ITO Vs Rahul Kathuria (ITAT Raipur)
Reassessment Scrapped—Third-Party Search & Natural-Justice Breach; Penny-Stock Additions of ₹2.04 Cr (AY 2018-19) and ₹64.11 Lakh (AY 2019-20) Deleted; ITAT Cancels Penny-Stock Additions Over Natural-Justice Breach; Reassessment Scrapped as Penny-Stock Gains Found Fully Disclosed; Revenue Appeals Dismissed: ITAT Finds No Evidence of Dubious Penny-Stock Deals; ITAT Rules Third-Party Search Cannot Justify Tax Additions; Penny-Stock Tax Additions Deleted as Assessee Proven Bona Fide Investor
The appeals filed by the Revenue were held void ab initio because the entire foundation arose from a third-party search on Naresh Jain, attracting Section 153C, as held in Rajasthan HC – Shyam Sunder Khandelwal and Sejal Jewellery (Bom HC). The RMS inputs and Investigation Wing material were never shared, violating audi alteram partem, consistent with Amitabh Bachchan (SC) and Electro House (SC). With no opportunity of rebuttal and no disclosure, the reopenings for AY 2018-19 and AY 2019-20 collapsed at the threshold.
On merits, the assessee’s trades were STT-paid, demat-based, broker-executed, and supported by complete ledgers and bank statements. The AO established no nexus with any alleged entry operator and no evidence of collusion or rigging, in line with Krishna Devi (Del HC) and Ziauddin Siddique (Bom HC). Only ₹92,600 actual gain was earned and disclosed; treating entire sale proceeds as income was held to be mere suspicion.
