ITO Vs Mahavir Singhal (ITAT Delhi)
Bogus LTCG on Penny Stock? SEBI Clean Chit Saves Assessee – ITAT Delhi Dismisses Revenue Appeal
In a significant ruling, Delhi Tribunal upheld CIT(A)’s deletion of additions made by AO on alleged bogus Long-Term Capital Gains (LTCG) & unexplained expenditure arising from penny stock transactions in shares of M/s Kailash Auto Finance Ltd.
Assessee, an individual, filed return declaring income of ₹5,00,670/-. Case was scrutinised u/s 143(2). AO noted that Assessee sold 1,31,000 shares of Kailash Auto Finance Ltd. (received pursuant to amalgamation of Panchshul Marketing Ltd.) resulting in LTCG of ₹49,45,329/- claimed exempt u/s 10(38). AO treated it as sham transaction, held company to be a penny stock, & made additions of ₹49,45,329/- u/s 68 (unexplained cash credit) & ₹2,47,666/- u/s 69C (unexplained expenditure – 5% of sale value)
CIT(A) deleted the additions, holding:
- AO relied solely on SEBI’s interim suspension order dated 29.03.2016 without conducting independent enquiry.
- No notice was issued u/s 133(6) to brokers/intermediaries.
- SEBI’s subsequent final order dated 21.09.2017 revoked the interim ban & gave a clean chit to 244 entities including Kailash Auto Finance Ltd., Panchshul Marketing Pvt. Ltd. & Brijdhara Mercantile Pvt. Ltd.
- SEBI’s investigation under PFUTP Regulations, 2003 did not find any adverse evidence of manipulation
Accordingly, CIT(A) held that AO failed to establish non-genuineness & deleted the additions.
