ITO Vs Ritu Jain (ITAT Delhi)
Delhi ITAT Upholds Deletion of Penny Stock Additions; Mere Suspicion and Investigation Reports Cannot Replace Evidence
The Delhi Bench of the ITAT, in ITO v. Ritu Jain (AY 2013-14), upheld the deletion of additions made in respect of alleged bogus long-term capital gains (LTCG) from penny stock transactions, reiterating that mere suspicion, abnormal price rise or Investigation Wing reports cannot substitute cogent evidence establishing that the transactions were sham.
The assessee had earned exempt LTCG of ₹49.99 lakh on sale of shares of Mahanivesh India Ltd. The Assessing Officer treated the entire sale consideration of ₹50.45 lakh as unexplained money under section 69A read with section 115BBE and further made an addition of ₹1.01 lakh under section 69C towards alleged commission paid for obtaining accommodation entries. The additions were based primarily on information received from the Investigation Wing alleging manipulation in penny stock transactions.
Before the Tribunal, the assessee also raised legal grounds under Rule 27, contending that the reassessment notice under section 148 was barred by limitation under the amended provisions of section 149. The Tribunal accepted these legal grounds, holding that the notice issued under section 148 was time-barred, both because it was issued beyond the prescribed limitation period and because the alleged escaped income was less than ₹50 lakh, making the extended limitation under section 149(1)(b) inapplicable. Consequently, the reassessment itself was held to be without jurisdiction.
On merits as well, the Tribunal found no infirmity in the order of the CIT(A), who had relied upon the Delhi High Court decisions in PCIT v. Krishna Devi, PCIT v. Karuna Garg, and Vipin Jain. The Tribunal reiterated that preponderance of probabilities or abnormal appreciation in share prices cannot by themselves justify additions, particularly where the Revenue fails to produce direct evidence showing that the assessee introduced unaccounted money or received accommodation entries. It noted that the transactions were supported by documentary evidence, banking channels and demat records, while the Investigation Wing’s report remained uncorroborated insofar as the assessee was concerned.
Accordingly, the Tribunal upheld the deletion of the additions under sections 69A and 69C, dismissed the Revenue’s appeal and affirmed that tax additions based merely on suspicion or generalized investigation reports cannot survive in the absence of cogent evidence linking the assessee to the alleged accommodation entry racket.
Cases Discussed
