ITAT Mumbai Upholds ₹1.03 Crore Penny Stock Addition in Nayna Shah Case

The “B” Bench of the Income Tax Appellate Tribunal, Mumbai, dismissed the appeal of Ms. Nayna Mukesh Shah for AY 2011–12 and upheld additions made in reassessment proceedings concerning alleged bogus long-term capital gains (LTCG).

Reopening Over Alleged Bogus LTCG on Arya Global Shares

The assessee had originally filed her return declaring income of ₹28.31 lakh. The case was reopened under Section 147 after information from the Investigation Wing indicated that she was a beneficiary of accommodation entries in the penny stock of Arya Global (Kuvam International Ltd.), listed on BSE. She had purchased 50,000 shares for ₹4.14 lakh in June 2009. After stock split, the shares were sold for ₹1.03 crore, resulting in LTCG of ₹98.48 lakh claimed as exempt under Section 10(38). The Assessing Officer treated the entire sale proceeds of ₹1.03 crore as unexplained cash credit under Section 68 and further added ₹3.09 lakh (3%) under Section 69C as unexplained expenditure. The CIT(A) upheld these additions.

Tribunal: No Rebuttal to Penny Stock Findings

Before the Tribunal, none appeared on behalf of the assessee despite multiple opportunities. The ITAT noted that the share price had increased abnormally within a short period without any justifiable basis. Relying on the Bombay High Court ruling in Sanjay Bimalchand Jain and the Kolkata High Court decision in Swati Bajaj, the Tribunal held that the transaction bore the characteristics of a sham arrangement used to convert undisclosed income into exempt LTCG. In absence of supporting documentary evidence from the assessee to establish genuineness, the Tribunal found no infirmity in the CIT(A)’s order.

Accordingly, the appeal was dismissed.