Bharat Balvantrai Goradia Vs ITO (ITAT Mumbai Bench)
“Penny Stock” Label Cannot Replace the Bank & Demat Trail—ITAT Admits Fresh Evidence under Rule 29
The controversy
The assessee, Mr. Bharat Balvantrai Goradia, filed his return for AY 2011-12 declaring total income of ₹16,72,231.
The assessment was reopened by issuing notice u/s 148 on 29 March 2018 based upon information received from the DCIT, Central Circle, Mumbai. The information alleged that Comfort Intech Ltd. was a penny-stock company involved in providing accommodation entries through artificial share transactions.
The assessee was identified as one of its alleged beneficiaries. Based on the average purchase price, sale price & number of shares traded during FY 2010-11, the information suggested a bogus loss of ₹19,67,655.
The AO completed reassessment u/s 143(3) r.w.s. 147 and disallowed the short-term capital loss claimed by the assessee.
Share loss rejected on surrounding suspicion
The CIT(A) upheld both the reopening and the disallowance.
According to the appellate order, the assessee had purchased 2,65,500 shares of Comfort Intech Ltd. for ₹31,21,383 and sold them for ₹15,65,065.
The CIT(A) observed that the shares were purchased at a high price despite the company having no proven financial results. The price movement was not satisfactorily supported by prevailing market factors. The assessee was therefore held to have failed to establish the genuineness of the transaction.
The dispute before the ITAT ultimately concerned disallowance of short-term capital loss of ₹16,60,821.
The assessee contended that the addition was founded upon general allegations regarding penny stocks, suspicion & investigation reports, without evidence directly connecting him with any accommodation-entry operator.
Transactions allegedly passed through recognised systems
The assessee maintained that the shares were genuinely purchased and sold through a recognised stock exchange. Payments and receipts moved through banking channels, while acquisition, holding & sale were reflected in the demat account.
It was argued that contract notes, bank records & demat statements discharged the assessee’s evidentiary burden. No material showed that unaccounted money had been introduced in the guise of a capital loss or that consideration had returned to the assessee through any circular arrangement.
The assessee also alleged that reliance had been placed upon third-party information and statements without granting an opportunity of cross-examination, thereby violating natural justice.
Additional evidence produced before ITAT
Before the Tribunal, the assessee filed a 98-page paper book and moved an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
The additional evidence included the assessee’s bank statement with Corporation Bank and the transaction statement issued by CDSL, besides other documents relating to the purchase and sale of shares.
The assessee explained that these documents could not be produced before the lower authorities because of inadequate professional guidance. Their admission would enable a proper decision on the real controversy without causing prejudice to the Revenue.
Reliance was placed upon judicial authorities recognising the Tribunal’s power to admit material evidence where it goes to the root of the dispute, including Smt. Prabhavati S. Shah v. CIT, 231 ITR 1 (Bom.) and Tek Ram v. CIT, 357 ITR 133 (SC).
Evidence went to the heart of the dispute
The ITAT observed that the CIT(A) had sustained the disallowance principally because the assessee failed to establish the genuineness of the share transactions and the economic basis for the substantial price movement.
The newly produced bank and CDSL statements were neither peripheral nor collateral. They directly concerned whether the shares were actually purchased, paid for, held in dematerialised form & sold in the manner claimed.
Rule 29 empowers the Tribunal, for recorded reasons, to permit additional evidence where it is required to pass an effective order or where another substantial cause exists. Though discretionary, this power must be exercised judicially to facilitate a correct determination of the controversy.
Since the documents had a direct and material bearing on genuineness, the ITAT admitted them under Rule 29.
Admission was not acceptance
The Tribunal clarified that admitting the evidence did not establish that the transactions were genuine.
The documents had not been examined by either lower authority. Whether they satisfactorily proved the purchase, payment, holding & sale of shares required factual verification. Their impact upon the conclusions drawn by the AO also had to be independently considered.
Although the ITAT is the final fact-finding authority, material produced for the first time should ordinarily be examined by the lower appellate authority with an opportunity to the AO wherever necessary.
ITAT’s ruling
The issue concerning disallowance of the short-term capital loss was restored to the CIT(A) for fresh adjudication.
The CIT(A) was directed to examine the additional evidence, grant a reasonable opportunity to both sides & record a reasoned finding on the genuineness and allowability of the loss.
The Tribunal expressly refrained from expressing any opinion on the merits.
The grounds challenging the validity of reopening u/ss 147/148 were also kept open. They were not rejected; the assessee could raise them at the appropriate stage during the restored proceedings.
The appeal was allowed for statistical purposes.
Author’s comments
The ruling reiterates that describing a company as a penny stock does not automatically decide every investor’s transaction. The Revenue must connect the assessee’s specific trade with manipulation or accommodation entries.
Conversely, contract notes and banking channels are not magical certificates of genuineness. The complete chain—purchase payment, demat credit, market trade, sale proceeds, counterparty data & surrounding price behaviour—must withstand scrutiny.
The significant principle is procedural: where bank and depository records directly answer the reason for disallowance, they should be examined rather than excluded merely because they were produced late.
There are numerical variations in the order between the information-based loss, purchase-sale difference & disputed loss. The CIT(A) should reconcile these figures during fresh adjudication.
Bharat Balvantrai Goradia v. ITO, ITA No.3771/Mum/2026, AY 2011-12, order dated 17 August 2026
Cases Discussed
- Smt. Prabhavati S. Shah v. CIT, 231 ITR 1 (Bom.)
- R.S.S. Shanmugam Pillai & Sons v. CIT, 95 ITR 109 (Mad.)
- Abhay Kumar Shroff v. ITO, 63 ITD 144 (Patna)(TM)
- Tek Ram (Dead) through LRs v. CIT, 357 ITR 133 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
This appeal by the Assessee is directed against order dated 20.01.2026, passed by the learned Addl. / Joint Commissioner of Income-tax (Appeals)-Thiruvanantpuram (in short, “the learned CIT(A)”), in faceless manner for Assessment Year (in short, “A.Y.”) 2011-12, raising following grounds:
“1. Reopening of Assessment
1) The learned ITO erred in reopening the assessment u/s. 147 and issuing notice u/s. 148 of the Income Tax Act, 1961.
2) The learned ITO erred in reopening assessment merely based on information received from DCIT without forming independent belief with regard to escapement of income.
3) The Learned CIT(A) erred in confirming the disallowance of Short Term Capital Loss amounting to Rs.16,60,821/- on sale of shares of Comfort Intech Ltd., treating the same as bogus, without bringing any cogent evidence on record to establish that the transactions were non-genuine.
2. Disallowance of Short term capital loss
1) The Learned CIT(A) erred in upholding the addition solely on the basis of suspicion, conjectures, and general allegations regarding penny stock transactions without establishing any direct nexus between the appellant and any alleged accommodation entry provider.
2) The Learned CIT(A) failed to appreciate that the appellant had duly discharged the onus by furnishing complete documentary evidence including contract notes, bank statements, and demat statements evidencing genuine purchase and sale of shares.
3) The Learned CIT(A) erred in holding that the appellant failed to establish genuineness of transactions, ignoring the fact that all transactions were carried out through recognized stock exchange and through banking channels.
4) The Learned CIT(A) erred in relying on third-party information and investigation reports without providing the appellant an opportunity to cross-examine the persons whose statements were relied upon, thereby violating the principles of natural justice.
5) The Learned CIT(A) failed to appreciate that no material evidence was brought on record to demonstrate that the appellant had received any accommodation entry or that the transactions were sham or fictitious.
6) The Learned CIT(A) erred in sustaining the addition without establishing that the appellant had introduced any unaccounted income in the guise of Short Term Capital Loss.
The Appellant craves, leave to add to, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal, if necessary.”
2. Briefly stated, the assessee filed its return of income electronically on 30.07.2011 declaring total income of Rs.16,72,231/-. Subsequently, the Assessing Officer reopened the assessment by issuing notice under section 148 of the Income-tax Act, 1961 [in short, “the Act”] on 29.03.2018. The reasons for reopening were stated to have been recorded on the basis of information received from the DCIT, Central Circle, Mumbai, that M/s Comfort Intech Ltd. was a penny-stock company allegedly involved in providing accommodation entries in the form of bogus long-term capital gains through trading in penny stocks.
2.1 The information so received further stated that the assessee was one of the beneficiaries who had undertaken purchase and sale transactions in shares of M/s Comfort Intech Ltd. and, on the basis of the average sale price, average purchase price and number of shares sold during Financial Year 2010-11, had allegedly incurred a bogus loss of Rs.19,67,655/-. Pursuant thereto, the Assessing Officer completed the reassessment under section 143(3) read with section 147 of the Act vide order dated 14.12.2018, wherein the short-term capital loss claimed by the assessee was disallowed.
2.2 The assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) upheld the reopening as well as the disallowance. With regard to reopening, the learned CIT(A) observed that the Assessing Officer had recorded reasons on the basis of information received from the DCIT, Central Circle-3(4), Mumbai, according to which M/s Comfort Intech Ltd. was a penny-stock company allegedly used for providing accommodation entries and that the assessee was one of the beneficiaries. The learned CIT(A), therefore, held that the Assessing Officer had material before him for reopening the assessment.
2.3 On the merits, the learned CIT(A) recorded that, according to the Assessing Officer, the assessee had purchased 2,65,500 shares of M/s Comfort Intech Ltd. for Rs.31,21,383/- and sold the same for Rs.15,65,065/-. The learned CIT(A) observed that the purchase of shares at a high price was made when the company had no proven financial results and that the transactions were not supported by the market factors prevailing at the relevant time. He accordingly held that the assessee had failed to establish the genuineness of the transaction and sustained the disallowance of the short-term capital loss.
3. Before us, the learned counsel for the assessee filed a paper book comprising pages 1 to 98. He also filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 seeking admission of additional evidence, comprising, inter alia, the bank statement of Corporation Bank and the transaction statement issued by CDSL, placed at pages 78 to 98 of the paper book.
3.1 The learned counsel submitted that the controversy relates to the disallowance of short-term capital loss of Rs.16,60,821/- arising from the sale of shares of M/s Comfort Intech Ltd. He submitted that the additional evidence sought to be placed on record is directly relevant to the issue and goes to the root of the matter. It was contended that the documents could not be produced before the lower authorities due to lack of proper guidance and that their admission would facilitate proper adjudication of the dispute without causing prejudice to the Revenue.
In support of the application, the learned counsel relied upon the decisions of the Hon’ble Bombay High Court in Smt. Prabhavati S. Shah v. CIT, 231 ITR 1 (Bom.), the Hon’ble Madras High Court in R.S.S. Shanmugam Pillai & Sons v. CIT, 95 ITR 109 (Mad.), the Tribunal decision in Abhay Kumar Shroff v. ITO, 63 ITD 144 (Patna)(TM), and the judgment of the Hon’ble Supreme Court in Tek Ram (Dead) through LRs v. CIT, 357 ITR 133 (SC), in support of the proposition that additional evidence may be admitted where it is relevant and necessary for proper adjudication of the appeal.
4. We have heard the rival submissions and perused the material available on record. The first question requiring our consideration is whether the additional evidence sought to be produced by the assessee under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, deserves to be admitted.
4.1 The dispute on merits concerns the genuineness of the purchase and sale of shares of M/s Comfort Intech Ltd. The learned CIT(A) has sustained the disallowance essentially on the premise that the assessee failed to establish the genuineness of the transactions and the economic basis of the substantial movement in the price of the shares. The assessee, on the other hand, seeks to place before us bank statements and CDSL transaction statements, besides other documents forming part of the paper book, in support of the actual purchase and sale transactions.
We are of the view that the documents sought to be admitted are not peripheral or collateral to the controversy. They bear directly upon the factual question which lies at the heart of the dispute, namely, whether the transactions of purchase and sale of shares were actually undertaken by the assessee in the manner claimed by it. The documents, therefore, have a material bearing upon the adjudication of the appeal.
4.2 Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 empowers the Tribunal, for reasons to be recorded, to permit production of additional evidence where such evidence is required to enable it to pass orders or for any other substantial cause. The power is discretionary, but is required to be exercised judicially with the object of enabling the Tribunal to arrive at a proper and effective adjudication of the dispute. The authorities relied upon by the learned counsel, including Smt. Prabhavati S. Shah v. CIT, (supra) recognise the Tribunal’s power in an appropriate case where the additional evidence has a material bearing on the issue in dispute.
4.3 In the present case, the additional documents sought to be placed on record are directly relevant to the genuineness of the transactions under consideration. Their admission, therefore, would assist in determining the controversy on its merits. We accordingly admit the additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
4.4 Having admitted the additional evidence, the question that follows is whether the matter should be adjudicated by us on the basis of the material presently available or restored to the file of the learned CIT(A) for appropriate examination. We find that the documents now produced before us were admittedly not available before the lower authorities. Further, the question whether these documents satisfactorily establish the purchase, payment, holding and sale of the shares, and whether they have any bearing upon the conclusions drawn by the Assessing Officer and sustained by the learned CIT(A), involves factual examination. The Tribunal is undoubtedly the final fact-finding authority; however, where material evidence relevant to the determination of the factual controversy is produced for the first time at the appellate stage, it would be appropriate that the lower appellate authority is afforded an opportunity to examine the same and record its findings after granting due opportunity to the Assessing Officer, wherever required.
4.5 We, therefore, consider it just and proper to set aside the impugned order of the learned CIT(A), insofar as the issue relating to the disallowance of short-term capital loss is concerned, and restore the matter to his file for fresh adjudication. The learned CIT(A) shall examine the additional evidence admitted by us, afford reasonable opportunity of being heard to both sides, and thereafter decide the issue afresh in accordance with law. Needless to say, the learned CIT(A) shall consider the entire material available on record and shall record a reasoned finding on the genuineness and allowability of the short-term capital loss claimed by the assessee. In view of the restoration of the matter on the merits, we refrain from expressing any opinion on the merits of the rival contentions concerning the genuineness of the share transactions. Our observations herein are confined to the question of admission of additional evidence and the consequential requirement of factual examination. The grounds raised on merit are allowed for statistical purposes.
4.6 As regards the grounds challenging the validity of reopening of the assessment under sections 147/148 of the Act, the same raise a separate legal issue. Since the matter relating to the substantive addition is being restored to the file of the learned CIT(A) for fresh adjudication after consideration of the additional evidence, we consider it appropriate, in the facts and circumstances of the present case, to leave the said grounds open for consideration, if necessary, at the appropriate stage. Accordingly, the grounds relating to the validity of reopening are not adjudicated upon at this stage and are kept open.
5. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 17/08/2026.
