LTCG exemption from penny stocks is not entitled to exemption U/S 10(38) of the Income Tax Act: ITAT Kolkata

 

Facts:

1. During the assessment proceedings, the Assessing Officer noted that the HUF had purchased 25,000 equity shares of the company on 15.03.2013 for a total of Rs. 14,97,708/-. In the assessment year under consideration, the HUF sold these shares for a total consideration of Rs. 62,23,703/-.

2. The Assessing Officer observed discrepancies in the financial statements of the company, indicating that the increase in the share price was not commensurate with its business activities. Additionally, the company was listed as one of 84 penny stock companies on the Bombay Stock Exchange, linked to unscrupulous brokers, entry operators, and money launderers involved in providing bogus accommodation entries.

3. The Assessing Officer concluded that the HUF had dealt with a penny stock company, and therefore, the claimed LTCG was bogus and not eligible for exemption under section 10(38). The alleged sale consideration was treated as unexplained cash credit under section 68.

4. The HUF’s appeal to the Commissioner of Income Tax (Appeals) did not yield a favorable outcome, leading them to file an appeal before the Tribunal.

ITAT Kolkata held as under:

1. The issue concerned the genuineness of the claim for exempt income under section 10(38) regarding LTCG from the sale of equity shares of penny stock companies.

2. The burden of proof was on the assessee to establish the genuineness of the transactions, and in the absence of such evidence, the authorities were justified in treating the income as unexplained cash credit.

3. The LTCG claims were not valid, and the income should be treated as undisclosed income.

The copy of the order is as under:

1695274580-ITA-1782-KOL-2018