NICAI Update
CA Raj Chawla
Respected Members,
Quotes of the day;
1.The greatest mistake we Humans make in our relationships: We listen to Half, Understand Quarter, Think Zero and React Double. Speak Less Listen More Ratio is 3:1. Whosoever follows is the most loving person in this world.
2. You never know which footstep will bring a good twist in life. So keep walking Because
Happiness comes when it is most unexpected.
NICAI Update;
1. The Supreme Court has affirmed the Income Tax Appellate Tribunal’s decision to delete additions made on account of alleged bogus Long Term Capital Gains from penny stock shares, by dismissing the Revenue’s Special Leave Petition.
2. Background of the case:The matter relates to Assessment Year 2015-16 for assessee Neelu Mahansaria, who declared total income of ₹5,35,440. During scrutiny, the Assessing Officer doubted the authenticity of LTCG declared from sale of shares of M/s Mishka Finance & Trading Ltd, treating the script as a “penny stock” used for artificial gains.
3. The AO reopened the assessment and made additions of ₹25,26,325 under Section 68 as undisclosed income and ₹1,26,316 under Section 69C as alleged commission paid to brokers.
4. The ITAT found that the assessee had produced all relevant documents including purchase and sale bills, demat statements, bank records, and contract notes to validate the genuineness of the transactions. It relied on _Himani M. Vakil v. CIT_ where the Gujarat High Court held that an AO cannot tax capital gain if the assessee proves the genuineness of sale transactions through relevant material. The ITAT deleted the additions.
5. Supreme Court’s decision: The Revenue filed an SLP against the ITAT/HC order, but the Supreme Court dismissed it. The dismissal came after noting a 154-day delay in filing the SLP. The Court did not interfere with the ITAT’s verdict, affirming the deletion of the bogus LTCG addition.
6. Key legal takeaways from similar ITAT rulings on penny stock LTCG:
The Supreme Court’s dismissal aligns with a consistent ITAT approach where documentary evidence outweighs general allegations:
7. Documentary proof, suspicion*: ITATs have repeatedly held that mere reliance on investigation reports, abnormal price rise, or penny stock categorization cannot override legal documentary evidence like contract notes, demat statements, and bank records.
8. No live link required*: Mere abnormal rise in share price or general investigation reports cannot make a genuine exchange-traded transaction bogus unless a live link is shown between the assessee and alleged entry operators.
9. Natural justice*: Additions were deleted where the Revenue relied on third-party statements without offering cross-examination to the assessee.
10. Burden on Revenue*: The burden lies on the Revenue to prove that an apparently genuine transaction is not real. Suspicion, however strong, cannot replace proof.
11. Practical impact: This order reinforces that taxpayers who can substantiate penny stock transactions with complete documentary trail - purchase bills, demat holdings for >1 year, STT payment, banking channels for sale proceeds - are likely to get relief even if the scrip is flagged as a penny stock. The Revenue must bring assessee-specific evidence of collusion or accommodation entries to sustain additions.
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With best regards
CA (Dr) Raj Chawla
B.Com (Hons), FCA, FCS, FCMA, LLB
MIMA, DISA, MICA, Phd, ASA (Aust), CMP (USA)
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