Facts of the Case

  • The assessee declared income including exempt LTCG under Section 10(38).
  • The Assessing Officer (AO) treated LTCG from sale of shares of M/s Gold Line International Finvest Ltd. as bogus.
  • Addition of ₹96,75,939/- was made under Section 68 read with Section 115BBE.
  • AO relied heavily on Investigation Wing reports alleging penny stock manipulation.
  • CIT(A) upheld the addition.
  • ITAT deleted the addition citing lack of independent enquiry and proper evidence.
  • Revenue filed appeal before Delhi High Court under Section 260A 

Issues Involved

  1. Whether the ITAT erred in deleting addition made under Section 68 for alleged bogus LTCG?
  2. Whether reliance on Investigation Wing reports without independent enquiry is sufficient?
  3. Whether abnormal rise in share prices justifies treating LTCG as unexplained income?

Petitioner’s Arguments (Revenue)

  • ITAT erred in law and ignored material facts.
  • AO had conducted enquiry including issuing notices under Section 133(6).
  • Transactions in penny stocks are generally accommodation entries.
  • Human probability test should apply—no prudent investor invests in such stocks.
  • Relied on:
    • Suman Poddar v. ITO
    • Sumati Dayal v. CIT

Respondent’s Arguments (Assessee)

  • Transactions were genuine:
    • Shares purchased and sold through recognized channels
    • Payments made through banking channels
    • Shares held in demat account
  • No direct evidence of bogus transactions or accommodation entries
  • AO failed to conduct proper independent enquiry

Court’s Findings / Order

  • AO relied primarily on suspicion and Investigation Wing reports without corroboration.
  • No independent enquiry was conducted to establish bogus nature of transactions.
  • No evidence of cash exchange or accommodation entry was produced.
  • Transactions were supported by:
    • Demat records
    • Banking transactions
  • Suspicion, however strong, cannot replace evidence.
  • ITAT correctly held that the assessee discharged the burden under Section 68.
  • No substantial question of law arises.

Important Clarifications by Court

  • Investigation Wing reports alone are insufficient without independent verification.
  • Human probability theory cannot override documentary evidence.
  • Abnormal price rise in shares is not conclusive proof of bogus transaction.
  • Burden under Section 68 stands discharged when:
    • Identity
    • Genuineness
    • Creditworthiness
      are established through documentary evidence

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:188-DB/SVN15012021ITA1252020_115829.pdf 

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