Case Law Details
Smt. Bhawna Kapoor Vs ACIT (ITAT Delhi)
In this case, the assessee filed her return of income for Assessment Year 2014-15 and claimed exemption under Section 10(38) of the Income Tax Act on long-term capital gains (LTCG) amounting to ₹33,97,009 arising from the sale of shares of M/s Cressanda Solutions Limited. During scrutiny assessment, the Assessing Officer (AO) relied upon information from the Directorate of Investigation, Kolkata, which had identified several listed penny stock companies allegedly used for generating bogus LTCG. The AO treated the assessee as a beneficiary of such transactions and added ₹33,97,009 to her income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition.
The assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT) with a delay of 349 days. The Tribunal condoned the delay after accepting the explanation that it occurred due to lack of knowledge regarding the appellate order and coordination issues with the professional handling the matter. The Tribunal observed that the explanation did not indicate mala fide intent and that the assessee had not gained any benefit by delaying the appeal.
Before the Tribunal, the assessee argued that the LTCG arose from genuine share transactions executed through a recognized stock exchange, with consideration received through banking channels. It was contended that there was no evidence linking the assessee to any price rigging, manipulation, entry operators, or any alleged bogus LTCG scheme. The assessee also submitted that merely because a scrip was categorized as a penny stock, all transactions in that scrip could not automatically be treated as bogus. Reliance was placed on various judicial precedents where additions were deleted when transactions were supported by documentary evidence and banking records.
The Revenue argued that the transaction involved a penny stock and relied upon several judicial decisions supporting additions in similar circumstances.
After examining the record, the Tribunal noted that the addition was based on denial of exemption under Section 10(38) relating to shares of M/s Cressanda Solutions Limited. The Tribunal relied upon its earlier decision in Archit Gupta v. ACIT and referred extensively to judgments of the Bombay High Court in Pr. CIT v. Ziauddin A. Siddique and the Delhi High Court in Pr. CIT v. Smt. Krishna Devi. The Tribunal observed that although the revenue authorities treated the scrip as a penny stock and relied upon the concept of human probabilities, they failed to bring any material on record showing the assessee’s involvement in price manipulation, rigging, accommodation entries, or dealings with entry or exit providers. The Tribunal also noted that there were no discrepancies in the documents submitted by the assessee and that the transactions were carried out through recognized channels.
The Tribunal held that suspicion, assumptions, and the theory of human probabilities could not substitute evidence. Since the tax authorities failed to substantiate their conclusions with cogent material linking the assessee to any non-genuine activity, the addition could not be sustained. Following the judicial precedents cited, the Tribunal allowed the assessee’s grounds of appeal, deleted the addition of ₹33,97,009, accepted Grounds 1 to 5, condoned the delay of 349 days, and allowed the appeal. The order was pronounced on 09.04.2026.
FULL TEXT OF THE ORDER OF ITAT DELHI
The application for condonation of delay of 349 days in filing the appeal and the appeal filed by the assesse is against the order dated 21.12.2018 of the Ld. Commissioner of Income Tax (Appeals)-20, New Delhi (hereinafter referred to as “Ld. CIT(A)”), u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), arising out of order dated 28.12.2016 of the of the Ld. Assessing Officer/ITO Ward-62(5), New Delhi (hereinafter referred to as “Ld. AO”), u/s 143(3) of the Act for Assessment Year 2014-15.
2. Brief facts of the case are that, assessee filed income tax return on 26.09.2014 declaring income of Rs.9,88,110/-. The case was selected for scrutiny. Notice u/s 143(2) of the Act was issued on 17.09.2015. Notice u/s 142(1) of the Act along with questionnaire was issued. Sh. Ravinder K Gupta, CA & AR attended proceedings filed necessary details. On examination it was found that assessee had shown income from Business and profession at Rs. 10,95,851/- and income from other sources at Rs. 6,709/-. In computation of income, an amount of Rs. 33,97,009/- was shown as long term capital gain and claimed as exempt u/s 10(38) of the Act. The Directorate of Investigation, Kolkata identified 84 listed penny stock companies, shares of which were used for generating bogus LTCG by various entry operators for the beneficiaries who approached the entry operators. The assessee is one of the beneficiaries who has obtained long term capital gains by way of trading the shares of M/s Cressanda Solutions Limited.
3. On completion of proceedings Ld. AO, vide order dated 28.12.2016 made addition of Rs.33,97,009/-. Against order dated 28.12.2016 of Ld. AO, the assessee filed appeal before Ld. CIT(A) which was dismissed vide order dated 21.12.2018.
4. Being aggrieved, appellant-assessee preferred present appeal. Being aggrieved, appellant-assessee preferred the application for condonation of delay of 349 days. Through application dated 27.05.2025 assessee preferred additional grounds of appeal. As per directions dated 15.10.2025, assessee submitted original and revised grounds consolidated as under:-
1. That the Ld. CIT(A) erred on facts and in law in treating the long-term capital gain of INR 33,97,009/- as unexplained cash credit u/s 68 of the Income-tax Act, 1961 [‘the Act’} despite the fact that the said long-term capital gains is on account of sale of long term investment in shares which shares were sold through the recognized stock exchange whose consideration was received through banking channels.
2. That in the facts and circumstances of the case the Commissioner of Income Tax (Appeals)-20, New Delhi is unsustainable in law because the case for scrutiny was picked up for scrutiny by the Assistant Commissioner whereas the assessment was actually made by Income Tax Circle, 62(1) who did not issue any statutory notice u/s 143(2) of the Act.
3. That in the facts and circumstances of the case the Commissioner of Income Tax (Appeals)-20, New Delhi erred in law in dismissing the appeal filed against the assessment order dated 28-12-2016 disregarding that the order was not sustainable in law because while the show cause notice issued by the AO proposed to tax income u/s 69A whereas travelling beyond his proposal he taxed the sum u/s 68 of the Income Tax Act, 1961.
4. That in the facts and circumstances of the case the Commissioner of Income Tax (Appeals)-20, New Delhi erred in law in dismissing the appeal filed against the assessment order dated 28-12-2016 without appreciating that the Investigation Wing Kolkata report was not even confronted to the Appellant and also disregarding that the transactions were backed by all the required documents:
5. That in the facts and circumstances of the case the Commissioner of Income Tax (Appeals)-20, New Delhi erred in law in dismissing the appeal filed against the assessment order dated 28-12-2016 disregarding the Written submissions and appreciating that fundamental reason for making addition was alleged failure of the Appellant to file reply to the fmal show cause notice dated 21-12-2016 whereas fact is that reply was duly filed on the date by which the compliance was sought.”
5. Ld. Authorized Representative for appellant-assessee submitted that, there is delay of 349 days in filing the appeal due to lack of knowledge about passing of impugned order and coordination with professional dealing with the matter. The explanation does not smack of mala fides as the appellant has not gained anything by not filing appeal within period of limitation. Therefore, delay of 349 days in filing the appeal is condoned.
6. AR for assessee submitted that, Ld. CIT(A) failed to appreciate that there was no whisper in order of Ld. AO that there was any kind of involvement of the assessee in the price rigging. The assessee was not at all connected with any kind of nexus run by some Brokers. As a matter of fact the Appellant on being duly advised by some friends invested in the scrip and when the price was on a higher side she sold them. There is nothing unusual about it. It be kindly appreciated that the steep hike in the price is not a relevant consideration and the Court instead of getting gagged by the bland findings recorded by the AO is duty bound to decide matter on the basis of evidences and material available before it and it is also a settled law that suspicion howsoever strong it may be cannot substitute the evidences produced for proving a fact. Merely because a particular scrip is identified as a Penny stock by the Revenue it does not mean all the transactions carried out in that scrip were bogus,
6.1. Appellant’s case is covered by plethora of judgments/decisions of the Court/Tribunal including the decisions of the co-ordinate Benches of the Tribunal: In this context, inter alia ready reference is made of;
(i) Archit Gupta v. ACIT, Central Circle-29, New Delhi
(ii) Sarika Bindal v. ITO, New Delhi decision dated 13-12-2023 (ITA No.1999 of 2020) reported in 205 ITD 49 where ‘G’ Bench of the Tribunal in the like circumstances i.e. where the assessee sold shares of a company at much higher price than purchase price and AO treated the LTCG to be unaccounted income and invoking sec. 69A addition was made–held that since both the purchase and sale transaction were carried out through banking channels and transfer of shares could not be regarded as sham.
7. Ld. Departmental Representative submitted that, the issue of arranging capital gains out of transaction was made in the penny stock. The transactions pertaining to purchase of share by assessee of Cressanda Solutions Limited was found to be a bogus transaction by holding that it was a penny stock. Reliance was placed on:-
– Suman Poddar Vs. ITO [2020] 268 taxmann 320 (SC) (22.11.2019) (2019) 112 com 329 (Delhi) High Court of Delhi
– Commissioner of Income Tax Vs. Swati Bajaj on 14.06.2022 (Calcutta High Court)
– Hon’ble ITAT Delhi in Sangeeta Devi Jhunjhunwala Vs. ITO 70(1) in 152 com 348 (Delhi ITAT) (18.05.2023)
– Hemil Subhashbhai Shah Vs. DCIT (ITAT) ITA No.1121/Ahd/2018 & ITA No. 961/Ahd/2019
– Udit Kalra Vs. ITO 2019-TIOL-75-HC-DEL-IT
– Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. PCIT (ITA No. 18/2017 Bombay High Court (Nagpur Bench)
– Sanat Kumar Vs. ACIT (2019-TIOL-1296-ITAT-DEL, ITA No.1881/Del. /2018)
– Pooja Ajmani Vs ITO [2019] 106 com 65 (Delhi-Trib.)
– Anip Rastogi Vs ITO (ITA No.3809/Del/2018)
– Abhimanyu Soin Vs ACIT 2018-TIOL-733-ITAT-CHD
– M.K. Rajeshwari Vs ITO (ITA No.1723/Bang/2018)
– Chandan Gupta Vs. CIT [2015] 54 com 10 (Punjab & Haryana)/[2015] 229 taxmann.com 173
– Balbir Chand Maini Vs. CIT [2011] 12 com 276 (Punjab & Haryana)/[2011] 201 Taxmann 94 (Punjab & Haryana)(MAG.)/[2012] 340 ITR 161 (Punjab & Haryana)/[2012] 247CTR 468 (Punjab & Haryana)
– Usha Chandresh Shah Vs. ITO [2014-TIOL-1459-ITAT-MUM]
– Ratnakar M Pujari Vs. ITO [2016-TIOL-1746-ITAT-MUM]
– Hon’ble ITAT Mumbai in the case of ITO Vs. Shamin M Bharwani (2016) (69 com 65)
– Vinay Kumar Dhingra (HUF) New Delhi Vs. ITO, Ward 49(1) ITA No.6388/Del/2017 DOJ 28.06.2021.
8. From examination of record, in light of the aforesaid rival contention it is crystal clear, that Ld. CIT(A) vide order dated 21.12.2018 dismissed the appeal of the assessee and confirmed the addition of Rs.33,97,009/- made by the Ld. AO. The addition was related to denial of exemption claimed u/s 10(38) of the Act relating to transactions of shares of M/s Cressanda Solutions Limited.
9. A coordinate Bench in ITA No.2624 & 2625/De1/2022 titled as Archit Gupta Vs. ACIT
10. Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The asses see has purchased the shares directly from the company and through share transfer from other party, subsequently, sold the same in the stock exchange. However, there are no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the Assessing Officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in [Income Tax Appeal No. 2012 of 2017, dated 4-3-2022] held as under: –
“1. The following question of law is proposed:
“Whether on the facts and in the circumstances of the case and in law, the Hontble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the LT. Act, 1961, ignoring the fact that the shares were bought acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the fmancial and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I.T. Act, 1961?”
2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3. Therefore we find nothing perverse in the order of the Tribunal.
4. Wave placed reliance on a judgment of the Apex Court in Principal Com-missioner of Income-tax (Central)-1 v. NRA Iron & Steel (P) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.
5. In our view, the Tribunal has not committed any perversity or applied in-correct principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
6. The appeal is devoid of merits and it is dismissed with no order as to costs.”
9. Further, the Hontble Delhi High Court in the case of Pr. CIT-12 v. Smt. Krishna Devi ITA 125/2020 dated 15.01.2021/[2021] 126 taxmann.com 80/279 Taxman 148/431 ITR 361 (Delhi) held as under: –
“8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the invest-ments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453.
9. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd. under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.
10. We have heard Mr. Hossain at length and given our thoughtful consider action to his contentions, but are not convinced with the same for the reasons stated hereinafter.
11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified: the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Section 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This fmdings is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the fmdings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from demat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
12. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create and proof, and not on suspicion alone. The theory of human behaviour and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we fmd that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The abovestated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
14. In this view of the matter, no question of law, much less a substantial ques-tion of law arises for our consideration.
15. Accordingly, the present appeals are dismissed.”
10. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of human probabilities and held the above said scrips to be a penny stock without bringing on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hontble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed.
11. In the result, appeal filed by the assessee is allowed
10. In view of above material facts, by following the judicial precedent the grounds of appeal Nos. 1 to 5 are accepted.
11. In the result, application for condonation of delay of 349 days in filing appeal and appeal filed by the assessee are
Order pronounced in the open court on 09.04.2026
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