ITAT Jodhpur Deletes Penny Stock Additions Without Incriminating Search Material

Vikas Jain Vs DC Central Circle-2 (ITAT Jodhpur)

Penny Stock Additions Under Section 153A Cannot Survive Without Incriminating Search Material: ITAT Jodhpur
Completed Assessments Cannot Be Disturbed Merely by Reworking Earlier Issues

The Income Tax Appellate Tribunal, Jodhpur Bench, allowed three appeals concerning additions for alleged bogus long-term capital gains and commission, holding that completed assessments could not be disturbed under Section 153A without incriminating material found during search.

The Bench comprising Judicial Member Amit Shukla and Accountant Member Girish Agrawal found that the disputed additions arose from share transactions already examined in regular assessments. No search material establishing unaccounted cash payments, accommodation entries or commission payments was identified.

The Tribunal applied the Supreme Court’s decision in Pr. CIT v. Abhisar Buildwell (P.) Ltd., while leaving the merits of the alleged penny stock transactions open.

Background of Search and Assessments

The appeals arose from search proceedings connected with the Rajlaxmi Group, Jodhpur, in February 2019. Moolchand Jain’s residence and Vikas Jain’s bank lockers were covered.

Before the search, regular assessments under Section 143(3) had already been completed for the relevant years. These assessments included additions relating to capital gains claimed as exempt under Section 10(38) and alleged commission.

The transactions concerned shares of Pine Animation Limited and Mishka Finance and Trading Limited.

In response to notices under Section 153A, both assessees filed returns declaring the same income as originally returned. The subsequent assessments either adopted earlier assessed income or recomputed the disputed figures and added differential amounts.

Differential Additions in Two Appeals

For Moolchand Jain, Assessment Year 2015-16, the original assessment contained additions of ₹1,19,63,520 for alleged bogus capital gains and ₹5,98,176 for commission.

The Section 153A assessment added a further ₹6,030 under Section 68 and ₹1,19,997 under Section 69C after recomputation.

For Vikas Jain, Assessment Year 2014-15, the original additions were ₹16,12,008 for capital gains and ₹80,600 for commission. The search assessment increased these figures, resulting in differential additions of ₹3,79,042 and ₹38,863, respectively.

The Tribunal clarified that these differential amounts, rather than the aggregate figures mentioned in the grounds, represented the fresh additions for that year.

Assessees Challenge Absence of Search Evidence

The assessees submitted that no assessment or reassessment was pending on the search date. The assessments were therefore completed and unabated.

They argued that no incriminating document relating to share purchases, sales or commission payments had been seized. Their search statements also contained no admission of introducing unaccounted money through accommodation entries.

The Revenue relied on the statements, investigation reports and analysis of the companies’ financial position and trading patterns. It contended that the assessments sought to bring the correct quantum to tax.

Inability to Recall Details Is Insufficient

The Tribunal examined the material referred to in the assessment orders and found no identified seized document evidencing unaccounted cash payments or accommodation entries involving the assessees.

Vikas Jain’s statement indicated that he lacked knowledge of certain transaction details and did not know who had advised the investment. Moolchand Jain’s answers referred to investments but disclosed no cash trail or admission of accommodation entries.

The Tribunal held that mere inability to explain transaction details during search cannot, by itself, establish incriminating material in the absence of corroborative material found during search.

It also distinguished general investigation information from evidence discovered in the assessees’ search.

Regular Records Cannot Substitute Incriminating Material

The Tribunal observed that investigation reports and trading-pattern analysis may constitute information available with the Department. However, the Revenue had not demonstrated that such material was found or seized during these searches.

Similarly, examining regular assessment records or documents furnished during subsequent proceedings could not replace the requirement of incriminating search material for disturbing an unabated assessment.

Applying Abhisar Buildwell, the Tribunal held that recomputation of issues already considered in completed assessments did not justify the fresh differential additions.

Relief Granted and Scope of the Decision

For Moolchand Jain, the Tribunal deleted ₹6,030 and ₹1,19,997, expressly stating that the original Section 143(3) additions were outside the present appeal and remained undisturbed.

For Vikas Jain’s Assessment Year 2014-15, it deleted the differential additions of ₹3,79,042 and ₹38,863.

For his Assessment Year 2015-16, the operative direction deleted ₹1,06,95,300 under Section 68 and ₹6,41,718 under Section 69C. Significantly, the factual discussion records that the search assessment had adopted the original assessed income without further addition; the deletion direction nevertheless expressly covers these amounts.

Interest under Section 234B was directed to be recomputed consequentially.

All three appeals were allowed. The Tribunal did not separately decide whether the share transactions were genuine or whether commission had actually been paid.

Cases Discussed

• Pr. CIT v. Abhisar Buildwell (P.) Ltd. (Supreme Court), (2023) 454 ITR 212 (SC): Followed for the rule that no addition can be made in an unabated assessment under Section 153A without incriminating material found during search.

FULL TEXT OF THE ORDER OF ITAT JODHPUR

These three appeals are filed by two assessees against separate AO under section 153A r.w.s. 143(3) for Assessment Years 2014-15 and 2015-16. Since common issues arise from the same search action and involve the same group of cases, these appeals are taken up together and disposed of by this consolidated order. Particulars of the orders under appeal are tabulated below for ready reference.

2. Grounds of appeal

2.1. In IT(SS)A No. 816/JODH/2026 for AY 2014-15 in the case of Vikas Jain:

1. The ld. CIT(A) has erred in sustaining addition of Rs. 19,91,050/- u/s 68 in respect of long-term capital gain claimed as exempt u/s 10(38).

2. The ld. CIT(A) has erred in sustaining addition of Rs. 1,19,463/- on account of alleged notional commission calculated at 6% of long-term capital gain.

2.2. In IT(SS)A No. 804/JODH/2026 for AY 2015-16 in the case of Vikas Jain:

1. The ld. CIT(A) has erred in sustaining the order passed by ld. AO which is bad in law and bad on facts and is contrary to principles of natural justice.

2. The ld. CIT(A) has erred in sustaining addition of Rs. 1,06,95,300/- u/s 68 by not allowing long-term capital gain claimed as exempt u/s 10(38).

3. The ld. CIT(A) has erred in sustaining addition of Rs. 6,41,718/- u/s 69C on account of alleged commission at 6% of long-term capital gain.

4. The ld. CIT(A) has erred in sustaining charge of interest u/s 234B.

2.3. In IT(SS)A No. 6/JODH/2026 for AY 2015-16 in the case of Moolchand Jain:

1. The ld. CIT(A) has erred in sustaining the order passed by ld. AO which is bad in law and bad on facts and without appreciating the details and evidence on

2. The ld. CIT(A) has erred in sustaining addition of Rs. 6,030/- u/s 68 in respect of long-term capital gain claimed as exempt u/s 10(38).

3. The ld. CIT(A) has erred in sustaining addition of Rs. 1,19,997/- in respect of alleged notional commission being the difference between commission calculated at 6% of long-term capital gain and commission already added in the original assessment.

2.4. Issues raised in all the three appeals arise from assessments made pursuant to search action in the case of Rajlaxmi Group, Jodhpur. The principal issue common to these appeals is whether additions could be made or sustained in assessments u/s 153A in respect of completed assessments in absence of incriminating material found during search. The appeals are therefore adjudicated together.

3. Brief facts of the cases are that a search and seizure operation u/s 132(1) was carried out on 19.02.2019 at various premises of Rajlaxmi Group Jodhpur. Case of Shri Moolchand Jain was covered in the search at his residence situated at 54-55 Narpat Nagar, Pal Road, Jodhpur on 19.02.2019. In the case of Shri Vikas Jain, search action was carried out on 20.02.2019 and 21.02.2019 at Locker No. 263 maintained with State Bank of India, Jaljog Circle, Jodhpur and Locker No. 9 maintained with ICICI Bank, Pal Road, Jodhpur. Consequent to search, jurisdiction in these cases was transferred to Central Circle-1 Jodhpur and thereafter to Central Circle-2 Jodhpur.

3.1. Shri Moolchand Jain filed his original return of income on 25.08.2015, reporting total income at Rs. 14,43,920/-. Assessment u/s 143(3) was completed on 26.12.2017 determining total income at Rs. 1,40,05,616/- after making addition of Rs. 1,19,63,520/- on account of alleged bogus long-term capital gain from shares of Pine Animation Limited and Rs. 5,98,176/- on account of alleged commission. In

08.01.2020, reporting the same income as originally returned. Ld. AO adopted income assessed in the original assessment and made further additions of Rs. 6,030/- u/s 68 and Rs. 1,19,997/- u/s 69C. Thus, assessed income was determined at Rs. 1,41,31,643/- before rounding off.

3.2. Shri Vikas Jain filed original return for AY 2015-16 on 25.08.2015, reporting total income at Rs. 19,26,190/-. Assessment u/s 143(3) was completed on 22.12.2017, determining total income at Rs. 1,32,63,210/- after making addition of Rs. 1,06,95,300/- on account of alleged bogus long-term capital gain from shares of Pine Animation Limited and Rs. 6,41,718/- on account of alleged commission. In response to notice u/s 153A dated 06.12.2019, assessee filed return on 08.01.2020, reporting the same income as originally returned. Impugned assessment u/s 153A r.w.s. 143(3) adopted the total income determined in the original assessment without making any further addition.

3.3. Shri Vikas Jain filed original return for AY 2014-15 on 30.07.2014, reporting total income of Rs. 9,59,310/-. Assessment u/s 143(3) was completed on 28.12.2016, determining total income at Rs. 26,51,918/- after making addition of Rs. 16,12,008/- on account of alleged bogus long-term capital gain from shares of Mishka Finance and Trading Limited and Rs. 80,600/- on account of alleged commission. In response to notice u/s 153A dated 06.12.2019, assessee filed return on 08.01.2020 reporting the same income as originally returned. Ld. AO recomputed the long-term capital gain at Rs. 19,91,050/- and commission at Rs. 1,19,463/-. After giving credit to amounts already added in the original assessment, ld. AO made further additions of Rs.

determined at Rs. 30,69,823/- before rounding off. We clarify this computation since the grounds and appellate order refer to the aggregate figures of Rs. 19,91,050/- and Rs. 1,19,463/- whereas the additions made afresh in the impugned assessment are only the differential amounts stated above. We also note that the opening narration in the assessment order mentions the earlier addition as Rs. 16,92,608/-. However the subsequent discussion in the same assessment order records the earlier addition as Rs. 16,12,008/- and the computation of differential addition of Rs. 3,79,042/- is also reconcilable only with Rs. 16,12,008/-. We therefore proceed on the basis of the later detailed discussion and computation in the assessment order. Aggrieved, assessees went in appeal before ld. CIT(A), who sustained the addition made by ld. Assessing Officer. Aggrieved, assessees are in appeal before the Tribunal.

4. Before us, ld. Counsel for the assessees submitted that as on the date of search i.e. 19.02.2019, no assessment or reassessment proceedings were pending for the assessment years under consideration. Original assessments u/s 143(3) had already been completed and had attained finality. Returns filed in response to notices u/s 153A declared the same income as originally returned u/s 139. It was submitted that the additions made in the original assessments were not based on any material found during search and that the further additions made in the assessments u/s 153A were only on the basis of information already available with the Department and routine examination of records.

4.1. Ld. Counsel further submitted that no incriminating document relating to purchase or sale of shares of Pine Animation Limited or found or seized during search. Statements recorded during search did not contain any admission of introduction of unaccounted cash or payment of commission. Reliance was placed on the decision of the Hon’ble Supreme Court in Pr. CIT v. Abhisar Buildwell (P.) Ltd. (2023) 454 ITR 212 (SC).

4.2. Ld. CIT DR relied on orders of authorities below. It was submitted that statements recorded during search together with investigation reports and analysis of financials and trading pattern of the scrips constituted sufficient material to sustain the additions. It was further submitted that the issue of bogus long-term capital gain had already been examined in original assessments and that additions in proceedings u/s 153A were only to bring the correct quantum to tax.

5. We have heard both the parties and perused the material on record. We have also considered the orders of ld. AO and ld. CIT(A) and the submissions placed before us. The principal issue for consideration is the scope of assessment u/s 153A in respect of assessments which had already been completed on the date of search.

5.1. Facts relevant to this issue are borne out from the assessment orders, details of which are already captured in the above paragraphs. No assessment or reassessment proceeding for the assessment years in appeal before us was pending on the date of search. The assessments were therefore unabated. Returns filed in response to notices u/s 153A declared the same income as originally returned u/s 139.

5.2. We find that in the case of Shri Moolchand Jain, the original assessment for AY 2015-16 had already made addition of Rs.

5,98,176/- on account of commission. In the assessment u/s 153A, ld. AO merely recomputed the alleged capital gain and commission and added the differential amounts of Rs. 6,030/- and Rs. 1,19,997/-, respectively. Similarly in the case of Shri Vikas Jain for AY 2014-15, the original assessment had already made additions of Rs. 16,12,008/- and Rs. 80,600/- on these issues. In the assessment u/s 153A, ld. AO recomputed the figures and added only the differential amounts of Rs. 3,79,042/- and Rs. 38,863/-. Thus, the incremental additions made in these two appeals are not founded upon any new material discovered during search but arise from a reworking of issues already considered in the completed assessments.

5.3. In the appeal of Shri Moolchand Jain for AY 2015-16, the original assessment had been completed u/s 143(3) on 26.12.2017 and was unabated on the date of search. The additions made in the assessment u/s 153A are only differential additions arising from re-computation of the very same share transactions and alleged commission which had already been considered in the original assessment. The issue for our consideration is whether such additions could be made in absence of incriminating material found during search.

5.4. We have also examined the material referred to in the assessment orders. The orders refer to statements recorded during search and to investigation reports concerning alleged accommodation entries in penny stock companies. However, the assessment orders do not identify any seized document or other material found during search which evidences payment of unaccounted cash by these assessees or receipt of sale proceeds through any identified accommodation entry provider. The statements reproduced in the assessment orders do not contain an paid commission for obtaining accommodation entries. In the case of Shri Vikas Jain, statement records that he did not have knowledge of the details of the share transactions and did not know who had advised the investment. In the case of Shri Moolchand Jain, answers reproduced by ld. AO refer to the share investments but do not disclose any cash trail or admission of an accommodation entry. Mere inability to explain certain details in a statement recorded during search cannot by itself be elevated to incriminating material establishing undisclosed income in the absence of corroborative material found during search.

5.5. Investigation reports and general analysis of financials and trading pattern of the scrips may form information available with the Department. However, such material is not shown to have been found or seized during the search in the cases of these assessees. Similarly, examination of regular assessment records and documents furnished in response to notices issued during assessment proceedings cannot substitute the requirement of incriminating material found during search for disturbing an unabated assessment u/s 153A.

5.6. The law on this issue stands settled by the Hon’ble Supreme Court in Pr. CIT v. Abhisar Buildwell (P.) Ltd. (2023) 454 ITR 212 (SC). The relevant conclusions of the Hon’ble Supreme Court are reproduced below for ready reference:

“14. In view of the above and for the reasons stated above, it is concluded as under:- (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re- opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.”

5.7. Applying the ratio laid down by the Hon’ble Supreme Court in Abhisar Buildwell (supra) to the facts of the present appeals, we hold that the additions of Rs. 6,030/- u/s 68 and Rs. 1,19,997/- u/s 69C made in the assessment u/s 153A are not sustainable. The original assessment for AY 2015-16 was completed and unabated on the date of search. The differential additions arise only from re-examination and re- computation of the share transactions and alleged commission already considered in the original assessment. No incriminating material relating to these additions has been shown to have been found during search. In absence of such material, ld. AO could not have made the impugned additions in the unabated assessment u/s 153A.

5.8. We accordingly set aside the order of ld. CIT(A) in the appeal of Shri Moolchand Jain for AY 2015-16 and delete the additions of Rs. 6,030/- u/s 68 and Rs. 1,19,997/- u/s 69C. The original additions made in the assessment u/s 143(3) are not the subject matter of the present appeal and are not disturbed by this direction.

5.9. In the other two appeals of Shri Vikas Jain for AYs 2014-15 and 2015-16, involve the same legal issue and arise from assessments made pursuant to the same search. The original assessments for both years were completed before the date of search and were unabated. The additions in dispute relate to the same alleged penny stock transactions and commission and no incriminating material found during search has been identified in support of such additions. Respectfully following our decision in the appeal for Shri Moolchand Jain in the above paragraphs and applying the same reasoning mutatis mutandis connected appeals, we set aside the respective orders of ld. CIT(A) and delete the additions of Rs. 3,79,042/- u/s 68 and Rs. 38,863/- u/s 69C in the case of AY 2014-15 and Rs. 1,06,95,300/- u/s 68 and Rs. 6,41,718/- u/s 69C in the case of AY 2015-16. The ground relating to interest u/s 234B in AY 2015-16 is consequential and ld. AO is directed to re-compute the same in accordance with law after giving effect to this order.

5.10. In view of the above decision, grounds on merits of the alleged penny stock transactions and alleged commission in all three appeals do not call for separate adjudication and are left open.

6. In the result, all the three appeals are allowed.

Order pronounced in terms of Proviso to Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963 on 03 November, 2026