Narayan Suppliers Private Ltd Vs ITO (ITAT Kolkata)
ITAT Kolkata Upholds ₹17.10 Cr Penny Stock Addition, Calls It Money Laundering – Applauds AO’s Probe & Refers Case to ED & CBI
Background:
Narayan Suppliers Pvt. Ltd., engaged in share investments, filed NIL return for AY 2011-12. Based on Investigation Wing report, AO reopened assessment u/s 147 alleging transactions in three penny stock companies- JMD Telefilms Industries Ltd., Unisys Softwares & Holding Industries Ltd., & Nouveau Global Ventures Ltd – totaling ₹17.10 Cr. AO treated entire purchases as unexplained investment u/s 69 (though order mentioned 269). CIT(A)-, upheld the addition. Aggrieved, Assessee appealed before Tribunal.
Assessee’s Arguments:
- All trades were genuine & routed through recognised stock exchanges with broker contract notes.
- SEBI declared these companies as penny stocks only in 2017, much after AY 2011-12.
- Assessee did not earn LTCG nor claimed exemption u/s 10(38), nor booked any loss; hence allegation of bogus gains/loss was baseless.
- AO mechanically relied on Investigation Wing inputs without independent verification – a case of “borrowed satisfaction.”
- Addition citing “u/s 269” was itself void since section deals only with definition of High Courts.
Revenue’s Contentions:
- Assessee is merely a shell company showing consistent losses but holding reserves of ₹7.07 Cr.
- Bank records revealed suspicious routing – large credits from entities like Decent Vincom Pvt. Ltd. & Falcon Dealtrade Pvt. Ltd., followed by immediate payments to broker D.B. & Co.
- No real market trades proved; transactions were accommodation entries to launder cash.
- CIT(A) rightly confirmed AO’s findings.
Tribunal’s Findings:
- Contradictions found in Assessee’s own investment charts – new companies & mismatched trade volumes introduced across submissions.
- Bank accounts clearly showed cash inflows & immediate onward transfers – pointing to accommodation entry cycle.
- Transactions not reflected in trading account, lacked transparency, & were mere paper entries.
- Though AO mentioned “u/s 269,” the effective addition falls u/s 69 for unexplained investment; thus technically valid.
- Tribunal categorically held it a case of money laundering, noting AO’s detection efforts but incomplete follow-through.
Applause for AO & Directions:
- Tribunal expressly applauded the AO’s “remarkable job” in tracing such transactions, though he could not take it to full logical conclusion.
- Exercising powers u/s 254(1), ITAT directed AO to refer case to Enforcement Directorate & CBI (EOW) for thorough investigation of all linked entities, beneficiaries & financial transactions.
Tribunal’s Conclusion:
- Addition of ₹17.10 Cr confirmed in entirety.
- Appeal of Assessee dismissed.
- Strong remarks on use of penny stock entries as a laundering device.
ITAT Kolkata upheld addition of ₹17.10 Cr against Narayan Suppliers Pvt. Ltd. & escalated matter to ED & CBI for deeper probe – delivering a stern message against penny stock manipulations.
