Supreme Court Dismisses Revenue’s SLP Against Deletion of Section 68 Penny Stock LTCG Addition Supported by Complete Documentary Evidence

Supreme Court Dismisses Revenue’s SLP Against Deletion of Section 68 Penny Stock LTCG Addition Supported by Complete Documentary Evidence

Supreme Court Dismisses Revenue’s SLP Against Deletion of Section 68 Penny Stock LTCG Addition Supported by Complete Documentary Evidence

Issue

Whether the Supreme Court should interfere with the High Court’s decision affirming the deletion of a Section 68 addition on LTCG from share sales when the assessee submitted full documentary evidence and no adverse proof of price rigging was established against the broker.

Facts

• The assessee-company claimed an exemption for Long-Term Capital Gains (LTCG) under Section 10(38) arising from the sale of equity shares in company ‘S’ during Assessment Year 2015-16.

• Based on information from the Investigation Wing alleging that company ‘S’ was an entity used for providing bogus accommodation entries, the Assessing Officer (AO) made an addition under Section 68, treating the transaction as a penny stock accommodation entry.

• The assessee submitted comprehensive documentary proof, including contract notes, Demat account statements, and details regarding the allotment of bonus shares.

• The Income Tax Appellate Tribunal (ITAT) deleted the addition, observing that the Revenue failed to produce any adverse evidence to rebut the assessee’s documents or establish that the broker involved was implicated in price manipulation or accommodation entry schemes.

• The High Court affirmed the Tribunal’s decision, holding that no substantial question of law arose from the order.

• The Revenue filed a Special Leave Petition (SLP) before the Supreme Court challenging the judgment of the High Court.

Decision

• The Supreme Court held that there was no valid ground to interfere with the impugned order passed by the High Court.

• The Special Leave Petition (SLP) filed by the Revenue was accordingly dismissed.

• The issue was decided entirely in favor of the assessee.

Key Takeaways

• Documentary Evidence Prevails Over Broad Investigation Reports: Section 68 additions cannot stand purely on generalized Investigation Wing reports when the assessee provides valid contract notes, Demat statements, and banking trails.

• Burden of Proof on Revenue for Allegations of Rigging: The Revenue must produce specific, direct evidence linking either the assessee or the stockbroker to price manipulation before treating LTCG from listed shares as bogus penny stock entries.

• Finality at Supreme Court Level: Dismissal of the Revenue’s SLP reinforces judicial consistency—where factual findings by tribunals in favor of genuine share transactions are affirmed by the High Court, higher courts will not interfere without a demonstrated perversity in law.