Meagre Control Over Companies Transacting In Penny Stock Is No Basis To Question Source Of Source Of Income: Delhi ITAT

On not finding any substance in the conclusion of AO that the source of source of income is tainted, the Delhi ITAT confirms the deletion of addition made u/s 68 of Income Tax Act.

The Bench comprising Anubhav Sharma (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) observed that, “merely because of some sort of control of Gupta family into companies transacting in the alleged penny stock cannot be basis to question the source of source in the hands of the assessee company without any direct evidence or circumstantial evidence giving a complete link of circumstances”. (Para 9)

As per the brief facts of the case, the Assessee's return was selected for Limited Scrutiny to verify whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax. During assessment proceedings, it was explained to the AO that share premium was received from existing shareholders. The entire share premium was received by account payee cheques and all the share applicants were duly assessed to income tax. The AO has rejected the explanation so furnished and has held that the amount received by the assessee company is unexplained and has made addition of this amount as income u/s 68. The CIT(A) deleted the addition by observing that the appellant had duly discharged the onus u/s 68 and the AO has disbelieved the same only on the basis of suspicion without pointing out any specific discrepancy.

The Coram noted that CIT(A) has taken into consideration all the relevant information about the identity of the investors, their bank statements, other financials which were duly filed to give details of the financial credibility of the investors.

The Bench observed that in the absence of any allegation of any cash deposits in the bank accounts of the investors so as to draw inference that it was assessee's own money which was accounted back by the investors, AO certainly had fallen in error in stretching the principles of test of improbability too far to hold that the transactions were created to mask the apparent as real.

Therefore, on not finding any ground of substance as the same has been examined and dismissed by the CIT(A), ITAT dismissed the Revenue's appeal.

Counsel for Appellant/ Department: M.P. Dwivedi

Counsel for Respondent/ Taxpayer: Salil Aggarwal

Case Title: DCIT verses M/s Nishit Capinvest Pvt. Ltd.

Case Number: ITA No. 1312 /DEL/2023

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