Addition under Section 69A deleted where capital loss on alleged penny stock backed by genuine stock exchange records

ITAT upheld the order of CIT(A) deleting the addition u/s 69A on account of alleged unexplained money and accommodation entry in the form of short-term capital loss from trading in alleged penny stock. It was noted that the assessee had furnished contract notes, capital gains statements, and evidence of transactions through a recognized stock exchange and registered broker. CIT(A) correctly held that the AO's conclusions were based on mere suspicion without cogent evidence of concealment or proof that the scrip was a penny stock. ITAT found no infirmity in the factual appreciation by CIT(A) and consequently dismissed the Revenue's appeal.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the addition of Rs. 1,76,860/- as unexplained money under Section 69A, on account of alleged accommodation entry in the form of short-term capital loss from trading in shares of Kyra Landscape Ltd., was sustainable.

1.2 Whether the deletion of the addition by the first appellate authority, despite the Assessing Officer's allegation of non-furnishing of demat account and bank statements and characterization of the scrip as a penny stock, was justified on the evidence and material on record.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Sustainability of addition under Section 69A on alleged accommodation entry in penny stock transactions; correctness of deletion by the first appellate authority

Legal framework (as discussed)

2.1 The addition was made under Section 69A treating the amount of Rs. 1,76,860/- as "unexplained money" on the premise that the assessee obtained an accommodation entry in the form of short-term capital loss from trading in shares of Kyra Landscape Ltd. The first appellate authority examined whether such conditions for invoking Section 69A were satisfied on the facts and evidence.

Interpretation and reasoning

2.2 The Tribunal noted the findings that the assessment order was cryptic, internally inconsistent and reflected lack of proper application of mind. The first appellate authority recorded that, while the Assessing Officer stated that contract notes were not furnished, he simultaneously acknowledged having perused a "contract note-cum-bill", leading to contradictory findings that undermined the reliability of the conclusion.

2.3 The first appellate authority proceeded on the footing that, even if Kyra Landscape Ltd. could be considered a penny stock warranting closer scrutiny, the surrounding circumstances in this case did not justify a conclusion of bogus dealings. The assessee was a salaried professional with regular and substantial disclosed income, and had engaged in trading in a number of scrips, not limited to Kyra Landscape Ltd., with supporting documents such as contract notes and broker statements submitted.

2.4 It was found that the transactions were routed through a registered broker on a recognized stock exchange, and evidences in the form of contract notes and related details were on record. The first appellate authority also emphasized that the assessee had disclosed total income of Rs. 24,53,820/- in the return filed under Section 148, and held that imputing an accommodation entry for a comparatively small amount of Rs. 1,76,860/- was commercially and circumstantially unconvincing.

2.5 The first appellate authority further held that the addition was based on mere suspicion rather than cogent evidence of concealment; no effort was made by the Assessing Officer to establish that the company in question was a penny stock company, nor to demonstrate that the specific transactions were bogus. On that basis, the addition under Section 69A was held to be unsustainable.

2.6 The Tribunal observed that these findings of the first appellate authority, including the appreciation of the factual matrix and evidences (contract notes, capital gain statement, recognized stock exchange transactions through a registered broker), remained unrebutted by the Revenue at the appellate stage.

2.7 The Tribunal also noted that, contrary to the Assessing Officer's allegation of an "accommodation entry" of Rs. 1,76,860/-, the assessee had, in fact, carried out both purchase and sale transactions in the scrip of Kyra Landscape Ltd., with purchase transactions of Rs. 1,87,713/- and sale transactions of Rs. 1,73,695/-, resulting in an actual loss of Rs. 14,018/- as part of regular share trading. This demonstrated a clear lack of appreciation of the material on record by the Assessing Officer regarding the actual quantum and nature of the transactions.

Conclusions

2.8 The Tribunal concluded that the addition under Section 69A was made merely on suspicion, without cogent evidence of concealment or proof that the company was a penny stock or that the specific transactions were bogus.

2.9 The Tribunal held that, given the evidences of genuine share transactions through a recognized stock exchange and registered broker, the disclosure of substantial overall income, and the misappreciation of transaction figures by the Assessing Officer, the first appellate authority had correctly deleted the addition.

2.10 The Tribunal found no infirmity in the order of the first appellate authority and confirmed the deletion of Rs. 1,76,860/- made under Section 69A, resulting in dismissal of the Revenue's appeal.

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