Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 7th October 2019 passed by the Delhi Bench of the ITAT in ITA No. 1691/Del/2019.

The Assessing Officer had made an addition of ₹1,77,25,158/- under Section 68 of the Income Tax Act, 1961 on account of alleged bogus Long Term Capital Gain (LTCG) arising from penny stock transactions. Additionally, ₹1,77,251/- was added as commission allegedly paid for obtaining accommodation entries.

The ITAT deleted these additions, leading to the present appeal before the Delhi High Court.

Issues Involved

  1. Whether the ITAT erred in deleting the addition made under Section 68 for alleged bogus LTCG on penny stocks.
  2. Whether the transactions in shares of CCL International Ltd. were genuine or merely accommodation entries.
  3. Whether the absence of independent inquiry by the Assessing Officer invalidated the additions.
  4. Scope of interference by the High Court under substantial question of law.

Petitioner’s Arguments (Revenue)

  • The ITAT failed to appreciate that the transactions were bogus and colourable, generating artificial capital gains.
  • The Assessing Officer relied on an Investigation Wing, Kolkata report, where brokers admitted to providing accommodation entries in the scrip of CCL International Ltd.
  • The financials of the company did not justify the abnormal price rise in shares.
  • ITAT wrongly insisted on individual inquiry, ignoring material already on record.

Respondent’s Arguments (Assessee)

  • The ITAT correctly held that no proper inquiry had been conducted by the Assessing Officer.
  • The assessee’s broker was not examined, and no direct evidence linked the assessee to alleged accommodation entries.
  • Shares were regularly traded on the Bombay Stock Exchange, and transactions were genuine.
  • The company had substantial revenue growth, supporting share price movement.

Court’s Findings / Order

  • The High Court observed that the ITAT had given findings based on cogent reasoning and evidence.
  • No perversity was found in the Tribunal’s conclusions.
  • The Court reiterated that under Section 100 CPC, interference is limited to substantial questions of law and not factual re-appreciation.
  • Reliance was placed on:
    • Ram Kumar Aggarwal & Anr. vs Thawar Das (1999) 7 SCC 303
    • Hero Vinoth (Minor) vs Seshammal (2006) 5 SCC 545

Final Order:
The appeal filed by the Revenue was dismissed.

Important Clarification

  • Mere reliance on investigation reports or general statements of brokers is insufficient without direct evidence against the assessee.
  • Failure to conduct independent inquiry weakens the Revenue’s case.
  • High Courts will not interfere with factual findings unless perversity is demonstrated.
  • Distinction between question of law and substantial question of law is crucial.

Sections Involved

  • Section 68, Income Tax Act, 1961
  • Section 100, Code of Civil Procedure, 1908

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4171-DB/MMH14122021ITA1732021_180519.pdf

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