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Facts
The assessee appealed an order that upheld an addition made by the AO, treating sale proceeds of shares as unexplained cash credit. The assessee had purchased shares of a penny stock company and later sold them at a loss, but the authorities treated the sale value as income.
Held
The Tribunal held that the addition made by the AO and affirmed by the CIT was unsustainable. It noted that no specific allegation of rigging was made against the assessee, and the assessee had discharged its onus by providing all necessary documents and explanations.
Key Issues
Whether the sale proceeds of shares, resulting in a short-term capital loss, can be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
Sections Cited
147, 148, 68, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI “SMC” BENCH :: MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
This appeal has been preferred by the Assessee against the order dated 25/06/2024 impugned herein passed by the ADDL/JCIT (Appeals)-3, Kolkata (in short, ‘Ld. Commissioner’) u/sec. 250 of the Income Tax Act, 1961 (in short, ‘Act’) for the A.Y. 2012-13.
( Ms. Jyoti Jatin Chauhan) 2. At the outset, it is observed that, there is a delay of 334 days in filing the instant appeal. The Assessee by filing duly sworn affidavit stated that impugned order passed on 25/06/2024 was uploaded on the income tax portal, but the same was neither sent to the registered email ID of the Assessee nor served in physical form though asked specifically and therefore the Assessee became aware of the said order, only upon receipt of demand notice dated 24/07/2025.
Considering the reasons stated by the Assessee which are duly supported with duly sworn affidavit, appears to be reasonable, bonafide and unintentional, hence, delay is condoned.
Coming to the merits of the case, it is observed that in the instant case, the reasons for reopening of assessment u/sec. 147 of the Act were recorded to the effect that the Assessee is one of the beneficiaries, who had traded in penny stock company namely M/s. Gemstone Investments Ltd. during the FY 2011-12 relevant to A.Y.2012-13, on a total sale value of Rs.1,23,265/-. Consequently, the case of the Assessee was reopened by issuing notice u/sec. 148 of the Act.
The Assessee in response to notice u/s 148 of the Act, filed its return of income on dated 02/05/2019, declaring total income of Rs. 1,41,083/-.
Thereafter, various notices were issued to the Assessee, in response to which the Assessee filed relevant details and documents. Thereafter, the AO by issuing a show-cause notice dated 29/11/2019, show-caused the Assessee as under:
( Ms. Jyoti Jatin Chauhan) “As to why the value of sale of shares of Rs. 1,23,265/- being short term capital loss incurred qua sale of share of M/s. Gemstone Investments Ltd. should not be brought to tax as unexplained cash credit made out of the unexplained source of investment as per provision of section 68 of the Act”.
The Assessee in response to the said show cause notice, has filed her reply and claimed as under: “ I am small investor. I had purchased and sold shares of Gemstone Investment Ltd. during FY 2011-12. At the time of purchase/sale, I was not aware of penny stock. Had the information about penny stock, I could not trade in his stock. So I request your honour, not to make any addition of income”.
Though, the AO considered the aforesaid reply of the Assessee, however, not being satisfied, rejected the same and ultimately, by analyzing the transaction and various decisions and by considering the fact that Assessee had purchased 13000 shares @ Rs. 9.18 per share of M/s. Gemstone Investments Ltd. through share broker on 07/04/2011 and within a short period of time, the price of the share has decreased to Rs. 8.85 and the present value of the share of the company is Rs. 0.64, ultimately treated the sale transaction value of Rs. 1,23,265/- received by the Assessee, as unexplained cash credit and consequently made the addition of such amount.
The Assessee, being aggrieved, challenged the said addition by filing first appeal before the Ld. Commissioner, however, failed to get any relief, as the Ld. Commissioner on the same footing, as of the AO, affirmed the aforesaid addition.
Thus, the Assessee being aggrieved, has preferred the instant appeal.
This Court has given thoughtful consideration to the peculiar facts and circumstances. It clearly appears form the orders passed ( Ms. Jyoti Jatin Chauhan) by the authorities below that the Assessee had purchased the shares of 13000 @ Rs. 9.18 per share and on a total consideration Rs.1,19,340/- and sold the said the said shares on a total consideration of Rs. 1,23,265/- and, therefore has earned the short term capital gain of Rs. 3,925/- only.
Admittedly, there is no specific allegation against the Assessee qua rigging or manipulation of shares involved. Even otherwise, no investigation has ever conducted against the Assessee by SEBI or any other Investigating Agency. Admittedly, the Assessee, as it appears from the paper book filed and certificate provided, has specifically replied the notices issued by the AO and also provided the working of short term capital gain and long term capital gain, along with statement of income, copy of bank statement for A.Y. 2012-13 along with letter dated 14/10/2019, copy of Demat account from M/s. Emkay Global Financial Services Ltd. for F.Y. 2011-12, scrip-wise transactions summary from M/s. Emkay Global Financial Services Ltd. for A.Y. 2011-12 and ledger account of the Assessee in the books of M/s. Emkay Global Financial Services Ltd. for the FY 2011-12 and, therefore in the considered opinion of this Court, the Assessee had discharged its prima-facie onus casted u/sec. 68 of the Act. Even otherwise, the authorities below sidelined the purchase value of the share and the fact that in- fact the Assessee has earned the short term capital gain of Rs. 3,925/- only.
Thus, on the aforesaid reasons and analyzations, the addition made by the AO and affirmed by the Ld. Commissioner, without subtracting the purchase value from the sale value and without establishing any substantive allegation and without making any corroboration, is unsustainable. Thus, the addition is deleted.
Order pronounced in the open court on 30.09.2025.