No Evidence of Price Rigging: Calcutta HC Dismisses Income Tax Dept Appeal in Rs. 71L Penny Stock Loss Case [Read Order]

The Calcutta High Court recently dismissed an appeal filed by the Income Tax Department in a case involving the disallowance of ₹71.38 lakh in losses claimed from transactions in penny stock scrips.

The department had challenged an order passed by the Income Tax Appellate Tribunal ( ITAT ), Kolkata Bench, which granted relief to the assessee for the assessment year 2014-15.

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The department contended that the assessee, being a professional share trader, had no justifiable reason to transact in the shares of First Financial Services Ltd., which was among entities suspected of engaging in dubious penny stock dealings. They alleged that the loss was fabricated to evade taxes and should be disallowed.

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Despite a 307- day delay in filing the appeal, the High Court condoned it, recognizing the matter has a potential significance. However, after reviewing the merits, the Court held that no substantial question of law arose for its consideration.

The ITAT had held that although the share prices of First Financial Services Ltd. could have been manipulated by certain people, no facts were brought to light to indicate that the assessee knew about or was involved in such manipulation. Importantly, the Securities and Exchange Board of India (SEBI), through its investigation order dated April 2, 2014, also verified that the assessee was not so involved in price rigging.

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The bench of Chief Justice T.S. Sivagnanam and Justice Chatali Chatterjee (Das)  had further relied on a similar ruling by the Mumbai ITAT in Sunita Chaudhry v. ITO, involving the same scrip, where SEBI’s report exonerated the assessee of any wrongdoing. In light of these facts, the Tribunal found the disallowance of loss unjustified and allowed the assessee’s claim.

Affirming the Tribunal’s reasoning, the High Court concluded that no substantial legal issue was involved and accordingly dismissed both the appeal and the accompanying stay application.

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