The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted the disallowance of trading losses claimed by the assessee on alleged penny stock shares, citing insufficient evidence of price manipulation.
Sagar Jhaveri, the assessee filed his income tax return declaring an income of Rs. 41,27,580. During his initial filing, he claimed losses on certain share trades, including transactions with Radhe Developers (India) Ltd., which he reported as legitimate trading losses.
The assessee’s return was initially accepted and processed under Section 143(1) of the Income Tax Act, 1961 without issues. However, In 2015, the assessment was reopened under Section 147, resulting in a reassessed income of Rs. 1,52,50,170 in October 2016.
How to Compute Income from Salary with Tax Planning, Click Here
Again, In 2018, the assessment was reopened with the approval of the Principal Commissioner based on SEBI and BSE reports regarding suspicious trading in shares of Radhe Developers (India) Ltd., a suspected “penny stock” company.
The tax authorities suspected the assessee’s trades were part of a tax evasion scheme involving artificial losses in Radhe Developers shares. In response, the assessee objected to the reopening, claiming it was merely a “change of opinion” since his stock transactions had already been reviewed in previous assessments.
The assessee explained the legitimacy of his trades, which were conducted through official exchanges (BSE/NSE) and documented in his demat account. The AO stated that SEBI and internal investigative data indicated Radhe Developers was a shell company with volatile pricing which was used for booking artificial tax losses.
How to Compute Income from Salary with Tax Planning, Click Here
Thus, the AO disallowed the assessee’s claimed loss of Rs. 2,94,763 from Radhe Developers, adding it to his taxable income. On appeal, the CIT(A) dismissed the assessee’s appeal, affirming that the reopening was valid based on SEBI’s findings and that the losses appeared artificial.
Aggrieved, the assessee appealed the CIT(A)’s order before the ITAT arguing that the reopening was invalid due to reliance on previously addressed issues without new evidence, constituting a “change of opinion,” which is legally impermissible.
The assessee’s counsel contested that they were denied cross-examination of persons whose statements the AO relied on and maintained that the share trades were conducted on recognized stock exchanges (BSE/NSE), with all relevant taxes paid, thus these were genuine transactions.
The two-member bench comprising Suchitra Kamble (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) found the reopening reasonable stating that the information relied on came from subsequent investigation findings.
How to Compute Income from Salary with Tax Planning, Click Here
The tribunal observed that there was evidence of trading irregularities. However, the AO had not specifically tied these irregularities to the assessee’s actions or demonstrated a direct link between the assessee and the alleged price manipulation.
Therefore, the tribunal partially allowed the assessee’s appeal by validating the reopening and rejecting the price manipulation claim. Consequently, some of the disallowances were dismissed, and specific additions were struck down due to a lack of conclusive evidence.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
