Capital gains from penny stocks cannot be denied on presumption

Bogus penny stock capital gains: Claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.

Failure to provide a copy of the statement relied upon and failure to provide opportunity of cross-examination renders the assessment order void.

After considering the information / material received from other source, A.O. is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification.

Relevant Extract of the Judgment

5. Briefly stated, on the basis of the information received by the A.O. in respect of some search operation conducted in the case of M/s Mahasagar Securities Pvt. Ltd. The A.O. came to know that the assessee has purchased certain shares from Mahasagar Securities group which was engaged in issue of bogus purchase bills for accommodation. The A.O. accordingly re-opened the assessment u/s. 147 of the Act by issuing notice u/s. 148 of the Act after recording the reasons and opening the necessary approval u/s. 151 of the Act.

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