ITAT Mumbai Rules: Capital Gains on SAL & MHSL Shares Cannot Be Called Bogus Without Proof
Tribunal Quashes ₹2.41 Crore Addition Under Section 68, Protects Investor Rights
Suspicion Alone Not Enough: Documentary Evidence Validates Share Transactions
By Our Legal Reporter
New Delhi: December 10, 2025:
In a significant ruling that strengthens investor confidence, the Income Tax Appellate Tribunal (ITAT), Mumbai has held that long-term capital gains (LTCG) from the sale of listed shares cannot be branded as bogus without evidence. The case involved transactions in shares of Sunrise Asian Ltd. (SAL) and Monarch Health Services Ltd. (MHSL), where the Assessing Officer (AO) had alleged manipulation and treated the gains as unexplained cash credits under Section 68 and unexplained expenditure under Section 69C of the Income Tax Act, 1961.
Also Read: CCPA Fines Meesho ₹10 Lakh for Selling Uncertified Walkie-Talkies Without Mandatory Disclosures
The Tribunal’s decision is a major relief for taxpayers who face arbitrary additions based on suspicion of penny-stock manipulation. It reinforces the principle that suspicion cannot replace evidence in tax proceedings.
Background of the Case
The assessee had declared LTCG of ₹2.41 crore from the sale of SAL and MHSL shares. These shares were:
- Acquired through proper banking channels.
- Held in Demat accounts.
- Sold on the Bombay Stock Exchange (BSE) with Securities Transaction Tax (STT) duly paid.
Despite this documentary trail, the AO treated the gains as bogus penny-stock accommodation entries, relying on general investigation reports and statements of third parties. Additionally, the AO added ₹9.66 lakh as alleged commission expenditure under Section 69C.
The National Faceless Appeal Centre (NFAC) upheld these additions, prompting the assessee to appeal before the ITAT.
Also Read: Supreme Court: Compromise Cannot Erase Corruption, Restores ₹52.5 Crore Loan Fraud Case
Tribunal’s Observations
The ITAT bench, comprising Vikram Singh Yadav (Accountant Member) and Anikesh Banerjee (Judicial Member), made several key observations:
- Documentary Evidence Matters: The assessee had produced contract notes, Demat statements, and bank records. These documents established the genuineness of the transactions.
- No Direct Link to Manipulation: The AO failed to show any connection between the assessee and alleged operators or irregularities in the scrips SAL and MHSL.
- Suspicion Cannot Replace Proof: Mere reliance on investigation reports or third-party statements without cross-examination is insufficient.
- SEBI Orders Not Against Assessee: Regulatory findings did not implicate the assessee in any wrongdoing.
Based on these points, the Tribunal quashed the additions under Sections 68 and 69C, ruling in favour of the assessee.
Legal Significance
This ruling carries wide implications for tax law and investor protection:
- Section 68 (Unexplained Cash Credit): Requires the Revenue to prove that credits are unexplained. Documentary evidence provided by the assessee shifts the burden back to the department.
- Section 69C (Unexplained Expenditure): Cannot be invoked without proof of actual expenditure.
- Judicial Precedents: The Tribunal relied on earlier rulings, including Bombay High Court’s decision in Shyam R. Pawar, which emphasized that once documentary evidence is produced, the Revenue must bring positive corroboration of sham transactions.
Broader Context: Penny Stock Allegations
Also Read: Noida Accountant Arrested in ₹11 Crore Fake GST Invoice Scam
Over the past decade, tax authorities have frequently alleged that penny stocks are used for laundering money through artificial LTCG claims. While some cases involve genuine manipulation, many investors have faced harassment despite having valid documentation.
This ruling sends a strong message: genuine transactions backed by evidence cannot be dismissed as bogus merely on suspicion. It balances the fight against tax evasion with the protection of honest taxpayers.
Impact on Investors and Tax Administration
- Investor Confidence: The judgment reassures investors that legitimate gains will be respected if proper records are maintained.
- Tax Administration: Authorities must now focus on gathering direct evidence rather than relying on generalized allegations.
- Litigation Reduction: Clear judicial guidance may reduce unnecessary litigation in penny-stock cases.
Conclusion
The ITAT Mumbai’s ruling in the SAL and MHSL share case is a landmark judgment that strengthens the principle of fairness in tax proceedings. By quashing additions of ₹2.41 crore under Section 68 and ₹9.66 lakh under Section 69C, the Tribunal has upheld the importance of documentary evidence over suspicion.
This decision will likely serve as a precedent in similar disputes, ensuring that genuine investors are not penalized for unfounded allegations of penny-stock manipulation.
Suggested Keywords for Faster Searches
- ITAT Mumbai SAL MHSL ruling
- Section 68 bogus capital gains case
- Section 69C unexplained expenditure ITAT
- Penny stock LTCG tribunal decision
- Sunrise Asian Ltd shares ITAT case
- Monarch Health Services Ltd ITAT ruling
- ITAT Mumbai long term capital gains judgment
- Suspicion vs evidence in tax law
- NFAC penny stock appeal quashed
- Investor rights ITAT Mumbai ruling