Askaran Jain HUF Vs ITO (ITAT Raipur)
ITAT Raipur: Bogus LTCG Addition on Penny Stock Cannot Survive Without Evidence Linking Assessee to Price Manipulation or Entry Operators
The Raipur Bench of the ITAT deleted the addition made under section 68 in respect of the sale proceeds of shares of Global Capital Markets Ltd., holding that the Revenue cannot treat genuine stock exchange transactions as bogus merely because the scrip is alleged to be a penny stock, unless it establishes a direct nexus between the assessee and the alleged price-rigging or entry operators.
The assessee-HUF had claimed exemption under section 10(38) on long-term capital gains arising from sale of shares through the Bombay Stock Exchange. The Assessing Officer treated the entire sale consideration as unexplained cash credit under section 68 on the premise that the scrip was manipulated in a penny stock scheme. The first appellate authority upheld the addition by relying upon the Calcutta High Court’s decision in PCIT v. Swati Bajaj.
The Tribunal observed that the assessee had produced purchase bills, demat statements, contract notes, broker’s ledger and other documentary evidence, all of which remained uncontroverted. More importantly, the Revenue failed to establish that the assessee had any connection with the alleged entry operators or brokers, or that the assessee had consciously participated in any price manipulation to obtain bogus exempt gains. The Tribunal distinguished Swati Bajaj, noting that in that case there was concrete evidence of the assessee’s nexus with the manipulation, whereas no such evidence existed in the present case.
The Tribunal also relied on its earlier decision in ITO v. Rahul Kathuria and the Gujarat High Court’s judgment in PCIT v. Gopalbhai T. Patel (HUF) concerning the very same scrip, where it was held that genuine exchange-traded transactions supported by documentary evidence cannot be disregarded merely on the basis of generalized investigation reports. In the absence of any material proving the assessee’s involvement in the alleged rigging, the assessee could only be regarded as an unsuspecting investor. Accordingly, the ITAT set aside the order of the appellate authority and deleted the addition, allowing the appeal of the assessee.
Cases Discussed:
- Pr. CIT v. Gopalbhai T. Patel (HUF), (2025) 181 taxmann.com 773 (Guj.)
- Pr. CIT v. Swati Bajaj, (2022) 446 ITR 56 (Cal.)
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal preferred by the assessee emanates from the order of the Ld.ADDL/JCIT(A)-2, Mumbai, dated 19.01.2026 for the assessment year 2013-14 as per the grounds of appeal on record.
