DCIT Vs Chetan Rasiklal Shah (ITAT Mumbai)
Penny-Stock Suspicion Cannot Buy Evidence-Loss Allowed, Ghost Commission u/s 69C Vanishes & Rs.2.04-Crore Interest Survives u/s 36(1)(iii)
Revenue’s three-pronged challenge
The Revenue challenged the CIT(A)’s order deleting three additions made in the case of Chetan Rasiklal Shah for AY 2015-16. The disputed issues concerned the loss claimed from transactions in alleged penny-stock scrips, consequential addition towards supposed commission paid to entry operators & disallowance of interest expenditure of Rs.2,04,23,968 on funds advanced interest-free to M/s Setu Securities (P) Ltd.
The AO relied upon Investigation Wing reports, SEBI material, stock-exchange data, financial weakness of the concerned companies, abnormal movement in their share prices & statements of persons allegedly involved in manipulating penny stocks. According to the AO, the transactions were part of a pre-arranged mechanism devised to generate artificial losses.
Penny-stock label versus documentary evidence
The Revenue argued that the assessee suffered substantial losses in scrips such as Pine Animation, Mishka Finance & Trading Ltd. & Matra Kaushal Enterprises, despite their negligible business activity & weak financial fundamentals. It contended that contract notes, demat entries & routing transactions through a recognised stock exchange could not, by themselves, establish genuineness where the surrounding circumstances indicated price manipulation.
