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March 19, 2022

ITAT Mumbai: In case of Penny Stock Transactions No addition if no incriminating material found during search

by Mahesh Mara in Income Tax

ITAT Mumbai: In case of Penny Stock Transactions No addition if no incriminating material found during search

Fact and Issue of the case

The brief facts of the case relevant to the issue before us are that the Assessee, an individual resident, filed original return of income under Section 139 of the Act for the Assessment Year 2012-13 on 30.10.2012 declaring total income of INR 8,56,716/-, which was processed under section 143(1) of the Act. Subsequently, the search action was carried out in the case of Indo Count Industries Limited & group concerns on 01.02.2018. Notice under Section 153A of the Act, dated 19.02.2019 was issued to the Assessee and in response to the same, the Assessee filed return of income on 12.03.2019 declaring total income of INR 8,56,720/-. During the assessment proceedings, the Assessing Officer (AO) had noticed that the Assessee had sold 2,00,000/- shares of M/s. Global Capital Markets Ltd. (GCML), purchased at the cost of INR 13,28,294/-, for the sale consideration of INR 47,63,825/-. According to the AO this was a penny-stock transaction undertaken by the Assessee in a pre-arranged manner in connivance with the operators to evade taxes. Accordingly, the AO concluded that sale consideration of INR 47,63,825/- was not in the nature of capital gain and represented unexplained income invested made by the Assessee. Thus, the AO made an addition of INR 47,63,825/- to the returned income and also made a further addition of INR 2,38,891/-, being 5% commission paid for obtaining accommodation entry, as unexplained expenditure under section 69C of the Act.

Being aggrieved, the Assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT (A)]. The primary contention of the Assessee before the CIT(A) was that the assessment year under consideration was not an abated assessment year and the AO has been erred in making additions without there being any incriminating documents/materials. The AO had merely analyzed the fluctuations in the price of shares of GCML and concluded that GCML was a penny-stock company without there being any incriminating material found during the course of search. The contentions of the Assessee found favour with the CIT(A) who granted relief to be Assessee by following, inter alia, the judgment of the Special Bench of the Tribunal in the case of All Cargo Global Logistics vs. DCIT (2012) : 18 ITR 106 (SB) and the judgment of Hon‟ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation : 374 ITR 645 (Bombay). The CIT(A) deleted the addition of INR 58,58,732/- made by the AO. Being aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before the Tribunal.

Observation of the court

The tribunal has heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. The CIT(A) has returned factual finding that the additions made by the AO are not based on any incriminating material found during the course of search and the same remains uncontroverted. The Ld. Departmental Representative could not dispute the proposition that additions in the present case cases have not been made on the basis of any incriminating material found during search. The CIT(A) has granted relief by following the decision of the jurisdictional High Court in the case of Continental Warehousing Corporation (supra) wherein it has been held that no addition can be made in respect of unabated assessments which have become final in absence of any incriminating material found during search. This view has also been upheld by the Hon‟ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society and Others vide judgment dated 29.08.2017 in Civil Appeal No. 11080 of 2017, reported in 397 ITR 344 (SC). We do not find any merit in the present appeal. 7. In view of the above, the appeal by the Revenue is dismissed


The tribunal dismissed the appeal and ruled in favour of the assessee.

Read the full order from below


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