ITAT Ahmedabad Quashes Penny Stock Reassessment in Absence of Assessee-Specific Evidence

April 1, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that reassessment proceedings cannot be initiated merely on the basis of general investigation reports relating to penny stock transactions, without any material directly linking the assessee to alleged manipulation. The Tribunal allowed the appeal of Bhupesh Sajjansinh Rathod and deleted additions made towards alleged bogus capital gains and commission, holding both the reopening and additions to be legally unsustainable.

The ruling arose from reassessment proceedings for Assessment Year 2018–19, where the assessee had declared total income of ₹64.16 lakh, including long-term and short-term capital gains primarily from transactions in shares of Kushal Tradelink Ltd. The Assessing Officer (AO), relying on Investigation Wing findings and SEBI orders indicating price rigging in the scrip, reopened the assessment under Sections 147 and 148 and treated the entire sale proceeds of ₹1.59 crore as unexplained income under Section 69A. A further addition of ₹7.95 lakh was made under Section 69C towards alleged commission.

The Tribunal noted that while the AO extensively relied on investigation material and reports pointing to large-scale manipulation in the scrip, there was no reference to the assessee in any of those records. It observed that even where the Investigation Wing had identified beneficiaries and recorded detailed transactions, the name of the assessee or his broker did not appear anywhere.

Emphasizing the requirement of a “live link” between material and the assessee, the Tribunal held that reopening based solely on general allegations relating to a scrip, without any assessee-specific evidence, amounts to borrowed satisfaction and is invalid in law. It further observed that the mere fact that the assessee traded in a tainted scrip cannot justify reassessment in the absence of independent application of mind.

On merits, the Tribunal held that the addition of the entire sale consideration as unexplained income was unjustified. It found that the assessee had carried out transactions through regular banking channels and maintained shares in demat form, with part of the holdings still retained, supporting the claim of genuine investment activity. The addition of alleged commission was also deleted for lack of supporting evidence.

The Tribunal concluded that since the reassessment itself was invalid, the consequential assessment order could not survive. Accordingly, all additions, including those relating to capital gains, commission, and interest mismatch, were deleted and the appeal was allowed.

Cause Title: Bhupesh Sajjansinh Rathod v. ITO Ward-5(3)(1), Ahmedabad
Case No.: ITA No. 1800/Ahd/2025 (AY 2018–19)
Coram: Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member)