Long-held investments, sold on recognized stock exchange: Gujarat HC Dismisses Penny Stock Case:

Long-held investments, sold on recognised stock exchange: Gujarat HC Dismisses Penny Stock Case The assessee filed a return for A.Y. 2011-12 declaring income of Rs. 4,85,210. The case was reopened based on information alleging penny stock transactions. The AO treated Rs. 7,15,679 as unexplained income, disallowing long-term capital gains. CIT(A) & ITAT Decided: CIT(A) deleted the addition, noting the shares were held for over seven years and sold through stock exchange with STT paid. The Tribunal upheld CIT(A)’s order, observing AO relied only on unshared information and had violated principles of natural justice. Main Issue: Whether the Tribunal erred in deleting the addition of Rs. 7,15,679 arising from alleged penny stock transactions when the AO held them to be bogus LTCG. HC Decided: The High Court held that the AO’s addition was based purely on unverified information, not shared with the assessee. The assessee had proved genuineness with demat statements, contract notes, broker ledgers, and bank details. The shares were long-held investments and sold on a recognised stock exchange. No material evidence showed manipulation or involvement in any penny stock scam. Therefore, the court decided that the findings of CIT(A) and ITAT were factual and not perverse. To Read Full Judgment, Download PDF Given Below