Assessee can’t be said to indulged in penny stock sale without showing his involvement

Assessee could not said to indulged in penny stock sale on human probabilities without showing his involvement – ITAT deleted addition under section 68

In a recent judgment ITAT Delhi deleted addition observing that applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider

ABCAUS Case Law Citation:
4854 (2025) (11) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition u/s 68 of the Income Tax Act, 1961 (the Act)

The case of the assessee was picked up for limited scrutiny and during the assessment proceedings, the assessee’s claim of earning capital gain from the sale of shares of two companies was examined.

The AO found the claims to be not genuine and considered these scrips to be penny stock and disallowed the claim making addition u/s 68 of the Act.

Before the Tribunal the assessee placed reliance on the decision of the Co-ordinate Bench in the case of the relaive of the assessee where the scrips of the two companies in question were considered and it was held that the transactions of the assessee were not tainted.

In the said decision the Co-ordinate Bench had observed that merely because of huge profit, it does not make the script a penny stock. Even though all the characteristics of the penny stock existed, still the revenue did not bring on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there was no mention or reference to the involvement of the assessee. The Co-ordinate Bench opined that it can only presume that the assessee was one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit.

Now, in the given case, the Tribunal observed that like in the case decided by the Co-ordinate Bench and relied upon by the assessee, in the instant case also, the Assessing Officer and CIT(A) had applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee was involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court.

Therefore, the Tribunal held that there was no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. 

Accordingly, following the ratio of the Co-ordinate Bench and Bombay High Court, the Tribunal allowed the ground raised by the assessee.

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