ITAT rejects Price-Rigging Allegations on Penny Stock Transactions Due to Lack of Evidence [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) upheld the benefit of Long-Term Capital Gains (LTCG) on penny stock transactions, rejecting the Revenue’s claims of price rigging due to a lack of concrete evidence and confirming the genuineness of transactions.

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The assessee, Bal Kishan Arora, had purchased 50,000 shares of Gold Line Finvest International Ltd. at ₹10 each on 15.01.2013 through a public offer. A year later, between 29.04.2014 and 07.05.2014, the shares were sold through the Bombay Stock Exchange for ₹19,942,030, yielding an LTCG of ₹1,94,02,145.

Based on the transactions, the Assessing Officer (AO) conducted a detailed investigation and concluded that these transactions involved an artificial increase in share prices (price rigging).

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Aggrieved by the order, the assessee appealed to the Commissioner of Income Tax (Appeal) ( CIT(A) ), who ruled in favor of the assessee. The Revenue then filed an appeal before the tribunal.

The counsel representing the assessee, VK Sabharwal, argued that the shares were purchased and sold through recognized public platforms and the Bombay Stock Exchange. He contended that there was no manipulation involved, and the assessee should not be denied the benefit of LTCG.

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Meanwhile, the counsel for the revenue, Ashish Tripathi, argued that the massive returns (around 4000%) from the sale of shares of  Gold Line Finvest International Ltd., a company with negligible financial strength, were indicative of sham transactions. He referred to investigations by the Calcutta Investigation Directorate and statements by local parties, alleging widespread manipulation in such companies.

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The tribunal, led by Vikas Awasthy (Judicial Member) and Amitabh Shukla (Accountant Member), considered both parties' arguments.

The bench noted that the shares in question were bought through a public offer and sold on the Bombay Stock Exchange, platforms subject to public scrutiny. Therefore, it was unlikely that such transactions were part of any manipulation or artificial rigging.

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The bench further referred to the case of PCIT v. Krishna Devi (2020), where nearly identical facts had been considered by the  Delhi High Court. In that case, the court had ruled that the findings of the AO, based on conjecture and without cogent evidence, could not justify the disallowance of LTCG. The bench noted that the facts in the present case were similar, and therefore, the same principles were applied by the bench.

Since the department failed to provide any new evidence to justify the addition, the tribunal upheld the decision of the CIT(A) and dismissed the department’s appeal.

To Read the full text of the Order CLICK HERE

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