ACIT Vs Mihir Selvadia (ITAT Mumbai)
Penny Stock Tag Can’t Trump Documentary Evidence: ITAT Mumbai Deletes Section 68 & 69C Additions Where Share Profits Taxed as Business Income
The Mumbai ITAT “C” Bench allowed the Assessee’s appeal and dismissed the Revenue’s appeal in the case of Mihir Selvadia (Legal Heir of Late Shri Pravin Mohanlal Selvadia) vs ACIT for AY 2015-16, holding that profits from sale of shares of EINS Edutech Ltd. (alleged penny stock) offered as business income could not be treated as bogus u/s 68 merely on the basis of general investigation reports and human probability theory, in the absence of any cogent adverse material
The Assessee, a regular trader/investor engaged in F&O, shares and commodities, had purchased shares of EINS Edutech Ltd. through the open market, held them for a substantial period, and sold them through a recognised stock exchange. The resultant profit of ₹1.77 crore was duly offered to tax as business income and set off against F&O losses. The AO, relying heavily on investigation wing reports on penny stock manipulation and alleged accommodation entry modus operandi, treated the entire sale proceeds of ₹1.85 crore as unexplained cash credit u/s 68 and further made an estimated addition of 2% commission u/s 69C.
The Tribunal noted that the AO proceeded on suspicion and preponderance of probability, without bringing any specific material linking the Assessee to price rigging, entry operators or exit providers. The Assessee had furnished complete documentary evidence including contract notes, broker ledger, bank statements and DMAT records, all of which remained uncontroverted. Importantly, the Assessee had not claimed exemption u/s 10(38) and had consistently treated the income as business profits.
The Tribunal held that:
