Hon’ble Mumbai ITAT held that addition of alleged penny stock shall not be made in case of a regular investor on the basis of information from investigation wing.

Facts: Assessee’s case has been reopened on the basis of information received from investigation wing that allegedly the assessee has done trading in penny stocks namely M/s. Gini Silk Mills Ltd and incurred losses which has been used to reduce taxable income. The loss claimed was disallowed and entire sales consideration was also added. AO’s action was confirmed by DRP, Mumbai.

Submission: The assessee is a regular investor in securities. It has bought shares of M/s. Gini Sil Mills Ltd in various tranches. Only part of the shares have been sold in the subjected year. Apart from this, the assessee has earned gain on various securities. Assessee has filed series of documents; nonetheless, the AO was swayed away with investigation wing information.

Ruling: The assessee has declared short term capital gain and long-term capital of substantial amount on various securities. He has filed various documents such as the contract note, Demat statement, broker’s ledger a/c, bank statement highlighting the purchase and sale consideration etc. The AO while making the addition has not recorded any adverse finding with regard to the various documentary evidences filed by the assessee but has merely held that the price movement of the shares of M/s Gini Silk Mills Ltd reflects that it is manipulated and that the assessee has benefited by transacting in the said share. The AO has not recorded any finding with regard to the documents submitted by the assessee or any finding as to whether the assessee is part of price rigging. Therefore, addition / disallowance deserves to be deleted.

Case details: Balaram Chainrai [ITA No. 1074/Mum/2025]