ITO Vs Sureshkumar Bhikalal Thakker (ITAT Ahmedabad)
Penny Stock “Safal Herbs” No Safe Harbour – ITAT Ahmedabad Reverses CIT(A) & Restores Addition for Bogus LTCG
Ahmedabad ITAT upheld the addition of ₹6.73 lakh made u/s 69A for bogus Long-Term Capital Gain (LTCG) from penny stock Safal Herbs Ltd., reversing the relief earlier granted by CIT(A)/NFAC.
Assessee had claimed exempt LTCG u/s 10(38) on sale of shares of Safal Herbs Ltd., which were alleged by the Investigation Wing to be accommodation entries used for converting unaccounted cash into exempt income. AO, noting the lack of genuine business activity of the scrip & its manipulated price rise, treated the sale proceeds as unexplained income under section 69A, despite the assessee’s production of demat statements, contract notes, & bank proofs.
CIT(A) deleted the addition, observing that transactions were executed through a recognized stock exchange & supported by documentation.
However, ITAT disagreed, noting:
- The assessee’s portfolio mainly contained reputed companies, & sudden investment in a little-known entity (Safal Herbs Ltd.) lacked commercial rationale.
- The rise in share price was wholly disproportionate to fundamentals.
- The assessee failed to establish the bona fides of the transaction or any business rationale for acquiring 31,000 shares of an obscure company.
Tribunal relied heavily on the Calcutta High Court rulings in PCIT v. Swati Bajaj (139 taxmann.com 352) & PCIT v. Usha Devi Modi (151 taxmann.com 119), holding that unreasonable price rise & lack of real trading volume justify treating such LTCG as unexplained income, even without direct cash trail. It also cited Sumati Dayal v. CIT (214 ITR 801, SC), emphasizing the test of human probabilities over paper evidence. Referring to Suman Poddar v. ITO (112 taxmann.com 330, SC), the Tribunal observed that absence of direct evidence does not validate improbable transactions & that these schemes are structured precisely to conceal the cash trail.
