Deputy Commissioner Of Income Tax vs Suresh Kumar Jain

PER VIKAS AWASTHY, JM:

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘the CIT(A)’ dated 27.11.2024, for AY 2014-15.

Narrating facts of the case Shri Mayank Patawari appearing on behalf of the assessee/respondent submits, that during the period relevant to assessment year under appeal, the assessee had sold 4300 shares of M/s. Kappac Pharma Ltd. for a total consideration of Rs.29,94,700/-. The Long-Term Capital Gain (LTCG) on sale of said shares was claimed as exempt by the assessee. The assessee had purchased 6000 shares of M/s. Kappac Pharma Ltd. from Om Swaroop Commodities P. Ltd. @ Rs.13 per share on 27.11.2012 in physical form for a total consideration of Rs.78,000/-. Subsequently, the shares were transferred to De-mat account of the assessee. Thereafter, the assessee sold aforesaid shares on various dates in the month of February 2014 for a total consideration of Rs.29,94,700/-. The Assessing Officer (AO) without examining the transaction merely on the basis of information received from Investigation Wing, Kolkata made addition on the LTCG claimed as exempt by the assessee, as bogus. The only reason for disallowing assessee’s claim of LTCG as exempt is that the shares of M/s. Kappac Pharma Ltd. are classified as penny stock. Against the assessment order dated 29.03.2022 passed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), the assessee filed appeal before the CIT(A). The CIT(A) after examining the entire transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd. deleted the addition. The ld. AR reiterating the submissions made before the CIT(A) and findings of the CIT(A) prayed for dismissing appeal of the Revenue. He further submitted that the Division Bench of the Tribunal in various cases has deleted the additions, where the Department had made addition holding the transaction of sale of shares of M/s. Kappac Pharma Ltd. as bogus. He placed reliance on following decisions to support his submissions:-

Per contra, Shri Manoj Kumar representing the department vehemently defending the assessment order submits that the shares of M/s. Kappac Pharma Ltd. are declared penny stock. Since, the assessee has indulged in trading of penny stock, the AO disallowed assessee’s claim of exemption on sale of penny stock. The ld. DR prayed for upholding the assessment order and reversing findings of the CIT(A). The ld. DR submits that the Hon’ble Delhi High Court in the case of Udit Kalra vs. ITO, in ITA No.220/2019 decided on 08.03.2019 dismissed appeal of the assessee, where the AO, the CIT(A) and the ITAT had consistently held that share of M/s. Kappac Pharma Ltd. is a penny stock and the LTCG on sale of said shares in bogus.

Both sides heard, orders of the authorities below examined. A perusal of the assessment order shows that the AO based on the information received from Investigation Wing formed an opinion that the LTCG earned by the assessee on sale of shares of M/s. Kappac Pharma Ltd. is bogus as the shares of said company fall in the category of penny stock. The AO made addition of the entire LTCG claimed by the assessee on sale of shares of M/s. Kappac Pharma Ltd. I find that the AO in the assessment order has given a detailed finding explaining characteristics of a penny stock, role of share brokers, financial analyses of company, role of operator, role of promoter of penny stock companies in artificial rigging of penny stock shares prices and the manner in which penny stock is traded. The AO further explained as to how the penny stocks are used as artificial mode of reducing tax liability. However, in the entire assessment order, the AO has not established the nexus of assessee or the broker of the assessee in price rigging of the shares or the role of assessee or its broker in alleged penny stock scam resulting in artificial booking of bogus LTCG. The AO after having recorded the fact of assessee having sold shares of M/s. Kappac Pharma Ltd. and having earned LTCG on sale of said shares referred to the investigation report from Investigation Wing, Kolkata explaining modus operandi of trading in penny stock and role of share brokers, etc. The AO in the penultimate paragraph of the order concludes that the amount realized from the sale of shares of M/s. Kappac Pharma Ltd. is unexplained money u/s.69A of the Act and made addition of the same. There is no whisper in the assessment order alleging the transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd. by the assessee was in any manner fixed or premeditated. The assessee is order to discharge its onus in proving genuineness of transaction had furnished contract notes, demat statement and details of banking transactions. Hence, the AO has failed to establish that the transaction of sale of shares by the assessee is bogus. No controverting material is brought on record by the Revenue to dislodge findings of the First Appellate Authority. I find no infirmity in findings of the CIT(A) in deleting the addition.

In the result, impugned order is upheld and appeal of the Revenue is dismissed.