ITO Vs Kaushal Chand Daga (HUF) (ITAT Jodhpur Bench)
Penny Stock Cannot Be Taxed on Penny-Worth Suspicion—LTCG Exemption u/s 10(38) Allowed & Gross Sale Proceeds Addition u/s 69A Deleted
The Alleged Penny-Stock Gain
The Assessee-HUF filed its return declaring total income of ₹5,34,420. It also disclosed long-term capital gain of ₹13,60,338 arising from the sale of shares of M/s ACI Infocom Ltd. & claimed exemption u/s 10(38).
Based on information received from the Investigation Wing, the AO formed the view that ACI Infocom Ltd. was a penny-stock company whose share prices had been manipulated to provide accommodation entries in the form of exempt LTCG. Notice u/s 148 was accordingly issued on 18.03.2020.
The Assessee had purchased 10,000 shares on 25.08.2011 for ₹2,58,739 & sold them during FY 2012-13 for ₹16,21,960.
Documents Versus Doubts
The Assessee explained that the shares had been purchased & sold through a registered stockbroker on a recognized stock exchange. The purchase consideration was paid through banking channels, the shares were credited to & later debited from the demat account, sale proceeds were received through banking channels & Securities Transaction Tax was paid.
Bank statements, demat statements, contract notes & STT particulars were furnished in support.
The AO remained unconvinced. Referring to the Investigation Wing’s report, unusual price movement & the weak financial fundamentals of ACI Infocom Ltd., he concluded that the transaction was a prearranged device to convert unaccounted money into exempt capital gains.
