Case Law Details
Farzad Sheriar Jehani Vs ITO (ITAT Mumbai)
Farzad Sheriar Jehani Vs ITO (ITAT Mumbai): A Victory for the Unsuspecting Investor in Penny Stocks
Introduction: In a recent case before the Income Tax Appellate Tribunal (ITAT) Mumbai, Farzad Sheriar Jehani contested an order by the Commissioner of Income Tax (Appeals) challenging additions made to his income for the Assessment Year 2014-15. The dispute centered around the alleged dubious transaction involving penny stocks, specifically the sale of 7550 shares of “Kappac Pharma.”
Background: Farzad Sheriar Jehani, an individual and partner in three firms, declared a taxable income of ₹13,49,630 for the relevant assessment year. The Assessing Officer (AO) scrutinized Jehani’s claim of exempt income of ₹82,52,616 on account of Long Term Capital Gain (LTCG) from the sale of penny stocks. The AO, relying on a report from the Directorate of Investigation, Kolkata, raised concerns about the legitimacy of the transactions, suspecting a pre-arranged scheme to generate bogus LTCG.
AO’s Findings: The AO pointed out that Kappac Pharma’s financial performance did not justify the significant increase in share prices, and the scrip’s trading was eventually suspended by the Bombay Stock Exchange (BSE). Drawing parallels with the modus operandi outlined in the Directorate of Investigation’s report, the AO concluded that the transactions were non-genuine and represented undisclosed income.
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