Supreme Court dismisses Revenue’s Plea on Income Tax Addition from Sale of Penny Stock Shares for 154-Day Delay [Read Order]

The Supreme Court of India recently dismissed a Special Leave Petition (SLP) instituted by the Principal Commissioner of Income Tax, noting that the case which pertained to additions on the basis of sale of shares of a penny stock was filed by the Revenue with a delay of 154 days following the impugned judgment of the Gujarat High Court.

The facts pertain to the financials of the respondent-assessee herein, Neelu Mahansaria for the Assessment Year 2015-2016. The assessee had filed their returns for A.Y. 2015-16 declaring total income of ₹5,35,440.

During scrutiny proceedings, the Assessing Officer doubted the authenticity of the long-term capital gains declared by the assessee to have risen from the sale of shares of M/s Mishka Finance & Trading Ltd.

The AO categorised the scrip as a “penny stock” used for generating artificial gains to evade taxes and proceeded to reopen the assessment, and made an addition of ₹25,26,325 on account of undisclosed income under section 68 of the Act and ₹1,26,316 on account of unexplained expenditure under section 69C, which was claimed to be commission expense paid to brokers who facilitated the trades.

The matter was elevated before the Income Tax Appellate Tribunal (ITAT) which found that the assessee had produced all relevant financial fundamentals including purchase and sale bills, demat statements, bank records and contract notes to validate the genuineness of the transactions.

The ITAT relied on the Gujarat High Court ruling Himani M. Vakil v. CIT (2014) where it was observed that an AO cannot tax capital gain if an assessee has proved the genuineness of sale transactions through relevant material.

The Gujarat High Court Division Bench of Justice Bhargav D. Karia Justice D.N.Ray, through an order dated 25.03.2025 had accordingly dismissed the revenue’s case noting that the questions of law purported by the revenue were not substantial enough.

When the matter came up before the Supreme Court bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan, it was noted that there was a gross delay of 154 days in filing the petition, and the explanation offered by the Department was not satisfactory.

Accordingly, the appeal, along with all pending applications were rejected on the ground of delay.