No 'Penny Stock' Addition Without Specific Evidence Against Assessee; Off-Market Purchase a Key Distinguishing Factor: ITAT Delhi

No Adverse Inference in Penny Stock Cases Without Specific Incriminating Evidence, Rules ITAT Delhi

New Delhi: The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has ruled that Long Term Capital Gains (LTCG) from the sale of alleged penny stocks cannot be treated as unaccounted income without specific, incriminating evidence linking the assessee to an accommodation entry scheme. In a significant order, the Tribunal distinguished its own conflicting precedents based on whether the shares were purchased on or off the market.

The bench, led by Accountant Member Khetra Mohan Roy, was hearing an appeal by the Income Tax Department against an order that had granted relief to the assessee, Mr. Rohan Agarwal . The Tribunal allowed the assessee's claim, effectively quashing a tax addition of ₹95.25 lakh.

(Note: The final operative part of the judgment contains a typographical error stating the "Revenue's appeal is allowed," which contradicts the detailed reasoning in the preceding paragraph that favors the assessee. This analysis is based on the body of the judgment's reasoning.)

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Background of the Case

For the Assessment Year 2013-14, Mr. Rohan Agarwal had declared a tax-exempt Long Term Capital Gain of ₹80.88 lakh under Section 10(38) of the Income Tax Act, 1961, from the sale of shares in M/s CCL International Ltd.

The Assessing Officer (AO), acting on information from the Department's Investigation Wing that identified CCL International Ltd. as a "penny stock," reopened the assessment. The AO concluded that the transaction was a sham designed to route unaccounted money and create bogus capital gains. Consequently, the entire sale receipt of ₹95,25,646 was added to Mr. Agarwal 's income as unexplained money under Section 69A of the Act.

On appeal, the Commissioner of Income-Tax (Appeals) [CIT(A)] deleted this addition, relying on previous ITAT judgments that had found the scrip of CCL International Ltd. to be genuine.

Arguments Before the Tribunal

The Revenue's Position: The tax department argued that the CIT(A) had erred by ignoring the Investigation Wing's comprehensive findings. They contended that M/s CCL International Ltd. was a known entity used for providing accommodation entries. To support their case, they cited a jurisdictional ITAT ruling in Anip Rastogi , where the Tribunal had upheld a similar addition concerning the same company, noting its unrealistic price movements and weak financials.

The Assessee's Implied Position: The assessee maintained that the transactions were genuine. The shares were purchased via cheque, held in a Demat account, and sold through a registered stock exchange with proper documentation. They argued that the department had failed to produce any direct evidence to prove that the assessee was a party to any fraudulent arrangement.

Tribunal's Analysis and Precedents

The ITAT was faced with two conflicting decisions from its own benches regarding the same company:

Reeshu Goel (ITA No. 1691/Del/2019): In this case, a Division Bench held that simply relying on a general report from an Investigation Wing is insufficient. It stressed that to treat a transaction as bogus, "there has to be some inquiry or material to nail the assessee." Since the shares were purchased and sold on a stock exchange and no defects were found in the assessee's documents, the gain was held to be genuine.

Anip Rastogi (ITA No. 3809/Del/2018): In this case, a single-member bench upheld the addition. The decision was based on an incriminating statement by a broker, Mr. Jai Kishan Poddar , who admitted to facilitating accommodation entries in the CCL scrip. Crucially, the bench also noted that the assessee had purchased the shares in an "off-market" deal, not through the stock exchange.

The Verdict: Distinguishing Facts is Key

The Tribunal carefully distinguished the facts of the current case from the unfavorable ruling in Anip Rastogi . It delivered a key observation:

"Upon consideration of the entire facts, we find that the order of single bench has hinged on the unfavourable statement which has been held as against the assessee and the assessee has purchased the share in the off market mode. In this case the assessee has purchased shares by cheque and hence, the facts are materially different. There is no whisper of any statement in the order."

The bench found that Mr. Agarwal 's case was factually similar to the Reeshu Goel case. Since there was no incriminating statement against Mr. Agarwal and the shares were not purchased off-market, the Tribunal concluded that the reasoning of the Division Bench in Reeshu Goel was more appropriate.

By following the precedent set by the Division Bench, the Tribunal allowed the assessee's claim and dismissed the revenue's appeal on merits, thereby deleting the addition made by the AO.