Penny Stock LTCG Cannot Be Treated as Bogus Without Independent Evidence: ITAT Delhi

Smt. Ritu Jain Vs ACIT (ITAT Delhi)

The appeal before the ITAT Delhi was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16. The dispute concerned additions made under Section 68 of the Income Tax Act, where the Assessing Officer treated long-term capital gains (LTCG) from share transactions as non-genuine. Consequently, the entire sale proceeds amounting to Rs. 6,12,44,000/- were taxed as income under Section 115BBE, along with an additional addition of Rs. 12,24,880/- estimated as 2% commission allegedly paid for arranging bogus LTCG entries.

The case arose from scrutiny of share transactions involving Lifeline Drugs and Pharma Ltd. (LDPL), where the assessee had declared exempt LTCG. The Assessing Officer suspected that the sharp rise in share price was artificially manipulated through entry operators and brokers to generate tax-free gains. Relying heavily on Investigation Wing reports from Kolkata, the Assessing Officer concluded that the assessee was part of a larger arrangement involving rigged share prices and accommodation entries.

The Assessing Officer also questioned the manner of acquisition and sale of shares and referred to general findings on entry operators’ modus operandi. It was alleged that shares were purchased at low prices, artificially inflated, and then sold to convert unaccounted money into exempt LTCG. Based on these observations, the Assessing Officer held that the assessee failed to discharge the burden under Section 68 and made the additions.