Scrip Can’t Be Called Penny Stock When Shares Retained For More Than 10 Years; ITAT Deletes Addition

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) recently ruled that a scrip cannot be classified as a penny stock if shares are held for more than 10 years. The bench, consisting of Kavitha Rajagopal and Amarjit Singh, noted that the assessee, a SEBI-registered FPI, is engaged in legitimate investment activities and is the sole source of income for the individual.

The case in question involved the appellant, a portfolio investor registered with SEBI and a tax resident of Mauritius, who had declared their total income from the sale of shares in International Conveyors Ltd. (ICL). The Assessing Officer (AO) had labeled the transaction as involving a penny stock and made an addition to the income, leading to a dispute that ultimately reached the ITAT.

The tribunal found that the shares had been held for an extended period before being sold, indicating a genuine investment rather than a questionable transaction. It was also determined that the increase in share price was not artificially inflated, as alleged by the department. As a result, the ITAT ruled in favor of the appellant, directing the AO to remove the addition under Section 68 of the Income Tax Act.

The case, titled M/s. Elara India Opportunities Fund Limited versus Dy. CIT (International Taxation)- 2(2)(1), was successfully appealed with the assistance of counsel Rahul Sarda for the appellant and Anil Sant for the respondent. The full order can be accessed through the provided case number: IT A No. 3261/Mum/2023.