SEBI Clean Chit Strengthens LTCG Claim: ITAT Upholds Deletion of ₹2.92 Cr Alleged Penny Stock Addition [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) Mumbai Bench has upheld the deletion of the addition of ₹2.92 crore made towards the alleged bogus long-term capital gains (LTCG) on the basis of a clean chit given by the Securities and Exchange Board of India (SEBI) and earlier rulings in the case of the taxpayer itself.

The assessee Sunita Chaudhary had claimed an LTCG of ₹2.92 crores from the sale of shares, which was claimed as exempt under Section 10(38). The Assessing Officer had held the same as unexplained income under Section 68 in view of reports regarding manipulation in penny stocks.

However, the Assessing Officer had also held commission expenses under Section 69C. The reassessment had been initiated under Section 147 in view of such information.

The Revenue had claimed that the transaction had been a pre-planned scheme for price rigging in penny stocks as seen from reports from the investigation wing and subsequent findings by SEBI against some entities.

On the other hand, the assessee stated that all the transactions had been made through stock exchanges with proper documentation and through banking channels. It was also pointed out that SEBI after proper investigation had removed the previous restrictions and found no infirmity in the conduct of the assessee.

The Tribunal comprising Beena Pillai (Judicial Member) and Girish Agrawal (Accountant Member) observed that SEBI had exonerated the assessee and removed the previous restraint orders. The Tribunal further observed that even the later SEBI order relied upon by the Revenue did not involve the assessee.

The ITAT dismissed the Revenue’s appeal and upheld the decision of the CIT(A), observing that the long-term capital gains earned by the taxpayer on the sale of shares of First Financial Services Ltd were genuine in nature and that no addition under Sections 68 and 69C of the Income Tax Act could be made in the absence of any incriminating evidence and in view of the findings of SEBI.

Accordingly, the addition of ₹2.92 crore towards LTCG and the consequential commission addition were deleted

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