Tribunal Overturns Addition of Unexplained Investment in Penny Stock for A.Y 2011-12

The Tribunal allowed the assessee's appeal, overturning the addition of the unexplained investment in the penny stock for A.Y 2011-12. The Tribunal found that the assessee, a trader in shares, had purchased the shares before the investigation report highlighted the company as a penny stock. It noted the assessee's trading activities in various companies and the lack of intention to gain from the penny stock investment, as evidenced by reinvestment of sale proceeds without claiming exemptions. The Tribunal deemed the disallowance unjustified due to insufficient verification of the investment sources.

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Issues:
Assessment of unexplained investment in penny stock for A.Y 2011-12.

Analysis:
The case involved an appeal by the assessee against the order of the CIT (A) for the A.Y 2011-12 regarding the addition of an unexplained investment in a penny stock. The Assessing Officer initiated reassessment proceedings under section 147(b) of the I.T. Act based on information received regarding the trading of penny scrip M/s. Rockon Fintech by the assessee. The AO suspected the company to be a penny stock and questioned the source of investment in its shares. The CIT (A) upheld the addition, leading to the assessee's appeal before the Tribunal.

The assessee contended that he was a trader in shares and utilized sale proceeds for further investments, including in Rockon Fintech. The Tribunal noted that the shares were purchased in 2008-09, and the investigation report was from 2018, making it reasonable that the assessee was unaware of the company's penny stock status at the time of purchase. The assessee had traded in various companies' shares, not just Rockon Fintech, and incurred a loss on the sale of Rockon Fintech shares. The Tribunal found no intention of gaining from the penny stock investment, as the sale proceeds were reinvested without claiming any exemptions.

The Tribunal concluded that the disallowance was unjustified, especially considering the circumstances of the investment and subsequent sale without any gains. It emphasized that the authorities had not verified the sources of investment adequately. Therefore, the Tribunal allowed the assessee's appeal, overturning the addition of the unexplained investment in the penny stock for A.Y 2011-12.

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