ITAT Restricts Section 68 Addition to Sale in Alleged Bogus Share Transaction

The dispute centres on bogus share transactions. The company, Amodini Enclave Private Limited, reported a loss for the 2018–19 assessment year, but the tax authorities did not buy it. The Assessing Officer said Amodini used penny stocks from Still Exchange Limited and Monotype India Limited to create fake losses. So, the AO went ahead and added both the purchase and sale amounts to Amodini’s income under Section 68, saying those were unexplained credits totalling Rs 3.42 crore.

Fact

On appeal, things shifted. Even though Amodini did not really participate or provide evidence, the CIT(A) took a close look at the AO’s assessment. Turns out, the AO treated purchase transactions as credits, which is not even how accounting works; purchases are debits. So, CIT(A) limited the addition to only the sale amounts, the actual credits which added up to Rs 1.88 crore.

Issue of the Case

Can the AO just slap both purchases and sales onto the unexplained credits, or should it be just the credits showing up in the books?

Judgement

The ITAT, Kolkata agreed with CIT(A) and threw out the tax department’s appeal. The tribunal said the AO messed up by adding both purchase and sale amounts as unexplained credits. Only on the sales side should the credit entries count under Section 68. There was not any real evidence to treat the purchases as unexplained credits. The ITAT found CIT(A)’s order solid, both legally and in terms of accounting, so it stood.