DCIT Vs Santosh Vimlesh Mehta (ITAT Mumbai)
Penny Stock LTCG Addition of ₹3.98 Crore Deleted — ITAT Upholds CIT(A); General Modus Operandi Not Enough Without Assessee-Specific Evidence
The Mumbai Bench of the ITAT dismissed the Revenue’s appeal for AY 2012-13, thereby upholding deletion of ₹3.98 crore added under section 69A by treating long-term capital gains from sale of shares of Banas Finance Ltd. as bogus penny-stock transactions.
The assessee had acquired shares through preferential allotment, funded via capital withdrawal from a partnership firm, held them for a substantial period, and sold them on the stock exchange through a SEBI-registered broker, paying STT and receiving sale proceeds through banking channels. The AO reopened the assessment based on Investigation Wing reports alleging price manipulation in the scrip and relied heavily on statements of alleged entry operators/exit providers and a generalized penny-stock modus operandi.
The CIT(A) deleted the addition after recording that:
- No material established any direct nexus between the assessee and the alleged operators;
- Statements relied upon did not name or implicate the assessee;
- Documentary evidence supporting purchase, demat holding, split, and sale of shares remained uncontroverted;
- Mere abnormal price rise or third-party confessions cannot substitute proof of assessee’s involvement.
The ITAT concurred, holding that additions based solely on suspicion, price movement patterns, and generic investigation findings are unsustainable in the absence of cogent, assessee-specific incriminating material. Denial of cross-examination and reliance on third-party statements without linkage further weakened the Revenue’s case.
Accordingly, the Tribunal held that the LTCG claim could not be recharacterised as unexplained money, and the Revenue’s appeal was dismissed, reaffirming that penny-stock allegations must be proved, not presumed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
