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Facts
The assessee filed his return of income for AY 2016-17. The AO, suspecting accommodation entries, initiated reassessment proceedings u/s 148 and added Rs. 41,81,752/- as Short Term Capital Gains from penny stock transactions. The addition was confirmed by the Ld.CIT(A).
Held
The Tribunal noted that the assessee had submitted that the transactions occurred in AY 2017-18 and 2018-19, and that the AO for AY 2017-18 had already examined similar transactions. The Tribunal found prima facie merit in the assessee's submissions, but also noted the need for verification.
Key Issues
Whether the addition of Rs. 41,81,752/- as Short Term Capital Gains for AY 2016-17 was justified when the transactions, if any, pertained to subsequent assessment years and had been examined by the AO in those years. The validity of the penalty levied u/s 271(1)(c) was also in question.
Sections Cited
147, 148, 144B, 271(1)(c), 143(3)
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Income Tax Appellate Tribunal, MUMBAI “A” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
O R D E R PER VIKRAM SINGH YADAV, A.M : These are two appeals filed by the assessee against the respective orders of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 25-06-2025 & 26-06-2025, pertaining to Assessment Year (AY) 2016-17, wherein the assessee has challenged the sustenance of addition of Rs. 41,81,752/- under the head “Short Term Capital Gains” as well as levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 („the Act‟).
Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 43,07,170/- on 17-10-2016. Thereafter basis information that the assessee has taken certain accommodation entries from Naresh Jain Group amounting to Rs.46,64,353/-, the reasons for incoming escaping assessment were recorded and notice u/s. 148 of the Act was issued to the assessee followed by a show cause dt. 24-04-2023 as to why the transaction of Rs. 41,81,752/- in respect of penny stock shares of M/s. Kushal Tradelink Limited should not be added as Short Term Capital Gain in the hands of the assessee. However, there was no response from the assessee and thereafter, the AO proceeded and completed the assessment proceedings and passed the order u/s. 147 r.w.s. 144B of the Act, wherein an amount of Rs. 41,81,752/- was brought to tax under the head Short Term Capital Gain, which on appeal has been confirmed by the Ld.CIT(A) and against the said order, the assessee filed the present appeal before us.
During the course of hearing, the Ld.AR submitted that in response to the show cause dt. 24-04-2023, the assessee has in fact responded vide his letter dt. 16-05-2023 and a copy of the said response as well as the acknowledgment thereof has been duly placed on record. It was submitted that in his response, the assessee has submitted that during the financial year relevant to the AY. 2016-17, the assessee has not carried out any transaction in the equity shares of M/s. Kushal Tradelink Limited. It was further submitted that the assessee has carried out the transaction by way of purchase of shares in M/s. Kushal Tradelink Limited in the financial year relevant to the AY. 2017-18 and thereafter in AY. 2018-19, the assessee has sold the shares and accordingly submitted that there is no basis for making the addition in the impugned assessment year. However, the submissions so filed by the assessee were not considered and the AO proceeded and completed the assessment vide order dt. 24-05-2023. It was further submitted that the assessment for the AY. 2017-18 has already been completed u/s. 147 r.w.s. 143(3) of the Act vide order dt. 09-05-2023 wherein the very same transaction has been duly examined by the AO and a copy of the assessment order was also placed on record. It was submitted that the assessee has challenged the said order before the Ld.CIT(A) and it was again reiterated before the ld CIT(A) that the assessee has not carried out any transaction in shares of M/s. Kushal Tradelink Limited during the financial year relevant to the impugned assessment year. However, the Ld.CIT(A) has confirmed the findings of the AO. It was submitted that notices so issued by the Ld.CIT(A) could not be responded to as the notices were not served on the assessee. It was submitted that the assessee has specifically stated in his appeal memo that the notices should be served physically and not be sent on the e-mail ID. However, no notice was served physically to the assessee and as such, the non- appearance by the assessee before the Ld.CIT(A) was not deliberate, but due to lack of appropriate communication.
Per contra, the Ld.DR is heard, who has relied on the findings of the AO as well as that of the Ld.CIT(A). As far as the contention of the Ld.AR that he has not carried out any such transaction during the financial year relevant to the impugned assessment year and the said transaction has been duly examined in the subsequent assessment year, it was submitted that the same needs necessary verification and where the Bench so decide, the matter may be remitted to the file of the AO for necessary verification and examination.
We have heard the rival contentions and perused the material available on record. Firstly, it is noted that in response to the show cause, there is a submissions filed by the assessee dt. 16-05-2023 well before the passing of the assessment order which was admittedly not taken into consideration by the AO while passing the assessment order dated 24-05-2023. In his submission, the assessee has stated that he has not carried out any such transaction in shares of M/s. Kushal Tradelink Limited during the financial year relevant to the impugned assessment year and the purchase of shares has happened during the financial year relevant to AY. 2017-18 and subsequently, sale thereof has happened during financial year relevant to AY. 2018-19. Further, during the course of hearing, our reference was drawn to the assessment order passed u/s. 147 r.w.s. 144B of the Act for the AY. 2017-18, wherein we find that the AO has taken note of the fact that the assessee has purchased 10,000 equity shares of M/s. Kushal Tradelink Limited for Rs. 41,81,752/-, and the fact that the assessee has not sold those shares during the period under consideration and has held that the question of Short Term Capital Gain/Short Term Capital Loss does not arise and given that the shares were sold in the FY. 2017-18 relevant to the AY. 2018-19, the case may be re-opened and subsequently, assessed for AY. 2018-19. We, therefore, find prima facie merit in the submissions so advanced by the Ld.AR on behalf of the assessee, however, at the same time, the same needs necessary verification in terms of identifying the specific transactions in shares, which have been purchased and sold by the assessee and which are subject matter of the assessment proceedings for AY. 2017-18 and 2018- 19. In light of the same, we deem it appropriate to set aside the matter to the file of the AO for deciding the same afresh as per law, after providing reasonable opportunity to the assessee.
Consequently, the matter relating to levy of penalty u/s. 271(1)(c) of the Act is also set aside to the file of the AO.
In the result, both the appeals of the assessee are allowed for statistical purposes.