Naresh Omprakash Heda Vs ITO (ITAT Mumbai)
Mumbai ITAT Deletes Section 68 Addition on Intraday Penny Stock Trade; Mere Inclusion of Scrip in Investigation Report Not Sufficient
The Mumbai ITAT deleted an addition of ₹6.34 lakh made under section 68, holding that the Assessing Officer could not treat the gross sale proceeds of an intraday share transaction as unexplained cash credit merely because the scrip, VMS Industries Ltd., was identified as a penny stock in an Investigation Wing report. The Tribunal noted that the assessee had purchased and sold the shares on the same day through a registered broker on a recognised stock exchange, resulting in a genuine trading loss of ₹9,935, which had been duly disclosed in the return. There was no claim of exempt long-term capital gains, no artificial loss, and no evidence linking the assessee to any accommodation entry operator or showing that unaccounted money had been routed through the transaction. The Tribunal held that mere suspicion arising from an investigation report cannot replace cogent evidence, and once the purchase and sale formed part of a genuine intraday trade, the entire sale proceeds could not be taxed under section 68. Accordingly, the addition was deleted, while the grounds challenging the validity of the reassessment were left open as the appeal succeeded on merits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by the assessee is directed against the order dated 31.12.2025 passed by the Ld. CIT(A), NFAC, for the assessment year 2012-13.
2. The assessee has raised various grounds challenging the validity of reassessment proceedings and the addition of Rs.6,34,942/- made by the Assessing Officer by treating the sale proceeds arising from transactions in shares of VMS Industries Ltd. as unexplained cash credit.
3. Briefly stated, the facts of the case are that information was received from the Investigation Wing that VMS Industries Ltd. was one of the penny stock companies allegedly used for providing accommodation entries in the form of bogus capital gains, losses and other tax benefits. Based on such information, the assessment was reopened. During the reassessment proceedings, the Assessing Officer noticed that the assessee had traded in the shares of VMS Industries Ltd. during the relevant previous year and the total sale value of the transaction was Rs.6,34,942/-. The Assessing Officer was of the view that the said scrip formed part of the penny stock racket unearthed by the Investigation Wing and accordingly treated the entire sale proceeds of Rs.6,34,942/- as unexplained cash credit under section 68 of the Act and added the same to the income of the assessee.
4. Before the Ld. CIT(A), the assessee submitted that he had carried out genuine share trading transactions through a registered stock broker on a recognised stock exchange. It was submitted that the transaction in VMS Industries Ltd. was an intraday transaction and the assessee had in fact incurred a loss of Rs.9,935/-. The assessee also furnished contract notes, broker ledger account and other supporting documents. However, the Ld. CIT(A) upheld the addition made by the Assessing Officer.
5. Before us, the Ld. AR submitted that the authorities below have completely misdirected themselves in appreciating the facts of the case. It was submitted that the assessee had purchased shares of VMS Industries Ltd. on 14.06.2011 and sold the same on the very same day through the stock exchange mechanism. The transaction was merely an intraday trade and resulted in a loss of Rs.9,935/- which stood disclosed in the computation of income. The Ld. AR submitted that this is not a case where the assessee has claimed any exempt long-term capital gain or any artificial loss through a pre-arranged transaction. According to him, the assessee is a genuine trader and had suffered a trading loss in the normal course of business. It was further submitted that no material whatsoever has been brought on record to establish that the assessee had obtained any accommodation entry or had any connection with the alleged operators referred to in the Investigation Wing report. The addition has been made merely because the scrip of VMS Industries Ltd. figured in the Investigation Report.
6. Per contra, the Ld. DR relied upon the orders of the lower authorities and submitted that VMS Industries Ltd. has been identified as a penny stock company used for providing accommodation entries and therefore the addition made by the Assessing Officer deserves to be sustained.
7. We have heard the rival submissions and perused the material available on record. We find that the entire addition has been made solely on the basis of information received from the Investigation Wing that VMS Industries Ltd. was one of the scrips allegedly used for providing accommodation entries. However, upon a careful examination of the facts of the present case, we find that the transaction undertaken by the assessee does not fit into the pattern of accommodation entry transactions unearthed by the Investigation Wing.
8. The undisputed fact emerging from the record is that the assessee purchased and sold the shares of VMS Industries Ltd. on the very same day i.e. 14.06.2011. Thus, the transaction was an intraday transaction executed through a registered broker on the recognised stock exchange. The transaction did not result in any gain to the assessee. On the contrary, the assessee incurred a loss of Rs.9,935/- which has been duly disclosed in the computation of income. Therefore, the assessee neither earned any exempt capital gain nor generated any artificial loss for reducing his tax liability.
9. We find considerable force in the submission of the Ld. AR that the very premise of an accommodation entry arrangement is absent in the facts of the present case. In accommodation entry cases involving penny stocks, the allegation generally is that the assessee introduces unaccounted money in the guise of capital gains or books fictitious losses through pre-arranged transactions. In the present case, no such benefit has accrued to the assessee. The assessee has merely undertaken an intraday trade and suffered a loss therefrom. Thus, the transaction under consideration cannot, by any stretch of imagination, be regarded as an accommodation entry merely because the scrip involved happens to be one of the companies referred to in the Investigation Wing report.
10. We further note that the Assessing Officer has not brought any independent material on record to establish that the assessee was connected with any alleged entry operator or had paid any cash for obtaining accommodation entries. There is no evidence to suggest that the sale proceeds received by the assessee represented his own unaccounted money routed back through the stock exchange mechanism. Except for relying upon the general findings of the Investigation Wing, no enquiry has been conducted linking the assessee with the alleged modus operandi.
11. We also find that the Assessing Officer has accepted the existence of the purchase transaction but has proceeded to treat the entire sale proceeds of Rs.6,34,942/- as unexplained cash credit. Once the purchase and sale form part of the same intraday transaction carried out through the stock exchange, the gross sale proceeds cannot be viewed in isolation. The real result of the transaction is only a loss of Rs.9,935/- which has already been disclosed by the assessee.
12. In our considered opinion, the material available on record clearly demonstrates that the assessee has acted as a genuine trader and has entered into a genuine intraday share transaction which resulted in a trading loss. Merely because the scrip subsequently figured in an investigation relating to penny stock transactions, the genuine trading activity of the assessee cannot be branded as an accommodation entry in the absence of any cogent evidence. Suspicion, however strong, cannot substitute proof.
13. Considering the totality of the facts and circumstances of the case, we hold that the Assessing Officer was not justified in treating the sale proceeds of Rs.6,34,942/- as unexplained cash credit. We accordingly direct the Assessing Officer to delete the addition. Since the addition itself is deleted on merits, the other grounds challenging the reassessment proceedings are left open and are not being adjudicated.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 24/06/2026.
