The Delhi bench of Income Tax Appellate Tribunal (ITAT) has held that CBDT Circular exception for bogus penny stock Long Term Capital Gain (LTCG) or Short Term Capital Loss (STCL) does not apply where assessee has claimed business loss; revenue appeal below monetary limit not maintainable.
The bench of Yogesh Kumar U.S. (Judicial Member) and Manish Agarwal (Accountant Member) has observed that the CBDT circular carve-out permitting appeals in cases of bogus penny stock LTCG/STCL applies only where losses are claimed under the head “Capital Gains.” Where the assessee has disclosed the transaction results as Business Loss from share trading, the exception is inapplicable. Since the tax effect was below the monetary threshold, the Revenue’s appeal was held to be not maintainable.
The Assessee filed his return of income declaring a ‘Business Loss’ from trading in shares through his proprietary concern, M/s Sterling Security Systems. The return filed by the Assessee was scrutinized and assessed u/s 143(3), wherein the A.O. examined the share trading activity and accepted the Assessee’s claim as ‘Business Loss’. A search u/s 132 of the Income Tax Act, 1961 was conducted and assessment under section 153At was completed, but no incriminating material relating to the relevant year was found. The assessment order was quashed by the Tribunal vide order dated 09/03/2022.
Thereafter, a notice u/s 148 of the Income Tax Act, 1961 was issued based on Investigation Wing information alleging bogus Short Term Capital Loss from trades in scripts of PMC Fincorp Ltd. and Cubical Financial services Ltd.
The assessment order came to be passed by making an addition of Rs. 1,61,43,692 on account of accommodation entry of bogus Short Term Capital Loss.
The Assessee preferred an appeal before the CIT(A). The CIT(A) allowed the Appeal of the Assessee on several grounds including the ground that A.O. has incorrectly treated sale of shares as Short Term Capital Loss while it was actually the Business Loss duly declared in the ITR and audited balance sheet.
Aggrieved by the order of the CIT(A), the department preferred the Appeal. Admittedly, the tax effect involved in the Appeal of the department is Rs. 49,88,400 which is less than the monetary limit to file the Appeal before the Tribunal as per the CBDT Circular No.09 of 2024 dated 17/09/2024. However, it is the contention of the Department’s Representative that, it is the case of claiming bogus Short Term Capital Loss through penny stock, thus comes under the exceptions mentioned in the circular, therefore, the present appeal is maintainable.
The assessee contended that the Assessee has claimed the Business Loss from trading shares through his propriety concerns M/s Sterling Security Systems and at no point of time claimed any Short Term Capital Loss.
The ITAT dismissed the appeal and held that the case of the Assessee will not come under the purview of exception mentioned in the CBDT.
Case Details
Case Title: DCIT Versus Satya Prakash Gupta
Case No.: I.T.A. No. 3925/DEL/2023
Date: 24/09/2025
Counsel For Appellant: Adv.Sumit Lalchandani
Counsel For Respondent: Mahesh Kumar, CIT (DR)
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