ITAT deletes section 68 additions for alleged bogus long-term capital gains from penny stock transactions lacking concrete evidence

The ITAT Ahmedabad allowed the assessee's appeal and deleted additions made under section 68 for alleged bogus LTCG from penny stock transactions. The AO had disallowed the claim based on information from the Directorate of Investigation Wing regarding accommodation LTCG schemes by entry operators. However, the tribunal found no cogent evidence establishing the assessee's involvement in such scams. The addition was deemed unsustainable as it was based merely on suspicion and assumption without concrete material proof from the Revenue.

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Issues Involved:
1. Addition of Rs. 73,48,101/- u/s 68 of the Income Tax Act, 1961 as bogus long-term capital gain.

Summary:

The sole issue raised by the assessee was against the addition of Rs. 73,48,101/- u/s 68 of the Act as bogus long-term capital gain. The assessee argued that the issue was covered in their favor by a prior judgment of the Coordinate Bench in ITA No. 280/Ahd/2019 for A.Y. 2015-16. The Revenue relied on the order of the authorities below but could not controvert the assessee's submission.

The assessee filed its return of income on 14.12.2015 declaring a total income of Rs. 3,33,580/-. The case was selected for scrutiny, and notices u/s 143(2) and 142(1) were issued. The AO noticed that the assessee had indulged in bogus long-term capital gain of Rs. 73,48,101/- claimed u/s 10(38). A show-cause notice was issued to disallow the long-term capital gain treating it as unexplained income u/s 68 r.w.s. 115BBE, considering the shares of Lifeline Drugs & Pharma Ltd. as penny stocks.

The assessee provided various documents to support the claim, including purchase invoices, share transfer certificates, pool holding certificates, and bank statements. The AO, based on the Investigation Wing's report, concluded that the shares were used for providing bogus LTCG and disallowed the claim, treating it as bogus, which was confirmed by the CIT(A).

The Coordinate Bench in ITA No. 280/Ahd/2019 for A.Y. 2015-16 had deleted a similar addition, noting that the AO's conclusion was based on suspicion and general modus operandi without specific evidence against the assessee. The Bench emphasized that mere price rise and financial analysis without independent enquiry or evidence could not justify the addition. The absence of any specific finding against the assessee in the investigation report and the lack of opportunity for cross-examination were also highlighted.

The Tribunal, following the judgments of various High Courts, including the Delhi High Court in Pr. CIT vs. Smt. Krishna Devi and the Punjab and Haryana High Court in PCIT vs. Prem Pal Gandhi, held that the capital gain could not be treated as bogus without cogent material evidence. The Tribunal directed the AO to delete the addition, allowing the assessee's appeal.

In the result, the appeal preferred by the assessee was allowed.

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