2011 (9) TMI 919 - HC - Income Tax

Deletion of addition under Section 69 for alleged unexplained penny stock investment upheld after proof of genuine transfers and sales

The Commissioner of Income Tax Versus Shri Mukesh Ratilal Marolia.

HC upheld the ITAT's deletion of an addition under section 69 relating to alleged unexplained investment in penny stocks, finding the assessee produced ... Unexplained investment under section 69 - sale of the shares - penny stocks - ITAT deleted the addition - Held that:- The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were infact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. It is neither the case of the Revenue that the shares in question are still lying with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s. Richmand Securities Pvt. Ltd. regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s. Richmand Securities Pvt. Ltd. held that the sale transaction was genuine. ITAT is correct in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount as unexplained investment under Section 69 cannot be faulted. - Decided in favour of assessee. Issues:1. Whether the ITAT was justified in deleting the amount received by the Assessee on the sale of shares as unexplained investment under section 69 of the Income Tax Act, 1961.Analysis:The case involved an appeal questioning the deletion of an amount received by the Assessee on the sale of shares as unexplained investment under section 69 of the Income Tax Act, 1961. The Assessment Year in question was A.Y. 2001-2002. The Assessee, engaged in the business of manufacturing handkerchiefs, claimed to have sold shares of four companies and utilized the entire sale consideration to purchase a flat in Mumbai, seeking benefits under section 54E of the Income Tax Act, 1961. The Assessing Officer deemed the sale of shares and the amount received as undisclosed income, making an addition under section 69. The CIT (A) dismissed the Assessee's appeal, but the ITAT allowed it, stating that the purchase of shares was recorded in the Assessee's books and the source of funds was agricultural income assessed to tax in previous years.The ITAT also noted that certificates from the companies confirmed the transfer of shares to the Assessee's name. Moreover, the sale of shares through two brokers was deemed genuine, as the Assessee received the amount without dispute, and there was no claim that the shares were still with the Assessee or that the received amount exceeded the declared value. Despite discrepancies in the statement of one broker's director, the ITAT found the sale transaction genuine based on an employee's statement. Consequently, the ITAT concluded that the purchase and sale of shares were legitimate, and the Assessing Officer erred in treating the amount as unexplained investment under Section 69 of the Income Tax Act, 1961.Ultimately, the High Court upheld the ITAT's decision, finding no merit in the appeal and dismissing it without costs.