Disallowance to Income due to Non-appreciation of Evidence in Alleged Manipulation of Scrip Share Price Unlawful: ITAT Partly allows Appeal [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, allowed an appeal partly noting sufficient evidence in a case where unlawful disallowance to income was made alleging manipulation of share price of scrip, as the evidence was overlooked by the Assessing Officer (AO)and Commissioner of Income-tax (Appeals) [CIT(A)].

The assessee-appellant, Innovate Derivatives Pvt. Ltd., declared loss of INR 18,34,253/- and assessment regarding the share called M/s Looks Health Services Ltd. (LHSL) which is a penny stock script. The assessee claimed a loss of INR 13,18,400/-.

A notice issued under Section 148A sought explanation to which the assessee replied with details and documents relating to the transaction of purchase and sale of LHSL shares namely broker ledger, Demat transaction sheet, LHSL register, etc.

However, AO was not satisfied and issued notice under Section 148 on account of the loss of INR 13 lakhs claimed by the assessee as not genuine and escaped income. During reassessment, details were furnished but the AO held that sale of LHSL script was identified to provide accommodation entry and disallowed the entire loss of INR 13 lakhs.

The CIT(A) confirmed the addition made by AO and dismissed the appeal. The assessee then appealed before the ITAT, claiming that the disallowance of loss as bogus on account of manipulation of share price of LHSL scrip was unlawful and the CIT(A) had erred in upholding that the scrip of LHSL was bogus as the appellant uploaded all documents.

The counsel for the assessee-appellant submitted that the AO has not doubted the purchase and sale of shares but not accepted the claim of loss as genuine and added as the income of the assessee. The counsel points to the fact that the assessee has shown the loss as business loss and not capital loss in its return of income.

The bench of Narendra Prasad Sinha (Accountant Member) and T.R. Senthil Kumar (Judicial Member) referred to the decision of a Co-ordinate Bench in Rachana Sanjay Shah v. PCIT (2024) and deleted the additions made by the AO. The appeal was partly allowed.

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