ITO Vs Pawan Finvest Pvt. Ltd. (ITAT Delhi)
Delhi ITAT Deletes Section 68 Addition on Penny Stock Losses; Mere Suspicion and Human Probabilities Cannot Replace Evidence
The Delhi ITAT upheld the deletion of an addition of ₹81.72 lakh under section 68 arising from the assessee’s alleged bogus loss on trading in penny stocks, holding that the Revenue had failed to establish any nexus between the assessee and the alleged price manipulation. The Assessing Officer had treated the losses incurred on transactions in the shares of JRI Industries & Infrastructure Ltd. and PMC Fincorp Ltd. as fictitious on the ground that the companies lacked financial fundamentals and were penny stocks, and consequently denied the set-off of such losses against profits earned from sale of other shares. The Tribunal noted that the assessee had produced contract notes, demat statements, bank statements, broker ledger accounts, details of STT paid and share transaction records evidencing that the transactions were executed through recognised stock exchanges. It further observed that the Assessing Officer had not brought any material on record linking the assessee with entry operators, exit providers, price rigging or any SEBI proceedings, nor had any statutory authority declared the assessee’s transactions to be sham. Holding that mere suspicion, application of the theory of human probabilities, or the poor financials of the companies cannot justify an addition in the absence of cogent evidence, the Tribunal affirmed the CIT(A)’s order deleting the addition under section 68. Since the Revenue’s appeal failed on merits, the assessee’s cross-objection challenging the validity of the reassessment was treated as academic and was dismissed without adjudication.
