PCIT Vs Jagat Pravinbhai Sarabhai (Gujarat High Court)
The Gujarat High Court dismissed a tax appeal filed by the Revenue under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The Revenue challenged the Tribunal’s decision deleting an addition of ₹2,10,474 made on account of alleged bogus long-term capital gains claimed as exempt under Section 10(38) of the Income Tax Act from the sale of shares of Devika Proteins Ltd., which the Assessing Officer treated as a penny stock transaction.
The assessee had filed the return of income for Assessment Year 2011-12 declaring total income of ₹3,11,490. The assessment was subsequently reopened based on information that the assessee had dealt in shares of a shell company and had claimed exempt long-term capital gains of ₹2,10,474. The Assessing Officer treated the entire transaction as bogus, categorized it as a penny stock transaction, and added the amount under Section 68 of the Act, assessing total income at ₹5,21,964.
On appeal, the Commissioner of Income Tax (Appeals) re-examined the matter and found that the assessee had produced evidence showing that the shares were acquired as a genuine investment during the financial year 2000-01. The appellate authority observed that the shares were old investments and, therefore, could not be treated as penny stocks.
