Penny Stock: No incriminating evidence No Addition – ITAT Mumbai

Penny Stock: No incriminating evidence No Addition - ITAT Mumbai

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Penny Stock: No incriminating evidence No Addition – ITAT Mumbai

This is the landmark order by the ITAT Mumbai which has held that
The citation of the case is as under: 
Shri Vipul Suresh Kumar Modi (I.T.A. No. 540/Mum/2021)
Short overview of the case:
Facts:
1. According to the AO, the assessee indulged in a penny-stock transaction in a pre-arranged manner in connivance with the operators to evade taxes.
2. The AO analyzed the fluctuations in the price of shares of Global Capital Market Ltd (GCML) and concluded that GCML was a penny-stock company without there being any incriminating material found during the course of search.
3. Accordingly, the AO concluded that sale consideration received of INR 47,63,825/- was not in the nature of capital gain and represented unexplained income invested made by the Assessee.
4. 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 IT Act.
The ITAT Mumbai held as below:
1. 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.
2. Hon‟ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation : 374 ITR 645 (Bombay) has held as follows: “The proceedings U/s 153A of the Act does not empower the AO to adjudicate the issue which are not based on any incriminating material found during the course of search and, hence, in such cases, the AO does not have jurisdiction to made addition/disallowances which are not based on any incriminating material found during the search”.
3. Thus exemption claimed under LTCG should be allowed and addition U/S 69 be deleted.

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