2010 (11) TMI 988 - AT - Income Tax

Tribunal rules in favor of assessee on penny stock profits tax treatment

Jayprakash P. Surana Shah Khandelwal Jain & Associates Chartered Accountants Versus Income Tax Officer, Ward 11 (4) Pune

The Tribunal ruled in favor of the assessee in a case involving the chargeability of profits from penny stock sales under 'capital gains' and the addition ... - Issues involved: Determination of chargeability of profits on sale of penny stocks under the head 'capital gains' u/s 69C of the Income Tax Act and addition u/s 69C for unclaimed expenditure incurred in connection with services related to penny stock transactions.Issue 1 - Chargeability of profits on sale of penny stocks: The appeals were filed against the order of the CIT(A) regarding the chargeability of profits on sale of penny stocks under 'capital gains'. The AO considered the transactions as bogus and taxable u/s 69C, while the Tribunal held that such income should be taxed under capital gains based on previous cases. The Tribunal emphasized the need for the penny stocks to be delivery-based for taxability under capital gains. The matter was referred back to the AO for further examination.Issue 2 - Addition u/s 69C for unclaimed expenditure: The addition u/s 69C for unclaimed expenditure related to services for penny stock transactions was disputed by the assessee. The AO disallowed the amount based on assumptions, which the Tribunal deemed unacceptable. The Tribunal found the order of the CIT(A) regarding this addition should be deleted as it was based on ad-hoc calculations and lacked concrete evidence.Separate Judgement: The Tribunal's decision favored the assessee on both issues, allowing the appeal and directing the AO to reexamine the penny stock transactions for taxability under capital gains. The Tribunal emphasized the importance of the stocks being delivery-based for tax treatment. The decision highlighted the need for proper examination by the AO to determine the nature of gains from the penny stocks.