ITAT Ahmedabad Deletes Penny Stock Loss Disallowance in LHSL Share Transactions.

The “SMC” Bench of the Income Tax Appellate Tribunal, Ahmedabad, delivered its order on 24 February 2026 in the case of Innovate Derivatives Pvt. Ltd. for Assessment Year 2019–20. The Tribunal examined the reassessment proceedings where the Assessing Officer had treated losses arising from trading in Looks Health Services Ltd. shares as bogus accommodation entries.

Reassessment Based on Alleged Penny Stock Manipulation

The assessee, engaged in trading shares and securities, had declared a business loss including ₹13.18 lakh arising from sale of Looks Health Services Ltd. shares. The assessment was reopened on the ground that the scrip was allegedly a penny stock used for accommodation entries. Despite the assessee furnishing broker ledgers, demat statements, contract notes, and banking records showing genuine purchase and sale through recognised exchanges, the Assessing Officer disallowed the entire loss, holding the transaction to be non-genuine. The CIT(A) upheld this view without independently examining the documentary evidence.

Tribunal Holds Loss Genuine and Deletes Addition

The ITAT observed that the Revenue did not dispute the actual purchase and sale of shares, dematerialisation, or routing of payments through banking channels. The disallowance was based mainly on investigation reports and general suspicion regarding price movements, without concrete evidence of manipulation or collusion by the assessee or its broker. Relying on earlier coordinate bench decisions involving the same scrip, the Tribunal held that mere abnormal price fluctuation cannot justify treating genuine market transactions as sham in absence of corroborative material. Since the assessee had discharged its evidentiary burden, the loss could not be denied.

Accordingly, the ITAT deleted the addition and partly allowed the appeal.