ITO Vs Pradeep Ram Mukhi (ITAT Mumbai)
Penny Stock Addition Quashed Because AO Failed to Prove Receipt of Unaccounted Money; Section 68 Addition Deleted Because Share Transactions Were Supported by Demat and Banking Records; ITAT Rejects Penny Stock Allegation Because Assessee Actually Suffered a Trading Loss; Addition Under Section 68 Cannot Survive Because No Direct Nexus With Alleged Operators Was Shown.
The Income Tax Appellate Tribunal (ITAT), Mumbai, dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) deleting an addition of ₹2,82,196 made under Section 68 and the disallowance of a share trading loss of ₹16,337 relating to transactions in the shares of G.S. Auto International Ltd. for Assessment Year 2011-12. The reassessment proceedings were initiated after information from the Investigation Wing alleged that the assessee had carried out transactions in a penny stock company allegedly used for providing accommodation entries.
During reassessment, the Assessing Officer examined the assessee’s transactions and found that the assessee had purchased 10,000 shares of G.S. Auto International Ltd. in three tranches for approximately ₹2.98 lakh and later sold them for ₹2.82 lakh, resulting in an actual loss of ₹16,337. Although the assessee furnished broker details, contract notes, demat statements, ledger accounts, bank records, and other supporting documents, the Assessing Officer relied on the Investigation Wing’s report and concluded that the transactions lacked commercial substance and were structured to evade taxes. Accordingly, the sale proceeds were treated as unexplained income under Section 68 and the loss was disallowed.
