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Informative

Income Tax Appellate Tribunal on Bogus Long-Term Capital Gains and Penny Stock Allegations.

Update / Judgement Date

29 Oct 2025

Source

WCP News Bulletin

Author

Sakshi Bhardwaj — WCP Legal Desk

Reading Time

3 min read

Financial ManagementIncome Tax
Income Tax Appellate Tribunal on Bogus Long-Term Capital Gains and Penny Stock Allegations.
WCP News Bulletin
Headnote:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, allowed the appeal of the assessee Archit Gupta and deleted the addition of ₹47,22,700 made under Section 68 of the Income Tax Act on account of alleged bogus Long-Term Capital Gain (LTCG) from sale of shares of M/s Goenka Business and Finance Ltd. The Tribunal held that merely earning high profits from share transactions does not make them “penny stock” transactions or bogus unless there is concrete evidence linking the assessee to manipulation, rigging, or accommodation entry operations.


Background:
  1. The assessee filed a return of income declaring ₹55,22,740 for A.Y. 2016–17.
  2. Based on information from a search on share brokers, the assessment was reopened under Section 147 alleging the assessee had taken accommodation entries in the form of bogus LTCG.
  3. The Assessing Officer (AO) made an addition of ₹47,22,700 under Section 68.
  4. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition on 19.09.2022.
  5. The assessee appealed before the ITAT, citing earlier orders in his own case for A.Ys. 2012–13 and 2013–14, where similar additions were deleted.


Tribunal’s Observations:
  1. The Tribunal reiterated findings from its earlier orders (06.11.2024) in the assessee’s own case, emphasizing that mere high profits do not render a transaction bogus.
  2. The AO had relied on presumptions and the concept of human probabilities without tangible evidence of manipulation, rigging, or connection to entry operators.
  3. No discrepancy was found in the documents submitted—purchases and sales were through demat accounts, payments through banking channels, and STT was duly paid.
  4. The Tribunal cited several judgments reinforcing the principle that suspicion cannot replace proof:
  5. Pr. CIT v. Ziauddin A. Siddique (Bombay High Court, 04.03.2022) – mere abnormal price rise doesn’t justify addition without evidence of manipulation.
  6. Pr. CIT v. Smt. Krishna Devi (Delhi High Court, ITA 125/2020, 15.01.2021) – additions based solely on probability and general reports on penny stocks are unsustainable without corroborative evidence.


Legal Provisions Discussed:
  1. Section 68, Income Tax Act, 1961 – Unexplained cash credits.
  2. Section 10(38), Income Tax Act, 1961 – Exemption for LTCG from listed shares (applicable at the time).
  3. Section 147, Income Tax Act, 1961 – Reassessment based on information or reason to believe income has escaped assessment.


Decision:
  1. The Tribunal held that no material evidence was brought by the Revenue to establish that the assessee was involved in any dubious share transaction or manipulation.
  2. Following its own earlier decisions and binding precedents, the ITAT allowed the appeal and deleted the addition made under Section 68.
  3. Appeal Allowed.


Citation: ITA No. 2527/Del/2022 (A.Y. 2016–17)

Case: Archit Gupta v. Assistant Commissioner of Income Tax, Circle 29, New Delhi

Court: Income Tax Appellate Tribunal, Delhi Bench ‘E’, New Delhi

Coram: Shri S. Rifaur Rahman (Accountant Member) & Shri Yogesh Kumar U.S. (Judicial Member)

Date of Decision: 29 October 2025

Counsel for Assessee: Sh. Ruchesh Sinha, Adv., Ms. Monalisa Maity, Adv.

Counsel for Revenue: Sh. Shankar Lal Verma, Sr. DR