Shares sold after seven years cannot be considered as an accommodation entry in penny stock
Shares sold after seven years cannot be considered as an accommodation entry in penny stock – Supreme Court dismisses SLP
In a recent judgment, Hon’ble Supreme Court has dismissed a SLP of the Revenue on the alleged accommodation entry in penny stock company. The Hon’ble High Court had upheld the finding of the ITAT that considering that shares were sold after seven years and therefore, the proximity of time between the buy and sale of shares cannot be considered as an accommodation entry in penny stock company within a short period of about one year to book bogus of Long Terms Capital Gain or loss to defraud the Revenue.
ABCAUS Case Law Citation:
4375 (2025) (01) abcaus.in SC
During the year under consideration, the respondent assessee earned income from house property, income from capital gain and income from other sources. During the scrutiny assessment, the Assessing Officer (AO) received information from the Kolkata Investigation Directorate who had undertaken investigation into large penny stocks and given detailed findings indicating bonus LTCG / STCL and bogus loss entries claimed by large number of beneficiaries.
As per the information received by the Assessing Officer, it was revealed that the respondent assessee made transaction in a penny stocks company scrip. The Assessing Officer found from the return of income filed by the respondent assesee that the assessee had claimed exemption under Section 10(38) of the Act which included transaction in respect of the penny stocks company. The Assessing Officer, therefore, reopened the assessment under Section 147 of the Act by issuing notice under Section 148 of the Act after obtaining necessary approval from the Principal CIT.
The respondent assessee submitted before the Assessing Officer that the transaction was done through broker and STT was paid by the assessee through broker and banking channel, but the said contention was rejected by the Assessing Office.
Being aggrieved, the assessee preferred appeal before the CIT(A) who confirmed the action of the Assessing Officer.
Aggrieved by the order passed by the CIT(A), the assessee preferred appeals before the Tribunal. The Tribunal, by common order, allowed the three appeals relying upon the decision of the Hon’ble Gujarat High Court.
The Tribunal observed that the proximity of the time between the buy and sale of shares in case of these assessees ranged between 7 Years to 8 Years. It was not the case that assessee took the accommodation entry in penny stock, within a period of two or three months to ook bogus LTCG or loss, to defraud the Revenue. The assessee, as on Investor, held the share for long time. Hence the assessee was an Investor and therefore should not be treated to engage in fraudulent activities/manipulation activities.
Aggrieved by the order of the Tribunal, the Revenue filed an appeal before the Hon’ble High Court.
The Hon’ble High Court observed that the Assessing Officer and the CIT(A) ignored facts which were considered by the Tribunal to arrive at a finding of fact that the period of holding of shares by the respondent assessee, arrived at a finding that the Long Term Capital Gain earned by the assessee was not a significant amount and therefore, held that the assessee cannot be said to have taken an accommodation entry by entering into transaction of shares in the penny stock company.
The Hon’ble High Court opined that no questions of law much less any substantial question of law arose on the facts of the case and finding of facts arrived at by the Tribunal. Accordingly, the appeal was dismissed.
Not satisfied with the judgment of the High Court, the Revenue challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP).
The Hon’ble Supreme Court dismissed the SLP of the Revenue with following observations;
“Having heard the learned counsel appearing for the petitioner and having gone through the materials on record, we see no reason to interfere with the impugned order passed by the High Court. The Special Leave Petition is, accordingly, dismissed.”
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