No addition on account of sale of penny stock, if no direct involvement of the assessee: Bombay HC
PCIT Vs Indravadan Jain, HUF (Bombay High Court)
Appeal Number : Income Tax Appeal No. 454 of 2018
1. The Assessee had sold shares of Ramakrishna Fincap Ltd (RFL) and the long-term capital gains earned on the sale of said shares was claimed as exempt u/s 10(38) of the Act. The shares were purchased by the Assessee at Rs. 3.12/- per shares in the year 2003 and had sold the same in the year 2005 for Rs. 155.04/- per share.
2. The AO had during the course of investigation has revealed that the scrip was as penny stock and that the capital gains declared by the Assessee was held to be accommodation entries.
3. The learned AO did not accept the Assessee’s claim of long-term capital gain as exempt and held the same as accommodation entry and made addition u/s 68 of the Act.
Hon Bombay HC held as below:
1. The decision of Hon’ble Mumbai Tribunal is upheld, wherein the Tribunal had held that since the shares were purchased on the floor of stock exchange and not from the accused broker, payment was made through banking channel, deliverables were taken in DEMAT account where the shares remained for more than one year, contract notes were issued and the shares were also sold on stock exchange, the long-term capital gains claimed as exempt cannot be treated as accommodation entry.
2. No evidence was brought on record to prove that the assessee was also involved in inflating the price of the scrip.
3. No infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises and so LTCG is not an accommodation entry.
This path breaking High Court order is extremely positive for many pending penny stock cases. It indicates that in order to treat exempt long-term capital gain earned from sale of shares as accommodation entry under section 68, the Assessee’s direct involvement in price rigging of the scrip should be conclusively proved besides the broker’s involvement.
The Copy of the Order……