Girija Shivanand Nichanaki Vs ITO (ITAT Mumbai)
5-Day Share Trade Cannot Automatically Become “Bogus Penny Stock” – ITAT Deletes Additions Under Sections 69 & 69C
.The Mumbai ITAT deleted additions made under sections 69 and 69C against an assessee accused of entering into bogus penny stock transactions, holding that merely because a particular scrip was later identified as suspicious, every investor dealing in it cannot automatically be treated as part of a collusive arrangement.
The assessee was a regular trader in shares and had consistently traded in numerous scrips over multiple years through recognized stock exchanges. The disputed shares of Exelon Infrastructure Ltd. were purchased on 03.06.2011 and sold within just five days on 08.06.2011, resulting not in profit but in a small short-term loss of about ₹38,681.
The Tribunal observed that the AO had proceeded mainly on generalized investigation wing information and alleged modus operandi relating to penny stock operators, without bringing any material to show the assessee’s involvement, control, or collusion in manipulation of the scrip. Since the assessee had suffered a loss and exited the transaction within a very short period, the ITAT held that the transaction could not be branded as a make-believe arrangement merely on suspicion.
Accordingly, the ITAT deleted the addition of ₹4.38 lakh treated as unexplained investment under section 69 as well as the consequential 3% alleged commission addition under section 69C, holding that the additions were unsustainable in law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is preferred by the assessee against the order of Commissioner of Income Tax Appeals/ National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”] dated 19.01.2026 for the assessment year 2012-13, which in turn arises from assessment order u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (“the Act”), dated 21.12.2019 passed by Income Tax Officer Ward 16(2)(4), Mumbai (in short, “the Ld. AO”). The grounds of appeal are as under:
“1 Ground 1- Sec 147 – On the facts and in the circumstances of the case, the learned I.T.O. 16(2)(4), Mumbai erred in invoking the provisions of section 147 of the Income tax Act. The same has been done by the learned AO on pure presumptions made by him and is violation of section 147 as it can be invoked by the AO only when he has reasons to believe that Income chargeable to tax has escaped assessment. The power u/s 147 of the act has been given to the assessing officer & he cannot rely on the belief made by any other person or persons like in our case. This very issue was decided in favour of an assesse by Delhi High Court in the case of G & G Pharma India Ltd in ITA No 545/2015 dt. 8.10.15 in which the H’ble High Court under similar circumstances as in the instant case held that the reasons recorded are not specific and, therefore, the same could not be regarded as bonafide reasons. Moreover, it was held that the basic requirement that the AO must apply his mind to the material in order to have reason to believe that the income of the assessee escaped assessment is missing. The appellant prays that the reassessment proceedings deserve to be quashed as they are void ab initio.
2 Ground 2- Sec 69- On the facts and in the circumstances of the case, the learned AO has misinterpreted the provisions of section 69. The primary requirement to invoke section 69 is that the assessee is unable to explain the source of such investment. However the appellant has explained the source of investment with all possible set of documents that would ordinarily be required to substantiate her claim. The appellant prays that the addition made u/s 69 by the learned AO may please be deleted.
3 Ground 3- Sec 69C- The learned AO has erred in treating the investment amount which has been shown in the books of the appellant as an unexplained investment u/s 69. Further the learned AO has gone onto add 3% of the investment amount as an alleged brokerage paid to the operators of the so called above scheme on pure assumptions & treated the same as an unexplained expenditure u/s 69C. The basic requirement for section 69C is that the expense should be recorded in the books of the assessee for which the assessee has not been able to offer an explanation. However no such expenses has been 69C may please deleted as it is based on surmises and incurred and therefore the question of recording the same does not arise. The conjectures.”
