Section 153A Addition Cannot be Made Without Incriminating Material: ITAT Upholds CIT(A)’s Order

The Income Tax Appellate Tribunal (ITAT), Delhi, recently upheld the decision of the CIT(A) deleting an addition under Section 68 related to alleged penny stock gains.

The Income Tax Department conducted a search and seizure operation under section 132A on the Stonex Group of cases, including the assessee, Bajrang Lal Aggarwal. The AO observed that the assessee had claimed LTCG on the shares of M/s Alankit Ltd, but the price of the shares acquired by the appellant increased more than 250% within a short period. The AO held that Alankit Ltd. is a penny stock. As a result, the AO made an addition of Rs 19,20,877 under section 68, treating it as an unexplained credit.

The assessee filed an appeal before the CIT(A), which deleted the addition made by the AO, saying that no incriminating material was found during the search and the AO’s addition was based only on the analysis of Alankit Ltd. and not on any seized material. Aggrieved by the order, the revenue filed an appeal before the ITAT Delhi.

The ITAT observed that the Revenue failed to rebut the CIT(A)’s findings. The Tribunal also noticed that there is no reference to any material based on which the addition was made under section 68 of the Act. Therefore, the deletion of the addition by the CIT(A) was confirmed by the ITAT, holding that additions under Section 153A cannot be made if no incriminating material is found during the search.