Mumbai Investor Hit With Section 69A Addition Over Alleged Penny Stock Gains; ITAT Sends Case Back for Reconsideration

The ITAT Mumbai found it fair to grant the taxpayer another chance in the unexplained share transactions dispute. The matter is sent back to the lower appellate authority [CIT(A)] for fresh consideration.

The assessee, Dhiresh Shashikant Gosalia, had declared a total income of Rs 5.92 crore for the Assessment Year 2017-18. Later, the tax authorities noted that the assessee had earned long-term capital gains (LTCGs) on the transaction done in the shares of M/s Toyam Industries Limited (previously known as Ojas Asset Reconstruction Company Limited).

The tax department termed these gains as ‘penny stocks’ used for providing accommodation entries. Accordingly, the assessee’s case was reopened. The AO, when analyzing the transactions and documents furnished by the assessee, held the share transactions in question as non-genuine. Consequently, the exemption claim of Rs 39.07 lakh made by the assessee under section 10(38) of the Income Tax Act was denied, treating the same as unexplained money under section 69A of the Act. Additionally, another addition of Rs 1.30 lakh was made under Section 69C of the Act towards commission expenditure incurred for obtaining the aforesaid accommodation entries.

The aggrieved assessee filed an appeal before the ITAT Mumbai after disappointment from CIT(A). When the tribunal examined the entire case, it noted that the lower appellate authority had decided the case ex parte. Meaning, the case before the CIT(A) was decided one-sidedly, i.e., without hearing the assessee’s side, and the impugned additions were confirmed.

It was noted that the assessee had raised several legal as well as factual grounds challenging the validity of reopening and the additions made under sections 69A and 69C of the Act. Also, the assessee had made proper submissions and documents during the reassessment proceedings.

In conclusion of the aforesaid findings, the tribunal considered it fair to grant the assessee a second opportunity in regard to the principles of natural justice. Hence, the case is remanded back to the CIT(A) for fresh adjudication. The appeal is allowed for statistical purposes.