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2025 (1) TMI 1125 - HC - Income TaxAddition u/s 68 - denial of exemption u/s 10(38) - penny stock used for generating bogus LTCG - Tribunal held that the AO made the addition solely on the ground that the scrips are in the stock whereas the assessee was able to demonstrate that the shares of the company in which the assessee has invested does not appear in the AIR report of the revenue which related to trading in penny stock HELD THAT - Tribunal found that the AO committed a mistake which is apparent on the face of the assessment order. Tribunal also noted that the assessee had submitted details to substantiate the claim and the transaction of the assessee was found to be not in the nature of speculation and the assessee has purchased scrips for long term holding. Tribunal faulted the AO in not considering the voluminous information placed by the assessee during the course of assessment proceedings. Tribunal also referred to the notice issued by the Bombay Stock Exchange dated 17.07.2016 wherein the trading in the company in question namely Wagend Infra Venture Limited resumed with effect from 15.7.2016 and this information made known in the notice issued by the Bombay Stock Exchange was not disputed by the revenue. Tribunal on facts found that in case of the assessee s father the long term capital gains on the sale of some scrips/shares was accepted by the department and this was specifically noted by the CIT(A). CIT(A) has elaborately considered the factual position and the voluminous documents and information furnished by the assessee and the same were re-appreciated by the Tribunal and the order passed by the CIT(A) was affirmed. No substantial question of law. 1. ISSUES PRESENTED and CONSIDERED The judgment addresses the following core legal questions: i) Whether the ITAT erred in law by not appreciating that the Long Term Capital Gain claimed as exempt under Section 10(38) of the Income Tax Act, 1961, from the sale of shares of Wagend Infra Venture Pvt. Limited, was correctly disallowed and added under Section 68 by the Assessing Officer due to the shares being characterized as penny stocks used for generating bogus gains? ii) Whether the ITAT erred in failing to give credence to the investigations by the Assessing Officer and the Investigation Wing regarding the astronomical rise in the price of shares of Wagend Infra Venture Pvt. Limited, which had no net worth, and overlooked the possibility of the transactions being stage-managed to facilitate bogus Long Term Capital Gains? iii) Whether the ITAT erred in deleting the addition made by the Assessing Officer under Section 68, despite the issue being covered by the jurisdictional High Court's decision in the case of Pr. CIT vs. Smt. Swati Bajaj, and exceptions in CBDT's Circular No. 5 of 2024? 2. ISSUE-WISE DETAILED ANALYSIS Issue i: Relevant Legal Framework and Precedents: The case revolves around the interpretation of Sections 10(38) and 68 of the Income Tax Act, 1961. Section 10(38) provides exemption for Long Term Capital Gains from the sale of equity shares, while Section 68 deals with unexplained cash credits. Court's Interpretation and Reasoning: The court examined whether the ITAT correctly appreciated the facts and evidence provided by the assessee regarding the legitimacy of the capital gains claimed. Key Evidence and Findings: The Tribunal found that the assessee provided substantial documentation, including share application forms, bank statements, demat statements, and broker ledger accounts, to substantiate the claim of genuine transactions. Application of Law to Facts: The Tribunal determined that the Assessing Officer's addition was based on presumptions without concrete evidence of the shares being penny stocks. Treatment of Competing Arguments: The Tribunal considered the revenue's argument about the shares being penny stocks but found no supporting evidence from SEBI or the Bombay Stock Exchange. Conclusions: The Tribunal concluded that the assessee had discharged the onus of proving the genuineness of the transactions, and the addition under Section 68 was unwarranted. Issue ii: Relevant Legal Framework and Precedents: The issue involves the assessment of transactions under the lens of human probability and the credibility of investigations conducted by the Income Tax Department. Court's Interpretation and Reasoning: The court evaluated whether the ITAT failed to consider the investigative findings regarding the price rise of the shares and the potential for stage-managed transactions. Key Evidence and Findings: The Tribunal noted that the shares were not listed in the AIR report as penny stocks, and no adverse inference was drawn by SEBI. Application of Law to Facts: The Tribunal found that the transactions were not speculative and were supported by adequate documentation. Treatment of Competing Arguments: The Tribunal rejected the revenue's argument about stage-managed transactions due to lack of evidence. Conclusions: The Tribunal upheld the genuineness of the transactions, dismissing the revenue's claims of manipulation. Issue iii: Relevant Legal Framework and Precedents: The issue involves the applicability of judicial precedents and CBDT circulars on the treatment of capital gains from penny stocks. Court's Interpretation and Reasoning: The court assessed whether the ITAT's decision was contrary to existing legal precedents and circulars. Key Evidence and Findings: The Tribunal found that the CIT(A) had thoroughly examined the evidence and upheld the genuineness of the transactions. Application of Law to Facts: The Tribunal applied the principles from relevant case law and circulars to the facts, finding no basis for the additions made by the Assessing Officer. Treatment of Competing Arguments: The Tribunal addressed the revenue's reliance on the case of Pr. CIT vs. Smt. Swati Bajaj and found it inapplicable to the present facts. Conclusions: The Tribunal concluded that the additions were not justified and upheld the CIT(A)'s decision. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: The court noted, "The Tribunal found that the assessing officer committed a mistake which is apparent on the face of the assessment order." Core Principles Established: The judgment reinforces the principle that substantial evidence must support additions under Section 68, and mere presumptions are insufficient. Final Determinations on Each Issue: The court concluded that no substantial question of law arose for consideration, and the appeal was dismissed.
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