TaxTMI 
TaxTMI 
2026 (9) TMI 1521
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.... was received from the Deputy Director of Income Tax (Investigation), New Delhi, pursuant to investigations conducted in respect of certain identified penny stock companies allegedly used for providing accommodation entries in the guise of exempt long-term capital gains and short-term capital gains. The information indicated that the assessee was one of the beneficiaries who had allegedly availed accommodation entries through transactions in the shares of Lactose (India) Ltd. According to the information available with the Department, the assessee had earned gains of Rs. 50,10,945/- from sale of shares of the said company during the relevant previous year. 3. Based on the aforesaid information, proceedings under section 148A of the Act were initiated. A notice under section 148A(b) was issued calling upon the assessee to explain the transactions. In response, the assessee furnished, inter alia, capital gain statements, profit and loss statements relating to equity transactions and depository account records. Upon consideration of the material so furnished, an order under section 148A(d) dated 25.04.2022 was passed holding that income chargeable to tax had escaped assessment. Con....
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....l gain claimed by the assessee from transactions in the shares of Lactose (India) Ltd. did not represent a genuine capital gain arising from normal investment activity but constituted accommodation entries routed through a manipulated scrip. Accordingly, the Assessing Officer treated the gain of Rs. 50,10,945/- as non-genuine and brought the same to tax while completing the assessment under section 147 read with section 144B of the Act at a total income of Rs. 2,91,84,105/-. 8. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged both the validity of the reassessment proceedings as well as the addition made on merits. It was contended that the notice under section 148 had not been issued in accordance with the Faceless Assessment Scheme and the relevant CBDT notifications. The assessee further submitted that the reopening was based solely upon information received from the Investigation Wing without any independent enquiry by the Assessing Officer and that the statutory conditions prescribed under sections 148 and 148A of the Act had not been satisfied. 9. On merits, the assessee reit....
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....rely on suspicion but on the basis of specific information and surrounding circumstances indicating that the impugned scrip was used for providing accommodation entries. Accordingly, the learned CIT(A) upheld the addition of Rs. 50,10,945/- and dismissed the appeal of the assessee. 13. Being aggrieved, the assessee is in further appeal before the Tribunal and has raised the following ground of appeal: "On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Appeal (NFAC) erred in confirming the addition of INR 50,10,945/- on account of transaction in alleged penny stock (Lactose India Ltd)." 14. During the course of hearing before us, the learned Authorised Representative ("AR") for the assessee reiterated the factual matrix of the case and took us through the material placed in the paper book. The learned AR submitted that the impugned transaction in the shares of Lactose (India) Ltd. was not an isolated transaction and that the assessee had been consistently engaged in investment activities over a number of years. Referring to the statement of investments and share transactions placed on record, it was contended that the assessee had r....
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.... assessee. 18. The learned AR also placed reliance upon the decision of the Coordinate Bench in ITA No. 8006/Mum/2025 and particularly invited our attention to paragraph 32 onwards thereof. It was submitted that the Coordinate Bench, after considering similar allegations relating to penny stock transactions, held that where the assessee had discharged the primary onus by producing contract notes, demat statements, bank statements and other supporting evidence, the addition could not be sustained merely on the basis of investigation reports or generalized allegations in the absence of any material directly linking the assessee with the alleged accommodation entry providers. The learned AR submitted that the ratio of the said decision squarely applied to the facts of the present case. 19. Per contra, the learned Departmental Representative ("DR") strongly relied upon the orders of the Assessing Officer and the learned CIT(A). 20. We have carefully considered the rival submissions and perused the material available on record. We have also gone through the assessment order, the order passed by the learned CIT(A), the documentary evidences placed in the paper book and the judic....
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....ara 6) 26. The aforesaid decision certainly possesses persuasive value, particularly because it concerns the very same scrip. More importantly, the Revenue has not brought to our notice any contrary decision dealing with Lactose (India) Ltd. wherein a finding has been recorded that the said scrip was conclusively established to be a penny stock used for accommodation entries. We further find substantial force in the reliance placed by the learned AR on the decision of the Coordinate Bench in Dharmendra Valji Karia v. ACIT (ITA No.8006/Mum/2025). Though that case related to a different scrip, the legal principles governing alleged penny stock transactions have been discussed elaborately therein. 27. The Coordinate Bench, while considering the evidentiary value of documentary records, observed as under: "At the outset, we note that certain foundational facts are not in dispute. The shares were acquired through preferential allotment, payment was made through banking channels, the shares were credited to the demat account, the sale transactions were carried out through a recognised stock exchange with payment of STT, and the sale proceeds were received through banking channels. ....
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....h evidence is shown to be false or fabricated." (Para 35) and further: "The Assessing Officer has neither established any cash trail nor demonstrated any nexus between the assessee and the alleged entry operators, exit providers or price rigging mechanism." (Para 36) 34. In the present case also, we find that the Revenue has not demonstrated any cash trail whatsoever. No material has been brought on record to show that any unaccounted money belonging to the assessee was routed through any intermediary and returned in the guise of capital gains. In the absence of such foundational evidence, the allegation of accommodation entry remains unsubstantiated. 35. We are conscious of the fact that documentary evidences by themselves may not always be conclusive. In an appropriate case, where surrounding circumstances establish a larger scheme of accommodation entries and the assessee is linked to such arrangement, additions may well be justified. However, before disregarding the documentary evidences, the Revenue must first establish through cogent material that the assessee was a participant in the alleged arrangement. Such material is conspicuously absent in the pr....