Reassessment – Penny Stock – Unexplained Investment – Addition in Wrong Assessment Year – Not Sustainable

Sections 69 and 147 of the Income-tax Act, 1961

Issue

Whether an addition on account of alleged unexplained investment in penny stock shares can be made in an assessment year different from the year in which the investment was actually made, merely because the transaction was examined during reassessment proceedings.

Held

The assessee had purchased 5,000 shares of Alpha Graphics Ltd. on 02.07.2010 through a registered broker. The Assessing Officer, while framing reassessment for A.Y. 2012-13, treated the investment of ₹2,30,806/- as unexplained and made an addition on the ground that the assessee had allegedly entered into accommodation entry transactions in penny stocks.

The Tribunal observed that documentary evidence such as contract-cum-bill and broker ledger accounts clearly established that the purchase of shares took place on 02.07.2010, which fell in F.Y. 2010-11 relevant to A.Y. 2011-12. Therefore, the investment could not be treated as unexplained in A.Y. 2012-13, which was the year under consideration.

Accordingly, the addition of ₹2,30,806/- was deleted and the impugned order of the lower authorities was set aside. However, the Assessing Officer was granted liberty to examine the source of investment in the relevant year of purchase in accordance with law.

Ratio / Principle

Under the Income-tax Act, the taxability of an investment must be examined in the correct assessment year, and an addition relating to unexplained investment cannot be sustained in a year other than the year in which the investment was actually made.

Babita Chelawat v. DCIT
ITAT Indore Bench
ITA No. 611/Ind/2025 (A.Y. 2012-13)
Order dated: 27.03.2026