Bogus long-term capital gains in penny stock transactions reversed after SEBI investigation found transactions genuine; addition set aside

Reopening of assessment alleging bogus long-term capital gains in penny stock was challenged on the basis that SEBI investigation and interim relief had found the relevant transactions not violative of regulatory norms, and the assessee was not identified as part of any fraudulent scheme; therefore the assessing officer's addition treating the gains as bogus was unsupported and the appellate view upholding non-taxability was sustained, resulting in relief to the assessee.

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Issues: Whether the addition of Rs. 2,92,12,400/- treated as bogus long-term capital gains and the consequential addition of Rs. 78,931/- (commission) could be sustained where SEBI, after investigation, revoked interim restraints and found no prima facie violation and a co-ordinate Bench of the Tribunal on identical facts for the preceding year had deleted similar additions.

Analysis: The Tribunal considered the Assessment Officer's reliance on investigation reports alleging organised bogus LTCG in penny stocks and examined the materials placed by the assessee, including SEBI interim orders and the SEBI order dated 06/09/2017 which revoked earlier restraints and found no prima facie violation against the assessee. The Tribunal also considered the co-ordinate Bench's decision in the assessee's own case for the immediately preceding assessment year, where identical transactions were held genuine and additions were deleted. The subsequent SEBI order relied upon by Revenue (dated 30/09/2022) did not implicate the assessee and did not introduce fresh facts to distinguish the present case from the earlier Tribunal decision and SEBI's revocation. In view of these regulatory findings and the precedent in the assessee's favour, the Tribunal found no reason to sustain the additions made by the Assessing Officer.

Conclusion: The Tribunal upheld the order of the Commissioner (Appeals) deleting the addition of Rs. 2,92,12,400/- and the consequential deletion of Rs. 78,931/-. The revenue's grounds of appeal are dismissed and the appeal filed by the revenue stands dismissed.

Ratio Decidendi: Where a regulatory authority after investigation revokes interim restraints and finds no prima facie violation against a taxpayer, and a co-ordinate Tribunal decision on identical facts has deleted additions, additions treating LTCG as bogus on the basis of the same investigative material cannot be sustained in the absence of new distinguishing evidence.

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