, the assessee sold aforesaid shares on various dates in the month of February 2014 for a total consideration of Rs.29,94,700/-. The Assessing Officer (AO) without examining the transaction merely on the basis of information received from Investigation Wing, Kolkata made addition on the LTCG claimed as exempt by the assessee, as bogus. The only reason for disallowing assessee’s claim of LTCG as exempt is that the shares of M/s. Kappac Pharma Ltd. are classified as penny stock. Against the assessment order dated 29.03.2022 passed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), the assessee filed appeal before the CIT(A). The CIT(A) after examining the entire transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd. deleted the addition. The Id. AR reiterating the submissions made before the CIT(A) and findings of the CIT(A) prayed for dismissing appeal of the Revenue. He further submitted that the Division Bench of the Tribunal in various cases has deleted the additions, where the Department had made addition holding the transaction of sale of shares of M/s. Kappac Pharma Ltd. as bogus. He placed reliance on following decisions to support his submissions:-
i. Anjali Gupta vs. ITO, in ITA No.3605/Del/2019 decided on 27.102025;
ii. Shilpa Khandelwal vs. DCIT, in ITA No. 313/LKW/2023 decided on 24.04.2025; &
iii. Farzad Sheriar Jehani vs. ITO, in ITA No.2065/Mum/2023 decided on 22.12.2023.
3. Per contra, Shri Manoj Kumar representing the department vehemently defending the assessment order submits that the shares of M/s. Kappac Pharma Ltd. are declared penny stock. Since, the assessee has indulged in trading of penny stock, the AO disallowed assessee’s claim of exemption on sale of penny stock. The Id. DR prayed for upholding the assessment order and reversing findings of the CIT(A). The Id. DR submits that the Hon’ble Delhi High Court in the case of Udit Kalra Vs. ITO, in ITA No.220/2019 decided on 08.03.2019 dismissed appeal of the assessee, where the AO, the CIT(A) and the ITAT had consistently held that share of M/s. Kappac Pharma Ltd. is a penny stock and the LTCG on sale of said shares in bogus.
4. Both sides heard, orders of the authorities below examined. A perusal of the assessment order shows that the AO based on the information received from Investigation Wing formed an opinion that the LTCG earned by the assessee on sale of shares of M/s. Kappac Pharma Ltd. is bogus as the shares of said company fall in the category of penny stock. The AO made addition of the entire LTCG claimed by the assessee on sale of shares of M/s. Kappac Pharma Ltd. I find that the AO in the assessment order has given a detailed finding explaining characteristics of a penny stock, role of share brokers, financial analyses of company, role of operator, role of promoter of penny stock companies in artificial rigging of penny stock shares prices and the manner in which penny stock is traded. The AO further explained as to how the penny stocks are used as artificial mode of reducing tax liability. However, in the entire assessment order, the AO has not established the nexus of assessee or the broker of the assessee in price rigging of the shares or the role of assessee or its broker in alleged penny stock scam resulting in artificial booking of bogus LTCG. The AO after having recorded the fact of assessee having sold shares of M/s. Kappac Pharma Ltd. and having earned LTCG on sale of said shares referred to the investigation report from Investigation Wing, Kolkata explaining modus operandi of trading in penny stock and role of share brokers, etc. The AO in the penultimate paragraph of the order concludes that the amount realized from the sale of shares of M/s. Kappac Pharma Ltd. is unexplained money u/s.69A of the Act and made addition of the same. There is no whisper in the assessment order alleging the transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd. by the assessee was in any manner fixed or premeditated. The assessee is order to discharge its onus in proving genuineness of transaction had furnished contract notes, demat statement and details of banking transactions. Hence, the AO has failed to establish that the transaction of sale of shares by the assessee is bogus. No controverting material is brought on record by the Revenue to dislodge findings of the First Appellate Authority. I find no infirmity in findings of the CIT(A) in deleting the addition.
5. In the result, impugned order is upheld and appeal of the Revenue is dismissed.
Order pronounced in the open court on Wednesday the 08th day of April, 2026.
