Case Law Details
Sterling Finvst Private Limited Vs DCIT (ITAT Kolkata)
AO Cannot Treat LTCG as Bogus While Accepting STCG from the Same Shares—Whimsical Approach Struck Down; Entire ₹53.24 Lakh Addition Deleted –
The Assessee filed appeal against the NFAC order dated 24.11.2023 sustaining the addition of ₹53,24,681 u/s 68 by treating long-term capital gain (LTCG) earned on sale of shares of Midland Polymer Ltd as bogus penny-stock gain. The Assessee had sold 1,20,000 shares held for more than a year, declared LTCG of ₹53.24 lakh and claimed exemption u/s 10(38). In the same year, the Assessee also earned short-term capital gain (STCG) of ₹65,96,424 on sale of 1,28,000 shares of the same company, which the AO accepted as genuine.
Tribunal noted the inherent contradiction in AO’s action—treating shares of Midland Polymer Ltd. as penny-stock for LTCG, while simultaneously treating sales of the same scrip as fully genuine when computing STCG. Tribunal held that such differential treatment of identical transactions in the same scrip is capricious, whimsical & devoid of logic.
The Bench observed that the AO accepted the entire factual matrix, trade pattern, holding period & contract notes for STCG, and there was no change in facts for the LTCG block. Hence, picking and choosing part of the transactions as bogus without any specific adverse material was legally unsustainable.
CIT(A) followed AO without addressing this contradiction. Tribunal found the reasoning wholly unacceptable and held that both gains arise from the same share, same broker, same year & same evidence, and therefore AO could not selectively treat one as sham.
Accordingly, the Tribunal set aside the CIT(A)’s order and directed deletion of the entire addition of ₹53,24,681.
The appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 24.11.2023 for the AY 2014-15.
02. The only issue raised by the assessee at the time of hearing is against the order of Learned CIT (A) upholding the assessment order wherein the Learned AO treated the long-term capital gain (LTCG) of ₹53,24,681/- from transactions in equity shares of Midland polymer limited, to be not genuine, while simultaneously accepting the short-term capital gain (STCG) of ₹65,96,424/- from same equity share as genuine.
03. The facts in brief are that the assessee filed the return of income on 28-09-2014, showing total income of ₹60,43,770. The case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Act the was framed vide order dated 28-12-2016, assessing the total income at ₹1,17,69,646/- after making an addition of ₹53,24,681/- u/s 68 of the Act in respect of bogus long-term capital gain arising from sale of shares of Midland Polymer Limited and also ₹1,69,467 u/s 14A of the Act read with rule 8D of the rules. The addition of Rs. 53,24,681/-was made by the ld. AO on the ground that the said company is a penny stock company and assessee has earned non-genuine and bogus long-term capital gain from the sale of equity shares of the said company.
04. In the appellate proceeding, the Learned CIT (A) deleted the addition in respect of disallowance u/s 14A, read with Rule 8D of the Rules, while sustaining the addition of ₹53,84,681 as made by the Learned AO under Section 68 of the Act, by upholding the order of the Learned AO on this issue.
05. After hearing the rival contentions and perusing the materials available on record, we find that the learned AO has treated the equity shares of Midland Polymer Limited to be penny stock. We note that during the year, the assessee has earned long-term capital gain as well as short-term capital gain on the sale of equity shares from the said script. i.e. Midland Polymer Limited. During the year, the assessee has earned ₹53,24,681/- as long-term capital gain from sale of 1,20,000 equity shares, which were held for a period of more than one year. The assessee also earned short-term capital gain of Rs. 65,96,424 from sale of 1,28,000 equity shares of the said company, which were hold for less than one year. We note that both income from the sale of equity shares were shown by the assessee in the return of income i.e. LTCG of ₹53,24,681 was claimed as exempt under Section 10(38) of the Act, while STCG of ₹65,96,424 was shown as under Section 111A of the Act. The ld. AO treated the long-term capital gain of ₹53,024,681 as bogus and non-genuine, whereas the short-term capital gain of ₹65,096,424 made from the sale of equity shares of the same company i.e. Midland Polymer Limited was treated as genuine and accepted in the return of income. Thus, we have failed to understand as to how long term capital gain from sale of equity shares is non-genuine and bogus while at the same time the short term capital gain is genuine . In other words the ld. AO has a adopted a very capricious and whimsical approach while making the assessment by accepting STCG as genuine and rejecting the LTCG as bogus and non-genuine particularly, when both these gains have reason from the sale of equity shares of the same company. Under these circumstances, we are we are not in a position to agree with the appellate order passed by the ld. CIT (A) upholding the order of AO. Accordingly, we set aside the same and direct the ld. AO to delete the addition. The appeal of the assessee is allowed.
06. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19.11.2025.
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