Penny Stock LTCG Exemption of Rs. 1.41 Crore Under Scanner; ITAT Orders Fresh Verification After Finding Discrepancies in Share Transaction Records

The Income Tax Appellate Tribunal (ITAT) held that where material discrepancies exist in the particulars relating to share transactions and the supporting documentary evidence has not been properly examined, the matter should be restored for fresh adjudication.

The assessee had filed her return of income declaring a total income of Rs 20.99 lakh but the assessment was reopened under Sections 147 and 148 of the Income Tax Act, 1961. During reassessment proceedings, the AO noticed that the assessee had claimed exemption under Section 10(38) in respect of Long-Term Capital Gains amounting to Rs 1.41 crore arising from the sale of shares of Nouveau Multimedia Ltd. and Blue Circle Services Ltd. Relying upon the report of the Investigation Wing, Kolkata, the AO concluded that the transactions in question formed part of a scheme for generating bogus LTCG entries. Accordingly, the amount of Rs 1.41 crore claimed as exempt was treated as unexplained cash credit under Section 68 of the Act.

Aggrieved by the addition, the assessee preferred an appeal before the CIT(A), which deleted the addition after noting that the transactions had been done through banking and demat channels and the assessee furnished documentary evidence, including bank statements, contract notes and financial records, to prove the same.

The Tribunal observed several discrepancies in the details relating to the purchase and sale of shares. It found inconsistencies in the number of shares purchased and sold and noted that a portion of the shares of Blue Circle Services Ltd. had been acquired through preferential allotment rather than through a recognised stock exchange.

The Tribunal also recorded that the assessee sought an opportunity to place relevant documents before the AO from the Tribunal.

Considering the facts and circumstances, the Tribunal held that the matter required a fresh examination. Accordingly, it set aside the orders passed by the lower authorities and restored the issue to the file of the AO for fresh adjudication while allowing the appeal of the Revenue for statistical purposes.