Mere Investigation Reports, Abnormal Price Rise Can’t Render Genuine Stock Exchange Transactions As Sham: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that mere reliance on investigation reports and abnormal price rise, without cogent evidence linking the assessee to any manipulation, cannot justify treating genuine stock exchange transactions as sham. The bench of Vimal Kumar (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that the shares were purchased through account payee cheques. They were dematerialized and reflected in the demat account. Sales were executed through a recognized stock exchange. Consideration was received through banking channels. No discrepancy was found in the documentary evidence submitted. The appeal arose from an order of the Commissioner of Income Tax (Appeals)-34, New Delhi, which had upheld the assessment framed under scrutiny proceedings. The Assessing Officer (AO) had denied exemption under Section 10(38) of the Income Tax Act, 1961, in respect of LTCG amounting to ₹4,62,18,791 and further added 2% commission under Section 69C, alleging that the assessee had used a penny stock to convert unaccounted income into exempt capital gains. The assessee had filed her return declaring total income of ₹79.79 lakh. During scrutiny, the AO noticed that she had claimed exemption under Section 10(38) on LTCG arising from purchase and sale of shares of Goldline International Finvest Ltd. According to the record, the shares were acquired through preferential allotment in December 2012 and March 2013 and were sold between May 2014 and September 2014 on the Bombay Stock Exchange (BSE). The transactions were executed through a SEBI-registered broker, supported by contract notes, demat statements, and banking channel payments. Securities Transaction Tax (STT) had also been paid. However, the AO relied heavily on reports from the Investigation Wing, which had examined alleged penny stock operations across various cities. The financials of the company were analyzed, and the sharp rise in share prices was cited as indicative of manipulation. The AO concluded that the transaction followed a typical modus operandi of bogus LTCG schemes and treated the entire gain as unexplained income. Additionally, commission expenditure of ₹9.24 lakh was added. The CIT(A) sustained the additions and further enhanced the assessment by disallowing ₹10 lakh claimed as cost of acquisition. It observed that the AO’s conclusion was primarily based on the steep appreciation in share price and generalized investigation findings concerning penny stocks. However, there was no material on record establishing any direct connection between the assessee and alleged entry operators, price rigging, or accommodation entry providers. The Tribunal emphasized that suspicion arising from a substantial increase in share price cannot substitute for proof. It held that merely because the financial performance of the company did not appear commensurate with the rise in market price, the transaction could not automatically be branded as bogus in the absence of specific incriminating material against the assessee. The Tribunal found the case to be squarely covered by the judgment of the Delhi High Court in PCIT v. Krishna Devi, where similar additions were struck down. In that decision, the High Court had ruled that investigation reports and abnormal price movements, without independent corroborative evidence linking the assessee to a fraudulent scheme, are insufficient to sustain additions. The ITAT reproduced and relied upon the High Court’s reasoning that conclusions based purely on conjecture, human probabilities, or generalized modus operandi—without concrete evidence of cash circulation or collusion—cannot justify denial of statutory exemptions. The Tribunal also referred to the ruling of the Bombay High Court in Pr. CIT v. Ziauddin A. Siddique, reiterating that the Revenue must establish a direct nexus between the assessee and alleged accommodation entries before invoking such additions. The Tribunal noted that the AO had not unearthed any evidence of money changing hands between the assessee and any entry operator. Even though SEBI had initiated proceedings against the company and its directors, the Tribunal clarified that no material was brought on record to show that the assessee was involved in or aware of any alleged manipulation. Holding that the additions were based on presumptions rather than evidence, the Tribunal allowed the appeal in full. The disallowance of LTCG exemption under Section 10(38), the enhancement of ₹10 lakh towards cost of acquisition, and the addition of ₹9.24 lakh under Section 69C were all deleted. Case Details Case Title: Jaya Singh Versus ACIT Citation: JURISHOUR-221-ITA-2026(DEL) Case No.: ITA No.4403/Del/2019 Date: 27.02.2026 Counsel For Appellant: P.K.Jain, CA & Sh. Akshit Jain, CA Counsel For Respondent: Harpreet Kaur Hansra, Sr. DR Click Here To Read Order Read More: ITAT Quashes Search Assessments Over Mechanical S. 153D Approval for Each AY

Mere Investigation Reports, Abnormal Price Rise Can’t Render Genuine Stock Exchange Transactions As Sham: ITAT

Membership Required

Latest articles

Vivad Se Vishwas Benefit Can’t Be Denied Merely Because Case Originated From Survey Material Linked to Search Proceedings: Gujarat High Court

CESTAT Quashes Excise Duty Demand Before March 2008 in Alleged MRP Suppression Case, Orders Fresh Recalculation

No Sugar Cess Payable on Sugar Exported Out of India: CESTAT

DGFT Public Notice Can’t Impose Actual User Condition on Transferable DFIA: CESTAT

More like this

Vivad Se Vishwas Benefit Can’t Be Denied Merely Because Case Originated From Survey Material Linked to Search Proceedings: Gujarat High Court

CESTAT Quashes Excise Duty Demand Before March 2008 in Alleged MRP Suppression Case, Orders Fresh Recalculation

No Sugar Cess Payable on Sugar Exported Out of India: CESTAT

About us

Company

Categories