Reassessment Based On General Penny Stock Reports Alone Cannot Stand: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 1 April, held that reassessment cannot be based solely on general penny stock investigation reports without any material linking the taxpayer, and deleted additions made towards alleged bogus capital gains and commission.

The Bench comprising Judicial Member Sanjay Garg and Accountant Member Annapurna Gupta allowed the appeal of Bhupesh Sajjansinh Rathod, an individual investor, against the order of the Commissioner of Income Tax (Appeals), NFAC, which had upheld additions arising from alleged penny stock transactions.

The Tribunal observed that “the reopening of the assessment in the case of the assessee was not justified on the basis of general allegations when the name of the assessee did not figure in the said specific details.”

Rathod had reported long-term and short-term capital gains from the sale of shares of Kushal Tradelink Ltd. The Assessing Officer (AO) reopened the assessment under Sections 147 and 148 of the Income Tax Act, 1961, relying on Investigation Wing reports and SEBI findings alleging price rigging.

The AO treated Rs. 1.59 crore as unexplained money under Section 69A and added Rs. 7.95 lakh as commission under Section 69C. These additions were confirmed by the CIT(A).

Rathod contended that he was a bona fide investor and that no material existed linking him to any alleged manipulation, arguing that the reassessment was based only on general information regarding the scrip.

The Tribunal noted that the Investigation Wing material did contain details of alleged beneficiaries and transactions, but the AO failed to identify any entry, name, or amount pertaining to the assessee. There was no evidence showing that the assessee or his broker participated in the alleged accommodation entry network.

The Bench held that the reopening was not based on an independent application of mind but on general allegations, rendering it legally unsustainable. On merits, it further held that the addition of the entire sale consideration and the commission was unjustified due to lack of supporting evidence.

Accordingly, the ITAT deleted all additions and allowed the appeal.