Assessee wins on bogus LTCG allegations from penny stock sales due to lack of evidence and cross-examination denial

ITAT Ahmedabad ruled in favor of the assessee regarding alleged bogus LTCG from penny stock sales. The tribunal found no evidence of price rigging or collusion between broker and assessee. AO failed to provide cross-examination opportunity despite assessee's request. The decision was supported by similar ITAT Mumbai and Kolkata rulings on identical stock and recent SC precedent in Renu Aggarwal case. For unexplained expenses, CIT(Appeals) directed pro-rata computation which was upheld. Appeal decided against revenue.

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Issues Involved:
1. Deletion of addition on account of bogus/non-genuine Capital Gain by sale of shares of a penny stock company.
2. Deletion of addition on account of unexplained expenses.

Summary:

Issue 1: Deletion of Addition on Account of Bogus/Non-Genuine Capital Gain

The Department challenged the deletion of additions made by the Assessing Officer (AO) concerning the sale of shares of M/s Global Infratech Finance Ltd., a penny stock company, which the AO deemed as bogus long-term capital gains. The AO argued that the company had no financial standing to justify the steep rise in share prices and relied on statements from brokers admitting to providing accommodation entries. However, the Ld. CIT(A) found that the assessee had invested in shares based on his late father's advice and had conducted transactions through banking channels, with no evidence of involvement in share rigging or unaccounted cash flow. The CIT(A) noted the lack of cross-examination of witnesses whose statements were used against the assessee, thus violating principles of natural justice. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department failed to prove the assessee's involvement in price rigging or receipt of cash, and referenced various judicial precedents supporting the genuineness of such transactions when conducted through proper banking channels.

Issue 2: Deletion of Addition on Account of Unexplained Expenses

The AO added Rs. 13,26,641/- as unexplained expenses based on loose papers found during a survey, which the CIT(A) partially allowed by correcting the total expenses to Rs. 1,54,28,426/- and giving credit for unaccounted receipts. The Tribunal upheld the CIT(A)'s decision, noting no specific infirmity or factual inaccuracy pointed out by the Department, and found no reason to interfere with the CIT(A)'s order.

Conclusion:

The appeals for the Assessment Years 2014-15, 2015-16, and 2016-17 were dismissed, with the Tribunal finding no error in the CIT(A)'s decisions to delete the additions made by the AO on account of bogus capital gains and unexplained expenses. The Tribunal emphasized the necessity of cross-examination and the lack of concrete evidence against the assessee.

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