Investigation Directorate report on penny stock status upheld, rectification application dismissed under Section 254(2)

ITAT Ahmedabad dismissed the assessee's rectification application challenging additions under Section 68 for bogus LTCG and unexplained cash credits involving penny stocks. The Tribunal held that determination of penny stock status lies with BSE or investigation agencies, not the Tribunal. The Investigation Directorate, Kolkata's report identifying Unno Industries Ltd. as a penny stock was upheld, following HC precedent in PCIT v. Swati Bajaj. The Tribunal found no apparent mistake in its original order and ruled that Section 254(2) cannot be used to review orders on merit, only to rectify apparent mistakes from records.

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Issues Involved:
1. Modification of the tribunal's order in ITA No. 247/Ahd/2024 for A.Y. 2014-15 based on alleged mistakes.
2. Assessment of whether the objection of the assessee on the issue of low tax effect was sustainable.
3. Determination of whether shares involved were penny stocks and if the CBDT Circular No. 5/2024 applied.
4. Analysis of the observations made in the tribunal's order dated 03.05.2024.

Issue 1: Modification of Tribunal's Order:
The assessee filed a Miscellaneous Application seeking to modify the tribunal's order in ITA No. 247/Ahd/2024 dated 03.05.2024 for A.Y. 2014-15. The application highlighted two alleged mistakes in the order. The first mistake was related to the objection of the assessee on the issue of low tax effect. The assessee argued that the shares involved were not penny stocks, as confirmed by other cases, and thus, the appeal should have been dismissed based on this ground. The second mistake pointed out was regarding a specific observation made by the tribunal in the order.

Issue 2: Objection on Low Tax Effect:
The tribunal rejected the objection of the assessee on the issue of low tax effect, citing the CBDT Circular No. 5/2024, which exempted certain cases from the monetary limit for filing an appeal. The tribunal found that the case involved organized tax evasion through bogus capital gain using penny stocks, making it an exception to the monetary limit rule. The assessee argued that the shares involved were not penny stocks, citing a decision from ITAT, Delhi, but the tribunal upheld its decision based on the investigation report verifying the shares as penny stocks.

Issue 3: Penny Stock Classification and CBDT Circular:
The tribunal determined that the shares in question were indeed penny stocks based on the investigation report, making the case fall under the exception listed in the CBDT Circular No. 5/2024. The assessee's reliance on a previous case to argue against the penny stock classification was deemed insufficient, as the tribunal emphasized that such a determination is made by the BSE or investigation agencies. The tribunal found no merit in the objection raised by the assessee regarding the penny stock classification.

Issue 4: Analysis of Tribunal's Observations:
The tribunal addressed the specific observation raised by the assessee in the order, emphasizing that the objection did not point out any mistake in the findings. The tribunal clarified that the power under Section 254(2) of the Act is meant to rectify mistakes apparent from the records and cannot be used to recall or review orders based on their merits. Citing a Supreme Court decision, the tribunal concluded that the order could not be recalled based on the objections raised by the assessee.

In conclusion, the tribunal dismissed the Miscellaneous Application filed by the assessee, upholding its original order and decisions based on the applicable legal provisions and precedents.

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