Case Law Details
Kimaya Anurag Agarwal Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad restores penny stock LTCG case for fresh assessment – Assessee claims genuine documents were ignored, seeks opportunity to prove transactions
Assessee earned Long-Term Capital Gain of ₹2.28 crore from sale of shares of Regency Trust Ltd. & claimed exemption u/s 10(38). AO reopened the assessment based solely on Investigation Wing information alleging that Regency Trust was a penny stock used for bogus LTCG accommodation entries. Without conducting any independent enquiry or providing any material to Assessee, AO treated the LTCG as bogus & taxed it as unexplained income. Assessee claimed to have submitted contract notes, broker bills, confirmations & other evidences, but the AO ignored them.
In appeal, Assessee again stated that genuine documentary evidence existed. However, CIT(A) dismissed the appeal ex-parte, stating that despite multiple opportunities Assessee did not furnish details. Thus, the addition was confirmed without examining the evidence or giving any meaningful hearing.
Before Tribunal, Assessee argued that AO relied only on Investigation Wing report & did not verify the transactions independently. It was also submitted that no cross-examination of persons whose statements were relied upon was offered, which violated natural justice. Assessee assured Tribunal that, if given one opportunity, all bank statements, contract notes & supporting documents will be produced to prove the genuineness of the share transaction.
Tribunal noted that AO merely relied on Investigation Wing information & that CIT(A) upheld the addition without independent verification. Tribunal accepted the assessee’s plea that documentary evidence can still be produced & should be examined on merits.
In the interest of natural justice, Tribunal set aside CIT(A)’s order & restored the matter to AO for a de novo assessment, directing AO to verify all documents, conduct necessary enquiry, & decide the issue afresh. The assessee was directed to fully cooperate & not seek unnecessary adjournments.
Appeal allowed for statistical purposes – matter remanded to AO for fresh adjudication on merits after giving proper opportunity.
Allegations of penny stock LTCG cannot be sustained merely on Investigation Wing reports. AO must independently examine evidence, allow cross-examination if relying on third-party statements, & decide on merits. When assessee seeks opportunity to prove genuineness & offers documents, natural justice requires fresh assessment.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, vide order dated 29.02.2024 relevant to the Assessment Year 2011-12.
2. The assessee has raised the following grounds of appeal:
1. That the learned Assessing Officer (AO) has erred in law and on facts in reopening the assessment under section 147 without furnishing the reasons recorded for such reopening and without there being any valid “reason to believe that income had escaped assessment.
2. That the learned AO has erred in treating the Long-Term Capital Gain (LTCG) of 228,47,365/ on sale of shares of Regency Trust Ltd. as bogus and denying exemption under section 10(38), merely relying upon information from the Investigation Wing, without conducting any independent enquiry or giving due consideration to the evidence submitted by the Appellant.
3. That the learned AO has erred in ignoring the documentary evidence filed by the Appellant in support of the genuineness of the share transaction, including broker contract notes, cash vouchers, confirmation of purchase, sale contract notes, and SEBI’s list of penny stocks.
4. That the learned AO has erred in not providing the material or evidence relede upon to create the scrip as a penny stock and in not affording any opportunity to the Appellant to cross-examine the persons whose statements formed the basis of the reassessment.
5. That the reassessment order is bad in law, based on suspicion, surmises, and conjecture, and deserves to be quashed.
6. That the Appellant craves leave to add, amend, alter or withdraw any of the above grounds at the time of hearing.
3. On perusal of the record, we find that the assessee was granted several opportunities of hearing to furnish details, clarifications, and explanations to substantiate the claim of Long-Term Capital Gains (LTCG) arising from the sale of shares of M/s. Regency Trust Limited. However, despite multiple opportunities, the assessee failed to furnish the requisite details or explanations before the Ld. CIT(A). Consequently, the Ld. CIT(A) upheld the action of the Assessing Officer and dismissed the appeal. We further note that, based on information received from the DDIT (Investigation), the Assessing Officer alleged that the assessee had earned exempt LTCG from the sale of shares, which, as per the said information, was treated as a bogus transaction. The assessee, however, contended that documentary evidence substantiating the genuineness of the share transaction had been furnished, but the same was not independently verified by the Assessing Officer. Therefore, the Ld. Counsel for the assessee submitted that, given an opportunity, the assessee would produce all necessary details, clarifications, and documentary evidence before the Revenue authorities in support of her claim. In view of the above and in the interest of natural justice, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the Assessing Officer for a de novo assessment, with a direction to verify the documentary evidence to be furnished by the assessee. The assessee shall submit all relevant bank statements, documents, and supporting evidence, and to cooperate fully with the Revenue authorities without seeking unnecessary adjournments.
4. In the result, the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open Court on 10.10.2025.
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