2025 (4) TMI 148 - AT - Income Tax

ITAT deletes Section 68 addition on penny stock sale proceeds lacking proper factual basis

Income Tax Officer-23 (3) (6), Mumbai Versus Rachana Suresh Chokhani

The ITAT Mumbai ruled in favor of the assessee regarding addition under section 68 for sale proceeds of shares in Virtual Global Education Ltd., which the ... Addition u/s. 68 - entire sale proceeds of shares of Virtual Global Education Ltd. by alleging the scrip as penny stock - HELD THAT:- Admittedly, it is a fact on record that assessee had earned short term capital gain on the trading of scrips of Virtual Global Education Ltd. which was duly accounted and reported in the return filed by her in the year under consideration which was subjected to tax. The conclusion drawn is like throwing mud in the air so that some part of it get stuck to meet the objective. There is no corroboration of the correct factual matrix about the income reported by the assessee in her return, vis-à-vis the information utilised by ld. AO for initiating the impugned re-assessment proceedings. It is evident that AO himself is not sure of the nature of the transaction and income therefrom which has escaped assessment though already reported by the assessee in her return which was subjected to tax and on which applicable taxes were duly deposited. The conclusion drawn by AO as extracted above is nothing but surmises and presumption which do not have any base. Decided against revenue. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this appeal was whether the deletion of the addition of Rs. 84,50,000/- by the CIT(A) under Section 68 of the Income Tax Act was justified. This amount was alleged to be unexplained cash, attributed to the sale of shares of Virtual Global Education Ltd., a company purportedly involved in penny stock transactions. The Revenue questioned the genuineness of the transactions and the legitimacy of the capital gains reported by the assessee.ISSUE-WISE DETAILED ANALYSIS1. Legitimacy of Transactions and Section 68 Application- Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act requires that any sum found credited in the books of an assessee for which no satisfactory explanation is provided regarding the nature and source shall be treated as income. The precedents cited include the Hon'ble Supreme Court's decision in CIT v. Lovely Exports (P.) Ltd., which shifts the burden of proof to the revenue once the assessee provides a satisfactory explanation.- Court's Interpretation and Reasoning: The Tribunal found that the assessee had provided sufficient documentary evidence, including contract notes, DEMAT account statements, and bank records, to substantiate the genuineness of the transactions. The CIT(A) had objectively evaluated the evidence and found the transactions to be genuine.- Key Evidence and Findings: The evidence presented by the assessee included contract notes, DEMAT account statements, and bank records. These documents demonstrated that the transactions were conducted through recognized stock exchanges and involved legitimate banking channels.- Application of Law to Facts: The Tribunal noted that the assessee had reported short-term capital gains and paid applicable taxes, which contradicted the Revenue's assertion that the transactions were bogus. The Tribunal found that the conditions for invoking Section 68 were not met, as the assessee had provided a satisfactory explanation for the source and nature of the transactions.- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's reliance on generic information from investigation reports without specific evidence against the assessee. The Tribunal emphasized the need for substantive evidence rather than presumptions.- Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming that the transactions were genuine and the addition under Section 68 was unwarranted.SIGNIFICANT HOLDINGS- Preserve Verbatim Quotes of Crucial Legal Reasoning: 'The appellant has proven beyond doubt that her STCG was genuine, and taxes on this income were duly paid. Judicial precedents, including the Hon'ble Bombay High Court's decision in CIT v. Shri Mukesh Ratilal Marolia, have held that if an assessee provides sufficient documentary evidence to substantiate the genuineness of transactions, the burden shifts to the revenue to prove otherwise.'- Core Principles Established: The Tribunal reinforced the principle that the burden of proof shifts to the revenue once the assessee provides sufficient evidence of the genuineness of transactions. It also emphasized that reliance on generic investigation reports without specific evidence against the assessee is insufficient to justify additions under Section 68.- Final Determinations on Each Issue: The Tribunal concluded that the CIT(A) had correctly deleted the addition of Rs. 84,50,000/- under Section 68, as the transactions were genuine and the assessee had paid applicable taxes on the reported short-term capital gains.