The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that mere suspicious information received from the Deputy Director of Income Tax (DDIT) cannot be a ground to raise an addition under Section 69B of the Income Tax Act, 1961.
The assessee is an individual and is earning brokerage income as an estate agency and has also been making investments/trading in shares of various companies by stock exchange through recognized brokers. The assessee had filed his return of income, declaring a total income of Rs.7,68,681/-.
The assessee’s case was reopened under Section 147 of the Income Tax Act for the reason that the information received from DDIT (Investigation), Mumbai that the assessee has traded in shares of M/s. Vas Infrastructure Ltd. which is alleged to be a penny stock scrip provides bogus long-term capital gain to various beneficiaries.
The Assessing Officer vide assessment order passed under Section 143(3) and 147 of the Income Tax Act determined the total income of the assessee at Rs.24,22,181/- by making an addition of Rs.16,53,593/- being the unexplained investment under Section 69B of the Income Tax Act made in the shares of M/s. Vas Infrastructure Ltd.
The Departmental Representative stated that the Investigation Wing has identified the said scrip as a penny stock and further stated that the share price of the scrip of M/s. Vas Infrastructure Ltd. has been rigged to provide accommodation entries to all the beneficiaries who have invested in the said share.
It was further stated that the financials of M/s. Vas Infrastructure Ltd. does not substantiate the huge share price movement clearly indicating the fact that it was a penny stock for the purpose of providing accommodation entries by way of long-term and short-term capital gain and short-term capital loss.
The Authorised Representative contended that the assessee has been a regular investor in shares and relied on the paper book for the details containing the investment made by the assessee in shares. The assessee has invested only Rs.16,53,593/- in M/s. Vas Infrastructure Ltd. during the year under consideration but had made a huge investment of around Rs.8 crores in various other scrips other than M/s. Vas Infrastructure Ltd.
It was further stated that the assessee has furnished all the details such as the contract notes issued by Lalkar Securities Ltd. along with STT, the ledger account of the broker, the demat account evidencing the said transaction, and various other details contemplating the said transaction.
The Two-member bench comprising of B R Baskaran (Accountant member) and Kavitha Rajagopal (Judicial member) held that mere suspicion that the assessee has invested in alleged penny stock scrip cannot be made the basis of addition under Section 69B of the Income Tax Act.
In the absence of any material evidence to corroborate the information received from DDIT that M/s. Vas Infrastructure Ltd. is a penny stock, there was no justification for upholding the addition made by the Assessing Officer. Therefore, there was no infirmity in the order of the Commissioner of Income Tax (Appeal). Thus, the ground raised by the revenue was dismissed.
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