Genuine Trading Activity Cannot Be Dubbed Bogus- ITAT Mumbai Clears allows alleged penny Stock Loss
In the case of Mark Corporate Advisors Pvt. Ltd. for AY 2012–13, the ITAT Mumbai allowed the appeal, deleting the additions made on account of alleged penny stock transactions. The reassessment was initiated under Section 147 based on investigation wing reports claiming that the assessee had availed bogus business loss through pre-arranged transactions.
The Assessing Officer disallowed business loss of ₹3,28,92,419 and made an addition of ₹9,86,772 towards alleged commission for arranging such loss. However, the assessee submitted extensive documentary evidence including contract notes, DEMAT statements, bank records, broker ledgers, and proof of STT payments, demonstrating that the transactions were done in the regular course of its share trading business. The Tribunal observed that the assessee was a regular trader with revenue of ₹16.60 crores during the year and had traded in 65 scrips, earning profits on 11 and losses on 13, and that “losses incurred by the assessee… are losses incurred by it in the regular course of business considering corroborative material placed on record.”
It held that the AO “completely overlooked various documents, supporting evidences and explanations furnished by the assessee” and merely proceeded “based on investigation reports.”
The Tribunal emphasized that “there is nothing brought on record to demonstrate that name of the assessee finds place in the investigation reports” and that “merely because some shareholders/operators colluded… cannot be the reason to disallow the claim of loss.” Relying on earlier decisions in Munish Financials and Adihemshree Financials, it concluded that the losses were genuine and eligible for set-off.
Consequently, the addition for commission was also deleted, as it was intrinsically linked to the disallowed loss. Since the appeal was allowed on merits, legal grounds regarding jurisdiction and denial of cross-examination were not adjudicated and kept open.
The copy of the order is as under:
