Bogus long-term capital gains addition in penny stock upheld deletion; revenue appeals dismissed and order applied

Challenge to tax addition treating alleged bogus long term capital gains from penny stock transactions was considered; the appellate reasoning accepted that the impugned addition lacked sustaining evidence and the addition was deleted, with that deletion applied mutatis mutandis to the present matter. The consequence is that revenue appeals against deletion of the addition were dismissed and the prior order deleting the unexplained investment-related addition governs the facts of the present case.

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Issues: Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs.14,09,939/- made by the Assessing Officer (and confirmed by the CIT(A)) where the Investigation Wing had found that the shares (Kappac Pharma Ltd) were of a bogus penny-stock company and the assessee had claimed exempt long-term capital gains under Section 10(38) of the Income-tax Act, 1961.

Analysis: The Court considered the substantial question of law under Section 260A arising from the ITAT's deletion of the addition. The issue was heard in a group of connected appeals and the Court referred to and applied its earlier common order dated 30.04.2024 in ITA No.56 of 2021 to the present facts. The earlier decision addressed the same legal question and facts regarding treatment of transactions involving allegedly bogus/paper companies and the claim of exemption under Section 10(38). Given the identity of the legal question and factual matrix, the reasoning and conclusion in the earlier common order were held applicable mutatis mutandis to the present appeal.

Conclusion: The appeal filed by the Revenue is dismissed and the ITAT's deletion of the addition is sustained; the order dated 30.04.2024 in ITA No.56 of 2021 is held applicable mutatis mutandis to this case (decision in favour of the assessee).

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