Facts of the Case

The assessee filed his return of income for Assessment Year 2011–12 declaring total income of ₹5,56,050 from salary and house property and declaring Long-Term Capital Gain of ₹30,55,833 as exempt under Section 10(38) of the Income-tax Act, arising from sale of equity shares on which Securities Transaction Tax was paid.

The assessment was reopened under Section 147 on the basis of information allegedly received from PMO/Investigation Wing stating that certain beneficiaries had earned bogus LTCG through penny stock transactions, including shares of Global Capital Market Ltd. Notice under Section 148 was issued and reassessment proceedings were completed by treating the LTCG as bogus and adding ₹30,55,833 to the total income.

The addition was sustained by the Commissioner of Income Tax (Appeals), who relied upon certain non-jurisdictional High Court and Tribunal decisions relating to penny stock transactions.

Issues Involved

Whether long-term capital gains arising from sale of equity shares can be treated as bogus merely on the basis of investigation reports and suspicion, despite the assessee producing complete documentary evidence of purchase and sale through recognised stock exchanges, demat accounts, banking channels and payment of STT.

Petitioner’s Arguments

The assessee contended that he had fully discharged the onus cast upon him under the Income-tax Act by producing purchase bills, sale contract notes, demat statements, bank statements evidencing receipt of sale consideration and proof of payment of STT. It was argued that the Assessing Officer did not dispute the authenticity of the documents nor brought any evidence to show exchange of unaccounted money or manipulation of transactions.

The assessee placed strong reliance on the binding jurisdictional judgment of the Hon’ble Jharkhand High Court in CIT vs Arun Kumar Agarwala (HUF), wherein it was held that LTCG cannot be treated as bogus merely on suspicion once documentary evidence is produced and not disproved by the Revenue. It was contended that the CIT(A) erred in ignoring the binding jurisdictional High Court decision.

Respondent’s Arguments

The Revenue relied on the orders of the Assessing Officer and the CIT(A) and submitted that penny stock transactions have been held to be bogus in several cases and that surrounding circumstances justified the addition made in the present case.

Court Order / Findings

The Tribunal held that it is a settled principle of law that decisions of the jurisdictional High Court are binding on all subordinate authorities. The Tribunal noted that the assessee specifically relied upon the judgment of the Hon’ble Jharkhand High Court in CIT vs Arun Kumar Agarwala (HUF), which dealt with identical facts and issues. The CIT(A) neither distinguished nor explained why the said judgment was not applicable.

The Tribunal observed that the assessee produced all relevant documentary evidence including contract notes, demat account statements, bank statements evidencing receipt of sale proceeds and proof of payment of STT. The Assessing Officer neither disputed the documents nor established that the transactions were manipulated or that any cash was exchanged.

The Tribunal held that the addition was made solely on the basis of general investigation reports and third-party information relating to penny stocks, and reiterated that suspicion, however strong, cannot take the place of evidence. In the absence of any adverse material disproving the assessee’s evidences, the LTCG declared by the assessee was held to be genuine.

Important Clarification

The Tribunal clarified that ignoring a binding jurisdictional High Court judgment and relying on contrary non-jurisdictional decisions is impermissible in law. Long-term capital gains supported by documentary evidence cannot be disallowed merely on the basis of suspicion or general investigation inputs without concrete evidence.

Final Outcome

The Income Tax Appellate Tribunal, Ranchi Bench, allowed the appeal of the assessee, deleted the addition of ₹30,55,833 made on account of alleged bogus long-term capital gain, and held that the LTCG declared by Bijoy Kumar Agarwal was genuine. The order was pronounced on 06.01.2026.

 

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769078995_BIJOYKUMARAGARWALRANCHIVS.ACITDCITCENTRALCIRCLE1RANCHI.pdf

 

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