ITAT Delhi Upholds Deletion of LTCG Addition on Kappac Pharma Shares — No Nexus Established Between Assessee and Penny Stock Manipulation
Case Reference
DCIT Vs Suresh Kumar Jain (ITAT Delhi)
Assessment Year: 2014–15
Order of CIT(A), NFAC: 27.11.2024
ITAT Order Pronounced: 08.04.2026
Background and Facts of the Case
The present matter arose from an appeal filed by the Revenue before the Income Tax Appellate Tribunal, Delhi, challenging the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 27.11.2024, pertaining to Assessment Year 2014–15.
The assessee, Suresh Kumar Jain, had acquired 6,000 shares of M/s. Kappac Pharma Ltd. in physical form on 27.11.2012, purchasing them from Om Swaroop Commodities P. Ltd. at a rate of ₹13 per share, amounting to a total investment of ₹78,000. These physical shares were subsequently transferred into the assessee's demat account.
During February 2014, the assessee offloaded 4,300 of these shares through multiple transactions, realising a total sale consideration of ₹29,94,700. The resulting Long-Term Capital Gain (LTCG) was claimed as exempt from tax under the applicable provisions of the Income Tax Act, 1961.
Reopening of Assessment and Addition by the Assessing Officer
The Assessing Officer (AO) reopened the assessment under Section 147 read with Section 144B of the Income Tax Act, 1961. The basis for reopening was information received from the Investigation Wing, Kolkata, which had flagged the shares of M/s. Kappac Pharma Ltd. as penny stock.
Acting on this intelligence input, the AO proceeded to disallow the exemption claimed on the LTCG. The entire LTCG amount was treated as bogus income and added to the assessee's total income as unexplained money under Section 69A of the Act.
The assessment order contained elaborate observations on:
- The general characteristics and mechanics of penny stock transactions
- The manipulative role played by share brokers in artificially inflating prices
- The financial profile and conduct of penny stock companies
- The role of operators and promoters in rigging share prices
- The manner in which penny stocks are exploited as a tool for tax evasion through bogus LTCG claims
However, despite this detailed general discussion, the assessment order conspicuously failed to establish any specific connection between the assessee — or the assessee's broker — and the alleged price rigging or penny stock manipulation.
The AO did not allege, even in passing, that the purchase and sale transactions carried out by the assessee were in any manner prearranged, fixed, or predetermined.