Addition in respect of Penny Stock cannot be made without Incriminating Material found during Search: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai bench has held that long term capital gains arising from a penny stock transaction cannot be denied exemption under the Income Tax Act, 1961 on the ground that the said transaction is bogus and pre-arranged in the absence of any incriminating material.

The Assessee, Vipul Suresh Kumar Modi, had filed an income tax return. Subsequently notice under Section 153A of the Income Tax Act, 1961 was issued to the Assessee. During the assessment proceedings, the Assessing Officer (AO) had noticed that the Assessee had sold shares of M/s Global Capital Markets Ltd (GCML), purchased at the cost of INR 13,28,294 for the sale consideration of INR 47,63,825. The AO had held that the sale transaction was a penny stock transaction undertaken by the Assessee in a prearranged manner to evade taxes.

On appeal, the CIT(A) granted relief to the assessee relying on various judgments.

Before the Tribunal, the assessee contended that the AO has been erred in making additions without there being any incriminating documents/materials. The AO had merely analyzed the fluctuations in the price of shares of GCML and concluded that GCML was a penny-stock company without there being any incriminating material found during the course of search, they argued.

The ITAT bench consisting of members Rahul Chaudhary (Judicial Member) and Shamim Yahya (Accountant Member), observed that in the present case the CIT (A) had recorded the finding that the additions made by the AO were not based on any incriminating material found during the course of search, and the same was not disputed by the departmental representative before the ITAT.

The ITAT observed that the Bombay High Court in the case of CIT versus Continental Warehousing Corporation (2015) had held that no addition could be made in respect of unabated assessments which had become final in absence of any incriminating material found during the search. It also observed that the Supreme Court in the case of CIT versus Sinhgad Technical Education Society and Others (2017) had upheld the said order of the Bombay High Court.

To Read the full text of the Order CLICK HERE

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