Penny stock additions fail where no exempt long-term capital gain was claimed and the share income was taxed.

No addition could be sustained on alleged penny stock transactions or related commission where the assessee had not claimed any exempt long-term capital gain under section 10(38). The relevant share transaction reflected positive income that was offered to tax, so there was no factual or legal basis to invoke disallowance of exempt income or to treat the matter as an accommodation entry case. The first appellate authority's deletion of the additions was upheld, and the Revenue's challenge failed.

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Issues: Whether additions made on account of alleged penny stock transactions and related commission could be sustained when the assessee had not claimed any exempt long-term capital gain under section 10(38) of the Income-tax Act, 1961.

Analysis: The assessee had not claimed any exempt long-term capital gain in the return of income. The transaction in the relevant shares reflected positive income, which was offered to tax. In the absence of any claim for exempt income, there was no basis to invoke section 10(38) or sustain the related additions, including the alleged commission for obtaining accommodation entries.

Conclusion: The additions were not sustainable and the deletion made by the first appellate authority was upheld. The Revenue's challenge failed.

Final Conclusion: The assessment additions arising from the alleged penny stock arrangement could not survive since no exempt capital gain was claimed by the assessee.

Ratio Decidendi: Where no exempt long-term capital gain is claimed, additions cannot be sustained on the premise that such exempt income ought to have been disallowed or taxed.

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