Mehul Hasukh Shah Vs ITO (ITAT Mumbai)
Penny-Stock Allegation Collapses: ITAT Mumbai Deletes Addition as Mehul Shah Proves 1996 Purchase & Business-Income Treatment; Reopening Based on Incorrect LTCG Information Invalid; Long-Held Penny-Stock Shares Treated as Genuine — ITAT Mumbai Quashes Additions; Incorrect Bogus-LTCG Trigger Cannot Justify Reopening; Assessee Proved Genuine 1996 Shareholding
Assessee, Mehul Hasukh Shah, filed return for AY 2016-17 declaring ₹4,90,760. Reassessment was initiated u/s 147 on the sole allegation—based on Investigation Wing report—that Assessee generated bogus LTCG from 5,000 shares of Safal Securities Ltd. (SSL), a scrip listed as penny stock. AO held that SSL was used for accommodation entries & treated the sale proceeds of ₹32,888 as unexplained cash credit u/s 68 r.w.s. 115BBE, even though Assessee had not claimed any LTCG exemption u/s 10(38).
Before CIT(A), Assessee argued that he never reported any LTCG; SSL shares were held as stock-in-trade & profits were offered as business income. CIT(A), however, upheld AO’s conclusions without verifying documents.
Before Tribunal, Assessee produced key evidence showing:
- SSL shares were originally purchased in 1996, when SSL was “Arrow Securities Ltd.”
- Transfer letter dated 01.10.1996 clearly conveyed ownership of 10,000 shares.
- Purchase was made through banking channels; demat was not mandatory in 1996.
- SSL shares were consistently reflected as stock-in-trade in P&L & balance sheet
- For AY 2016-17, Assessee sold only 5,000 shares, with the remaining 15,000 shares still shown in closing stock.
Tribunal held that:
