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of <h1>Capital-loss transactions in penny stocks found not proven as fictitious; department lacked direct substantial evidence, appeal dismissed</h1> Whether capital-loss transactions in penny stocks were fictitious: HC examined whether the revenue produced direct, substantial evidence linking the ... Bogus capital loss - transactions of purchase and sale of penny stocks - Fictitious capital loss - ITAT deleted said disallowance - HELD THAT:- We find that the allegation labelled against the assessee by the appellant/department does not find any direct substantial evidence or proof regarding the logical process which has been inferred through reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and labelled against the assessee and as such, we find no question of law, much less substantial questions of law arising for consideration in this appeal. Accordingly, the appeal fails and is dismissed. Issues: Whether substantial questions of law arise warranting interference with the Income Tax Appellate Tribunal's order that set aside the CIT(A)'s disallowance of claimed capital trading losses from penny stocks and directed set off of those losses against interest/other income for the assessment years under consideration.Analysis: The Court examined whether the Tribunal's reliance on its earlier decisions and the factual findings recorded by the Tribunal constituted a situation giving rise to substantial questions of law. The Tribunal had applied its precedents and found absence of direct substantial evidence establishing rigging or accommodation entries for the trading in specified penny scrips, observed that transactions occurred on recognized stock exchanges under SEBI oversight, and directed set off of the trading losses against interest/other income. The revenue's challenge based on investigation material and the jurisdictional High Court decision in Swati Bajaj was considered by comparing factual matrices; the Court found no demonstration that the Tribunal disregarded applicable legal tests or that a legal question of sufficient substance was disclosed for interference.Conclusion: No substantial question of law arises; the appeal by the revenue is dismissed and the Tribunal's order deleting the disallowance and directing set off of the trading losses is maintained in favour of the assessee.
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