Yogesh P. Thakkar Vs DCIT (ITAT Mumbai)
LTCG Exemption Allowed on Penny Stock Shares Because Revenue Failed to Rebut Documentary Evidence or Prove Transactions Were Bogus
The Income Tax Appellate Tribunal (ITAT), Mumbai, allowed the appeals of the assessees and held that the exemption claimed under Section 10(38) of the Income-tax Act on Long-Term Capital Gains (LTCG) arising from the sale of shares could not be denied merely on the basis of investigation reports, suspicion, or allegations of penny stock manipulation, in the absence of evidence directly linking the assessees to any price-rigging activity.
The lead case involved an assessee who had declared exempt LTCG from the sale of shares of Radford Global Ltd. and Blazon Marbles Ltd. During search proceedings, the Assessing Officer (AO) alleged that the gains were bogus accommodation entries generated through penny stock transactions and treated the entire sale proceeds of ₹8.41 crore as unexplained cash credits under Section 68. The AO also made an addition of ₹50.46 lakh under Section 69C towards estimated commission expenditure allegedly paid for obtaining such accommodation entries. Similar additions were made in connected appeals involving other assessment years and scrips.
The assessees contended that the investments were genuine and were supported by documentary evidence, including bank statements, demat account statements, contract notes, broker records, details of Securities Transaction Tax (STT) payments, and records showing receipt of sale consideration through banking channels. The shares had been purchased through preferential allotments or off-market transactions, duly dematerialized, held for substantial periods, and subsequently sold through registered brokers on stock exchanges.
