ITO Vs Sunita Chaudhary (ITAT Mumbai)
Penny Stock LTCG Upheld as Genuine: ITAT Mumbai Dismisses Revenue Appeal Despite Investigation Reports
The Mumbai ITAT (G-Bench) dismissed the Revenue’s appeal for AY 2014-15 and upheld deletion of ₹2.92 crore added as alleged bogus LTCG on sale of shares of First Financial Services Ltd., along with deletion of ₹78,931 as alleged commission. The Tribunal affirmed the CIT(A)’s reliance on its own binding decision in the assessee’s case for AY 2013-14, involving the same scrip and identical facts, wherein the gains were held to be genuine.
Crucially, the ITAT noted that although SEBI had initially passed interim restraint orders, SEBI’s final order dated 06.09.2017 revoked those restraints after investigation, finding no violation by the assessee. The later SEBI adjudication order dated 30.09.2022—relied upon by the Revenue—did not implicate the assessee and therefore did not disturb the earlier clean chit. The Tribunal emphasized that share transactions were executed on the BSE through a registered broker, with delivery through a demat account and consideration routed through banking channels, and that the assessee was a regular investor earning dividends.
Applying the principle of judicial consistency and rejecting mere reliance on investigation reports without assesse-specific incriminating evidence, the ITAT held that the LTCG could not be branded as bogus under Sections 68/69C. Consequently, the Revenue’s grounds—based on human probabilities and penny-stock allegations—were rejected, and the CIT(A)’s deletion was sustained in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by assessee arises out of order dated 23/02/2024 passed by NFAC, Delhi [hereinafter “the Ld.CIT(A)”] for AY 2014-15, on following grounds of appeal:-
“1. ” Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in reversing the findings of the Assessing office for A.Y. 2014-15 by relying upon decision of Hon’ble ITAT for A.Y. 2013-14, which is not accepted by the Revenue and has filed appeal u/s 260A of the Act, before the Hon’ble High Court?”
2. “Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the entire addition of Rs. 2,92, 12,400/-, being the bogus LTCG claimed by the assessee was treated as unexplained investment and added to the total income u/s 68 of the Act?”
3. “Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.78,931/-, being commission paid to entry provider/Brokers @ 0.25% for providing accommodation entry which has been added to the total income u/s 69C of the Act ?’
4. “Whether on the facts and circumstances of the case and in law the Ld. CITA) has erred in Ignoring the fact that action of Assessing Office was based on credible information received from office of DGIT (investigation) Mumbai, which is a premier Investigation Authority of Income-Tax Department and has published the discreet report with a list of penny stocks/ scripts and the assessee has transacted in one of the penny stock in M/s. First Financial Services Ltd (Script Code – 51136) and allegedly used this stock for accommodation entry purposes in the grab of Long Term Short Term Capital Gain or Loss?”
5. Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in ignoring the fact that the assessee has traded in shares of M/s. First Financial Services Ltd, a penny stock scrip in the disguise of exempt income to reduce taxable income and the transactions carried out were not genuine which was a predetermined move which has a sole aim to bring unaccounted money through bogus LTCG/STCL ?”
6. “Whether on the facts and the circumstances of the case and in law the Id. CIT (A) has erred in deleting the addition of Rs. 2,92, 12,400/-, being the bogus LTCG claimed by the assessee, without considering the fact that the Net Worth and the business activity of M/s. First Financial Services Ltd, a penny stock company were negligible and the share prices have been artificially rigged by the Exit Operators during the financial year under consideration to accommodate beneficiaries seeking LTCG? “
7. “Whether on the facts and the circumstances of the case and in law the Ld. CIT (A) has erred in acknowledging the fact that the SEBI had investigated the dealings of the M/s. First Financial Services Ltd (FFSL) stock as it observed abnormal movement in the price and found that M/s. First Financial Services Ltd (FFSL) has violated the norms and rules under SEBI Act, 1992, Securities Contracts (Regulations) Act, 1956, FUTP Regulations SEBI (Substantial Acquisition of shares & Takeovers) Regulations, 1997 and listing Agreement, which compelled SEBI to suspend the trading volume of M/s. First Financial Services Ltd (FFSL) from 15 May 2012 to 31 March 2014”
8. “Whether on the facts and the circumstances of the case and in law the Ld. CIT (A) has erred in acknowledging the fact that the SEBI vide its adjudication order dated 30.09.2022, has found that the penny stock M/s. First Financial Services Ltd and the brokers/ other entities were involved in price manipulation in this scrip and then confirming the Investigation done by the Investigation Wing of Income-Tax Department bound on which the case was re-opened u/s 147 of the I.T.Act ?”
9. “Whether on the facts and the circumstances of the case and in law the Ld. CIT (A) has erred in holding that since the SEBT vide order dated 06.09.2017 has revoked the earlier direction/restriction issued in the case of scrip M/s. First Financial Services Ltd and continued its investigation and vide adjudication order dated. 30.09.2022 held that the company and the broker/ other entities were involved price manipulation in the scrip M/s. First Financial Services Ltd?”
10. “Whether on the facts and circumstances of the case and in law the CIT(A) erred in deleting the additions made of Rs. 2,92,12,100/, being the bogus LTCG claimed by the assessee without considering the fact that Assessing Office relying on the report of office of DGIT (Investigation) Mumbai, which is credible authority of Income – Tax Department and in such transactions the onus is on the assessee to establish the genuineness of the price hike and also has to prove that the price of the share was not manipulated. Reliance is placed on Calcutta High Court decision in the case of Pr.CIT Vs. Swati Bajaj (LA. No. GA/2/2022 in ITAT No. 6 of 2022 dated 14.06.2022”
11. “Whether on the facts and circumstances of the case and in law the order of the CIT(A) ignored the direct and circumstantial evidences in view of the decisions in Durga Prasad More(1971) 82 ITR 540(SC) and Sumati Dayal (1995) 80 Taxmann 89(SC)/|1995) 2014 ITR 801(SC) /|1995) 125 CR 124 (SC) , rendered by the Hon’ble Supreme Court, where under it was held that the Court and Tribunal have to judge the evidence before it by applying the test of human probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer?
12. The appellant craves lave to amend or alter any grounds or add a new ground which may be necessary?”
2. Brief facts of the case are as under:-
