ACIT Vs Sidharth Ratanlal Bafna (ITAT Pune)
Penny Stock Gain Found Genuine, Reopening Held Invalid- ITAT Pune Upholds CIT(A)’s Relief
A search was conducted on Bafna Group on 10-09-2014. For A.Y. 2015-16, assessment was originally completed u/s 153A r.w.s 143(3) accepting returned income. Later, based on information from the Investigation Wing, Nashik alleging bogus LTCG from penny-stock PFL Infotech Ltd., AO reopened assessment u/s 147 & disallowed exemption of ₹7.68 crore claimed u/s 10(38), further adding ₹23 lakh as alleged commission u/s 69C. AO relied heavily on statements of Naresh Jain (hawala operator) & directors of PFL without giving opportunity for cross-examination.
CIT(A)/NFAC deleted additions, holding that denial of cross-examination vitiated assessment, & that Assessee had furnished full documentary proof—Demat statements, bank entries, STT-paid contract notes, broker details, & audited books—showing genuine exchange-traded transactions. Revenue appealed.
Tribunal’s Findings
- Assessee had purchased & sold shares on recognised stock exchange through registered broker (SMC Global), with payments through banking channels; shares were not acquired via preferential allotment.
- AO had already examined these share transactions in earlier 153A assessment; hence reopening was a mere change of opinion without fresh tangible material.
- Denial of cross-examination of third-party witnesses whose statements were relied upon constituted violation of natural justice.
- No evidence was shown linking Assessee or family with promoters of PFL; SEBI never issued notice against them.
- Reliance on Swati Bajaj (446 ITR 56 Cal) was misplaced since that case involved off-market preferential allotments, unlike present exchange-based trades.
- Jurisdictional precedents such as PCIT v. Indravadan Jain (156 Taxmann 605 Bom) & CIT v. Shyam R. Pawar (54 Taxmann.com 108 Bom) squarely applied—when trades are backed by Demat, bank, & STT proofs, LTCG cannot be treated as bogus.
- Reopening quashed as invalid—no new material beyond earlier 153A record.
- LTCG exemption u/s 10(38) allowed as genuine; addition of ₹7.68 crore deleted.
- Commission addition u/s 69C also deleted as consequential.
FULL TEXT OF THE ORDER OF ITAT PUNE
