Long Term Capital Gains on Bogus Penny Stocks- Addition under section 68 deleted

Facts:

• The assessee is a trader in shares. During the relevant assessment year, the assessee sold shares of M/s Sunrise Asian Limited for a total consideration of Rs. 14,99,917/-. The amount was directly credited to his bank account.
• The Long-Term Capital Gain accruing on such sale was claimed as exempt under section 10(38) of the Income Tax Act.
• The A.O. in assessment proceedings held the aforesaid amount as unexplained credit u/s 68 read with section 115BBE of the Act.
• The ld. A/R of the assessee pointed that the assessee had furnished various documents to substantiate that the amount credited to the bank was sale proceeds of shares of M/s Sunrise Asian Limited. However, the A.O. rejected the submissions of the assessee.
• The CIT (A) also rejected the contentions of the assessee and upheld the order passed by the A.O.

ITAT Verdict:

• The authorities as above [A.O. as well as CIT(A)] have not doubted the documentary evidence produced by the assessee to prove genuineness of the transaction of sale and purchase of the shares in question.
• Further, the authorities have not pointed out any evidence on record to hold that the assessee has obtained bogus entries in connivance with entry operators and brokers etc. in order to claim bogus LTCG.
• The assessee was not given an opportunity to cross examine the witnesses whose statements were relied upon and on the basis of their statements it was concluded that the transaction in question was a part of penny stock scam.
• So, in view of the cases discussed and particularly the ratio laid down by the Hon’ble Supreme Court in the case of M/s Andaman Timber Industries, we are of the considered view that the Ld. CIT(A) has wrongly confirmed the assessment order passed by the A.O. in violation of the principles of natural justice.
• We, therefore, allow the ground of appeal of the assessee and direct the A.O. to allow the claim of the assessee.

Anjana Sandeep Rathi Vs. ACIT

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