ACIT Vs Rajen Kirtilal Shah (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal for AY 2013–14 in the case of Rajen Kirtilal Shah, affirming the CIT(A)’s order deleting an addition of ₹2.48 crore under Section 68 that had been made on the allegation of bogus long-term capital gains from penny stock transactions in the scrip of Bakra Pratisthan Ltd.
The Tribunal noted that the reassessment was initiated solely on the basis of generic information from the Investigation Wing alleging that Bakra Pratisthan Ltd. was a penny stock used to provide accommodation entries. However, on facts, the assessee had never claimed any exempt LTCG of ₹2.48 crore in his return, nor had he traded in the said scrip during the relevant year. The only LTCG claimed in the original assessment related to a different scrip (Turbo Tech Engineers Ltd.), which had already been settled under the Vivad se Vishwas Scheme, culminating in Form 5.
The CIT(A) found, and the Tribunal concurred, that the impugned addition suffered from gross factual errors, including a tenfold inflation of figures (₹24.89 lakh in the original order versus ₹2.48 crore in the impugned reassessment), and a complete absence of supporting evidence such as demat statements, bank credits, or contract notes evidencing any transaction in Bakra Pratisthan Ltd. The assessee’s affidavit, along with bank statements, demat records, and computation of income, conclusively established that no such trades had taken place.
The Tribunal held that Section 68 cannot be invoked on mere suspicion or third-party information without establishing the foundational fact of an actual credit or receipt in the assessee’s books. In the absence of any material showing receipt of ₹2.48 crore or trading in the alleged penny stock, the addition was rightly deleted. The Revenue’s reliance on probability-based judgments such as Durga Prasad More and Sumati Dayal was rejected, as those principles apply only after primary facts are established, which was not the case here.
Accordingly, the Revenue’s appeal was dismissed in entirety, reinforcing that penny stock additions must be founded on concrete evidence of actual transactions and credits, and cannot rest on erroneous assumptions or unverified investigation reports
FULL TEXT OF THE ORDER OF ITAT MUMBAI
