No Evidence of Price Rigging or Bogus Share Transactions: ITAT Quashes S. 68 Addition [Read Order]
The appellate tribunal further recorded that the assessee had furnished comprehensive documentary evidence including Demat account statements, contract notes, and broker confirmations all of which substantiated the genuineness of the share transactions.
Rigging - Bogus - ITAT - Quashes - taxscan
Rigging - Bogus - ITAT - Quashes - taxscan
The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, on alleged bogus share transactions, deleted an addition made under Section 68 of the Income Tax Act,1961 as there was no evidence of price rigging found.
The assessee, Mukesh Vallabhdas Shah, aged 58, had filed his return of income for Assessment Year (AY) 2015-16, declaring a total income of ₹3,09,240. He was engaged in trading of listed equity shares, namely Ashika Credit Capital Ltd, Dhanleela Investments & Trading Co. Ltd, and GFL Financials India Ltd and reported income under the head “Business Income.”
Based on information received from the Investigation Wing, Kolkata, the Assessing Officer treated the sale transactions as bogus entries, alleging that the shares were part of a “penny stock” scam used to generate artificial gains and launder unaccounted money. Consequently, the total sale value of ₹11,49,008 was treated as unexplained cash credit under Section 68 of the Act.
The assessee’s counsel contended that the Assessing Officer (AO) had made the addition under Section 68 in a purely mechanical manner, without conducting any independent investigation or verification.
The AO, it was argued, merely relied upon a generic report from the Investigation Wing, Kolkata, which contained broad allegations about certain penny stocks being used for generating accommodation entries, without linking those findings to the assessee’s specific transactions.
It was further submitted that the assessee had engaged in genuine trading of listed shares of Ashika Credit Capital Ltd., Dhanleela Investments & Trading Co. Ltd., and GFL Financials India Ltd., through recognized stock exchanges (BSE/NSE) and registered brokers. The transactions were fully supported by contract notes, Demat account statements, and bank records, all of which were furnished to the Revenue during the proceedings. These documents clearly evidenced that all purchases and sales were routed through legitimate banking channels, with applicable Securities Transaction Tax (STT) duly paid.
The counsel further stated that the total sale value of the shares was ₹9,14,571, while the purchase cost amounted to ₹9,40,131, resulting in a net trading loss of ₹25,560 not a gain as alleged by the AO.
Consequently, there was no question of any tax evasion or benefit derived by the assessee. Since the transactions were treated as business income and not as capital gains, the assessee had not claimed any exemption under Section 10(38) of the Income Tax Act.
Both the Assessing Officer (AO) and the CIT(A), NFAC upheld the addition, citing the Kolkata Investigation Wing report which alleged that certain penny stocks were used for generating fake long-term capital gains. The CIT(A) concluded, based on the “preponderance of probabilities,” that the assessee had engaged in bogus transactions.
However, neither authority carried out independent verification, nor examined the assessee’s brokers or trading records. They also ignored critical facts such as the short holding period (3-4 days for some scrips) and intraday trades indicating active business transactions rather than manipulative investment activity.
The tribunal, after examining the records and arguments, noted that the entire addition made by the Assessing Officer was founded purely on assumptions and unverified third-party investigation reports, with no direct or corroborative evidence brought on record against the assessee.
The bench presided over by Judicial Member Shri Sandeep Gosain observed that the Assessing Officer had not conducted any independent inquiry or verification to establish that the assessee’s share transactions were fictitious or manipulated. Instead, the AO had mechanically relied on the general findings of the Investigation Wing, Kolkata, without demonstrating how those findings were applicable to the assessee’s specific trades.
The appellate tribunal further recorded that the assessee had furnished comprehensive documentary evidence including Demat account statements, contract notes, and broker confirmations all of which substantiated the genuineness of the share transactions.
Also, the Revenue had not disputed or disproved the authenticity of these documents. The Tribunal also noted that the payments for the purchase and sale of shares were made entirely through banking channels, and Securities Transaction Tax (STT) was duly paid, which confirmed that all transactions had taken place through recognized stock exchanges under regulatory oversight.
The ITAT found no allegation, evidence, or material on record to suggest that the assessee was in any manner involved in price rigging, circular trading, or collusion with operators. In the absence of such evidence, the Tribunal held that the Revenue’s conclusion branding the transactions as bogus was unsupported by facts and legally unsustainable.
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