Case Law Details
Brajesh Narnolia Vs ITO (ITAT Kolkata)
Introduction: In a recent judgment dated January 17, 2024, the Income Tax Appellate Tribunal (ITAT) Kolkata, in the case of Brajesh Narnolia Vs ITO, delved into the intricate aspects of long-term capital gains (LTCG) and the genuine nature of companies involved in penny stock transactions. This ruling brings to light the critical understanding that the genuineness of a company and the transactions involving its shares cannot solely be determined based on the magnitude of profit realized by an investor.
Detailed Analysis
The core issue in this appeal was the disallowance of LTCG amounting to Rs. 10,07,722/- claimed by the assessee under section 10(38) of the Income Tax Act, on grounds that the company involved, Sulabh Engineers & Services Ltd., was deemed a paper entity with manipulated stock values. The Assessing Officer (AO) identified this investment as unreal, considering the company as one among many whose stocks were manipulated to provide undue benefits to certain investors.
The assessee’s contention, supported by references to various ITAT rulings, argued for the legitimacy of the LTCG earned from the sale of shares of Sulabh Engineers & Services Ltd., attempting to distinguish his case from others by highlighting the relatively modest profit garnered from the transaction compared to other cases where astronomical profits were earned under similar circumstances.
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