2021 (6) TMI 304 - AT - Income Tax

Bogus LTCG - purchase and sale of shares of penny stock company - HELD THAT - As convinced with the argument of the assessee that the shares were purchased as long as back in the year 2008 and sold immediately thereafter and the assessee has incurred a loss and only such amount can be disallowed. On going through the assessment order as well as the order of the CIT (A), find that that the main reason for the disallowance is that the Rockon Fintech is a penny stock company and the assessee has invested in penny stock. None of the authorities below have verified the sources for the investment. From the details filed by the assessee before this Tribunal, it appears, that the assessee has used the sale consideration (after sale of other shares) for purchase of shares of Rockon Fintech and immediately thereafter, on sale of the said shares, the assessee has utilized the said sale consideration for purchase of other shares. The assessee has not made any gain from sale of those shares, nor has he claimed any exemption u/s 10(38) of the Act. Therefore as convinced that the intention of the assessee was not to make any gain out of purchase and sale of shares of penny stock company. No disallowance can be made, leave alone the disallowance of value of shares invested. - Assessee s appeal is allowed.

Summary

Issues:
Assessment of unexplained investment in penny stock for A.Y 2011-12.

Analysis:
The case involved an appeal by the assessee against the order of the CIT (A) for the A.Y 2011-12 regarding the addition of an unexplained investment in a penny stock. The Assessing Officer initiated reassessment proceedings under section 147(b) of the I.T. Act based on information received regarding the trading of penny scrip M/s. Rockon Fintech by the assessee. The AO suspected the company to be a penny stock and questioned the source of investment in its shares. The CIT (A) upheld the addition, leading to the assessee's appeal before the Tribunal.

The assessee contended that he was a trader in shares and utilized sale proceeds for further investments, including in Rockon Fintech. The Tribunal noted that the shares were purchased in 2008-09, and the investigation report was from 2018, making it reasonable that the assessee was unaware of the company's penny stock status at the time of purchase. The assessee had traded in various companies' shares, not just Rockon Fintech, and incurred a loss on the sale of Rockon Fintech shares. The Tribunal found no intention of gaining from the penny stock investment, as the sale proceeds were reinvested without claiming any exemptions.

The Tribunal concluded that the disallowance was unjustified, especially considering the circumstances of the investment and subsequent sale without any gains. It emphasized that the authorities had not verified the sources of investment adequately. Therefore, the Tribunal allowed the assessee's appeal, overturning the addition of the unexplained investment in the penny stock for A.Y 2011-12.