Case Law Details
ITO Vs Arti Arora (ITAT Delhi)
Delhi ITAT Tears Apart “Penny Stock” Addition: No Cross-Examination, No Inquiry, No 69A Addition on Mere Investigation Reports
In a major relief in an alleged penny stock case, the Delhi ITAT upheld deletion of an addition of ₹1.56 crore made u/s 69A towards alleged bogus Long Term Capital Gain arising from sale of shares of Life Line Drugs & Pharma Ltd. (LDPL). The Assessing Officer had reopened the assessment alleging that the exempt LTCG claimed u/s 10(38) was accommodation entry income routed through penny stock transactions.
The Tribunal noted that although the assessee did not actively participate in reassessment proceedings initially, she had nevertheless uploaded all crucial documentary evidence on the income-tax portal, including purchase bills, sale invoices, DEMAT statements, share certificates, and bank statements evidencing genuine purchase and sale of shares. The ITAT held that once the assessee discharged the primary burden, the AO was duty-bound to conduct independent inquiry instead of merely reproducing investigation wing reports and third-party allegations.
A crucial factor weighed heavily with the Tribunal – the assessee was never granted cross-examination of alleged entry operators whose statements formed the foundation of the addition. The Bench reiterated that additions cannot survive merely on generalized investigation reports, suspicion, or market behavior analysis without confronting the assessee with adverse material and permitting cross-examination.
The ITAT also made significant observations regarding LDPL itself. It recorded that LDPL (now Arihant Multi Commercial Ltd.) was not shown to be a shell or paper company, noting that it had substantial turnover, assets, reserves, and business operations. Importantly, the Tribunal observed that SEBI had never declared all transactions in LDPL shares as void or bogus prior to suspension.
Relying upon several landmark rulings including Adamine Construction Pvt. Ltd., Odeon Builders Pvt. Ltd., Fair Invest Ltd., and earlier Delhi Tribunal rulings in Anoop Jain and Ritu Jain involving the same scrip, the Tribunal held that the Revenue failed to rebut the overwhelming documentary evidence filed by the assessee. Consequently, the deletion of the addition by CIT(A) was upheld and the Revenue’s appeal was dismissed.
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