The Income Tax Appellate Tribunal ( ITAT ) Mumbai, has in an appeal recently filed before it by the Jt. Commissioner of Income Tax (OSD), International Taxation, held that business loss occurring out of share transactions with a company declared as a penny stock, shall be allowed as a short-term capital loss, lacking evidence of any malpractices on the part of the assessee.
The assessee company, being a statutory authority in the state of Ohio, USA, had registered with the Securities and Exchange Board of India as a foreign portfolio investor for carrying out investment in equity shares and debt securities in the Indian Market.
However, on the filing of the income tax return by the assesse, the case of the assesse was selected for scrutiny for the reason that suspicious sale transactions in shares and exempt long-term capital gain, were shown in the return in the penny stock Tab in ITS.
The same was followed by a statutory notice issued by the department to the assessee, wherein the assessing officer found the assessee to have incurred a loss of ₹6,66,454/–under the head Short Term Capital Gain, in the purchase and sale of shares from a Pvt. Ltd company named Kailash Auto Finance Limited, flagged as penny stock by the Revenue authorities. And despite the assesse providing a confirmation of the broker note, an assessment order under Section 143(3) read with section 144C (1) of the Income Tax Act was passed by the assessing officer, claiming the assessee to have been involved in a sham transaction of trading in shares.
Aggrieved by the same, an appeal was filed by the assessee before the Commissioner Of Income Tax (Appeals), CIT(A), who allowed the appeal of the assessee on the basis that the assessee is found to have furnished the complete details of the capital gain, and that there is no evidence against the assessee pointing out the loss in question to be fraudulent.
“The transactions in the above shares were made through the stock exchange and further, the learned Assessing Officer has made the addition only because of the reason that assessed traded in the shares of Kailash Auto Finance Limited which has been classified as a penny stock. No information is available that the assessee has engaged in any manipulative activities with respect to the purchase and sale of the above shares, and further the complete details filed before the learned Assessing Officer, were not at all doubted.
Therefore, we do not find any reason to state that the short-term capital loss by the assessee is not genuine. And accordingly, we confirm the order of the learned CIT(A) and dismiss the appeal of the ld AO.” – The court commented dismissing the assessing officer’s appeal against the assessed.
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