Bogus Loss on Penny Stock Scrip Cannot Be Based Solely on Investigation Wing Report: ITAT Remands Matter for Proper Verification [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, remitted the issue relating to alleged bogus loss on sale of penny stock scrip after finding that the assessment was completed merely on the basis of Investigation Wing report without proper verification of the transactions.

The assessee, Bihariji Consultancy Pvt. Ltd., had booked losses on sale of scrip of SRK Industries Ltd. during AY 2014-15. During scrutiny assessment under Section 143(3) of the Income Tax Act, the AO treated the losses as bogus on the ground that the transactions involved suspicious penny stock scrips

The AO relied heavily on third party investigation material and concluded that the assessee had indulged in booking artificial losses through penny stock transactions.

Aggrieved, the assessee preferred appeals before the CIT(A), who upheld the additions made by the AO.

Before the Tribunal, the assessee contended that the losses were treated as bogus merely on the basis of Investigation Wing report without independent verification of the transactions. Reliance was placed on the decision in Vishwas Marketing Services Pvt. Ltd. v. ITO, where a similar issue had been remitted for fresh verification.

The Revenue contended that the transactions involved suspicious penny stock scrips and supported the findings of the lower authorities.

The Tribunal comprising S. Rifaur Rahman (Accountant Member) and Sudhir Kumar (Judicial Member) observed that the AO had concluded that the assessee booked bogus losses merely by relying upon investigation material and financials of the scrip company without properly verifying the transactions.

The Tribunal further observed that information obtained by the assessee through the Right to Information Act went to the root of the investigation and had not been properly appreciated during assessment proceedings.The assessment was also found to have been completed hurriedly without proper examination of relevant materials available on record.

Accordingly, the Tribunal restoed the issue for fresh examination after directing proper verification of the transactions and affording adequate opportunity to the assessee.

The assessee’s appeals were partly allowed for statistical purposes

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