Ruchi Jain Vs ITO (ITAT Delhi Bench)
“Penny Stock” Label Is Not A Magic Wand -Without Nexus To Price Rigging, Ltcg u/s 10(38) Cannot Become Cash Credit U/s 68
Summary: The Delhi ITAT has held that genuine documentary evidence relating to the purchase & sale of shares cannot be discarded merely because the company was subsequently identified as a penny-stock company. Unless the AO establishes a specific nexus between the assessee or her broker & the alleged price-rigging operation, a general Investigation Wing report describing the modus operandi cannot justify treating LTCG as unexplained cash credit. The addition of ₹27.83 lakh u/s 68 & consequential commission addition were deleted.
Facts of the case
The assessee, Ruchi Jain, filed her return for AY 2014-15 declaring income of ₹7,54,526. Apart from income from her proprietary concern, M/s Crafts India, she disclosed LTCG of ₹27,83,690 arising from the sale of shares of Kappac Pharma Ltd.
The assessee claimed the capital gain as exempt u/s 10(38).
The case was selected for scrutiny. Based upon information received from the Investigation Wing, Kolkata, the AO treated the transaction as a prearranged penny-stock transaction designed to generate bogus exempt LTCG.
The assessment was completed at a total income of ₹10,42,05,500 after making several additions & disallowances. Insofar as the Kappac Pharma transaction was concerned, the AO added ₹27,83,695 u/s 68 r.w.s. 115BBE & made a further addition of ₹55,674, being alleged commission calculated at 2%.
