Supreme Court Affirms ITAT Verdict Deletion of 'Bogus' LTCG Addition on Penny Stock Shares; Dismisses SLP [Read Judgement]

The Supreme Court dismissed the Special Leave Petition (SLP) by confirming the high court ruling which affirms the Income Tax Appellate Tribunal (ITAT) verdict which deleted the 'Bogus' LTCG addition on penny stock shares. The SLP arose out of impugned final judgment and order in TA No. 929/2024 passed by thea High Court of Gujarat at Ahmedabad.

The High Court of Gujarat has dismissed the Tax Appeals filed by the Principal Commissioner of Income Tax The Tribunal had deleted the addition of Rs. 46,96,881/- made by the Assessing Officer, treating the Long Term Capital Gains (LTCG) claimed as exempt under Section 10(38) of the Income Tax Act as "bogus."

The Revenue had appealed against the ITAT's order for the Assessment Year 2015-16, arguing that the assessee, Sanjaykumar Damjibhai Gangani, had earned bogus LTCG by selling shares of Sunrise Asian Ltd., a penny stock. The Revenue contended that the price of the scrip was artificially rigged and that the transaction was stage-managed to convert unaccounted money into tax-free gains, citing admissions made by an entry operator and reports from the Investigation Wing.

The ITAT had allowed the assessee's appeal, relying on the decision of the Coordinate Bench in M/s. Ice Worth Reality LLP and distinguishing the Calcutta High Court's judgment in Swati Bajaj. The Tribunal noted that the assessee had purchased the shares much earlier, held them for two and a half years, and sold them through the BSE platform via banking channels (RTGS/NEFT) with the payment of STT. It held that there was no evidence to establish a nexus between the assessee and the alleged entry operators.

The Court relied on its earlier decision in Divyaben Prafulchandra Parmar, which followed the judgment in Jagat Pravinbhai Sarabhai. It reiterated that where an investment is longstanding and shares are sold after a long period, the transaction cannot be termed bogus or penny stock merely based on presumptions or general reports of rigging without specific evidence against the assessee.

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