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Judgment
Per Renu Jauhri, Accountant Member:
This appeal by the Assessee is directed against the order dated 30.12.2025 of the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the Assessment Order dated 28.12.2016 passed under section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the Income Tax Officer, Ward 54(1), New Delhi, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2014-15.
Revised grounds of appeal filed by the Assessee are reproduced as under:
“1.That the applicant craves leave to revise the ground no 2, 3, 5 and 6 of the grounds of appeal filed in the above captioned appeal
2 Ground No. 2: That, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition of ₹27,83,695/- under Section 68 read with Section 115BBE of the Act on account of alleged unexplained money and the consequential addition of 55,674/- being alleged commission @2%, along with the addition on account of alleged unexplained expenditure, without any cogent evidence and without properly appreciating the material on record and the provisions of the Act
3.Ground no 3: That, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition of 27,83,695/- made by the Ld. AO, along with the consequential addition of 55,674/- being alleged commission @2%,on account of alleged unexplained expenditure, without appreciating that the appellant's name did not appear in the alleged price-rigging activities and in the absence of any incriminating material linking the appellant with such transactions.
4.Ground no 5: That, on the facts and in the circumstances of the case and in law, the Ld. AO erred in making the addition of ₹27,83,695/- under Section 68 read with Section 115BBE of the Act, along with the consequential addition of 55,674/- being alleged commission @2%, on account of alleged unexplained expenditure, without properly considering the documentary evidence furnished by the appellant in support of the exemption claimed under Section 10(38) of the Act.
5.Ground no 6: That, on the facts and in the circumstances of the case and in law, the Ld. AO erred in making the addition of 27,83,695/- under Section 68 read with Section 115BBE of the Act, along with the consequential addition of 55,674/- being alleged commission @2% on account of alleged unexplained expenditure, without conducting any independent enquiry and merely relying upon the report of the Directorate of Investigation, Kolkata.”
Brief facts of the case are that the assessee filed her return for A.Y. 2014-15 declaring income of Rs. 7,54,526/-. Besides, income from the proprietary business run in the name of M/s Crafts India, the assessee also earned Long Term Capital Gains (LTCG) of Rs. 27,83,690/- on the sale of scrips of Kappac Pharma Ltd. The case was selected for scrutiny and assessment was completed at an income of Rs. 10,42,05,500/- by making various addition and disallowance.
Aggrieved, the assessee preferred an appeal before the CIT(A), who allowed part relief to the assessee. However, the addition on account of disallowance of claim of LTCG of Rs. 27,83,695/- made u/s 68 of the Act, was confirmed by the CIT(A) alongwith consequential addition of Rs. 5,56,741/-, on account of commission @ 2% alleged by paid by the assessee on impugned transaction.
Aggrieved by the order of Ld. CIT(A), the assessee has filed present appeal before the Tribunal.
Before us, the Ld. AR has submitted that the assessee was allotted 4000 equity shares in Kappac Pharma Ltd. in 2012 which were converted into electronic format in 2013; much before the sale in different licensees during the year 2014.
He has pointed out that the husband of the assessee, Sh. Suresh Kumarn Jain had also purchased 6000 shares of M/s Kappac Pharma Ltd., at the same time and those were sold subsequently in A.Y. 2014-15. Under identical facts and circumstances the coordinate bench in his case (ITA No.-1337/Del/2025) had accepted the transaction as genuine and confirmed the decision of Ld. CIT(A), who had deleted the addition after examining the entire transaction of purchase and sale of shares. He has, therefore, submitted that facts and circumstances being identical in this case, the LTCG should be treated as genuine and relief allowed to the assessee.
Ld. DR, on the other hand, has vehemently argued that M/s Kappac Pharma Ltd. had been found to be a penny stock company which was investigated by the SEBI and trading in itsshares was also suspended in 2015. Further, the report of investigation conducted by the Investigation Wing, Kolkata also established that the impugned transactions were bogus and hence the addition made by the AO and confirmed by Ld. CIT(A) deserves to be upheld.
We have heard the rival submissions and perused the material available on record. We note that the assessee had furnished additional details / documents relating to the impugned transaction before the CIT(A) in respect of which, remand report of the AO had been sought. Vide remand report, the AO submitted as under:
“Observations concerning the Merit of Additional Evidences:
(1)Additional Evidence w.r.t. to Addition of Rs. 27,83,695/- u/s 68 read with sec. 115BBE on account of bogus long term capital gain: I have gone through the above records and documents. Prima-facie the said records and documents appear to be genuine. However, it needs to be appreciated that in such cases of bogus claims of long term capital gains, "substance" must prevail over "form" and as such the above documents and records should not be considered to have any evidentiary value in the context of the said addition in respect of bogus claim of long term capital gain of the assessee.”
However, despite above comments of the AO, Ld. CIT(A) held that the purchase and sale of shares were arranged to generate bogus LTCG and confirmed the addition. We note that neither the AO nor the CIT(A) has doubted the documentary evidences furnished by the assessee regarding purchase and sale the shares. Moveover, under identical facts and circumstances, the addition made in the case of Sh. Suresh Kumar Jain was deleted by the CIT(A) and the deletion was also upheld by the coordinate bench in department’s appeal with the following observations:
“4.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. Kаррас 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 view of the facts noted hereinbefore and the decision of the coordinate bench in the identical set of facts, we hereby delete the addition made on account of LTCG of Rs. 27,83,695/-.
Further, since the addition u/s 68 in respect of LTCG of Rs. 27,83,695/- has been deleted, the consequential addition on account of alleged commission @ 2% amounting to Rs. 55,674/- is also deleted.
In the result, appeal of the assessee is allowed.