No Additions Based on SEBI’s Caution Letter Regarding Price Manipulation Without Incriminating Material | ITAT

Case Details: Deputy Commissioner of Income-tax vs. Avinash Singla - [2025] 170 taxmann.com 786 (Chandigarh-Trib.)

Judiciary and Counsel Details

• Rajpal Yadav, Vice President & Krinwant Sahay, Accountant Member
• Rohit Kapoor, Adv. & Virsain Aggarwal, for the Appellant.
• Smt. Kusum Bansal, CIT DR for the Respondent.

Facts of the Case

A search and seizure operation was conducted in the cases of the AFI group of companies, and the residential premises of the assessee were also covered under the search. During the search, a warning letter written by SEBI to the assessee was found wherein it was indicated that certain professionals manipulated the prices of shares.

The Assessing Officer (AO) issued notice under section 153A to the assessee. He further passed an order and made an addition on account of capital gains earned by the assessee on sale of said shares on the grounds that the transactions of these shares were to be treated as bogus and added as assessee’s income.

On appeal, the Commissioner (Appeals) had gone through the record carefully and deleted all the additions. Aggrieved filed the instant appeal before the ITAT.

ITAT Held

The Tribunal held that nothing was found during the course of the search except a warning letter from the SEBI. This letter in itself does not exhibit anything relevant for the assessment of the income of the assessee. It is just a matter of caution for the assessee to avoid transactions with such shares. It is an apprehension that the mentioned company might be involved in manipulating the price of its shares. Still, concretely, it does not provide that the assessee’s transactions are to be treated as bogus.

It is pertinent to note that returns were filed before 31-3-2015. The time limit to issue notice under section 143(2) for scrutinising those returns had expired long back. The search took place on 25-4-2018. During the course of the search, details regarding alleged transactions of penny stock were not found. The department could only lay its hands on the letter of SEBI, which was missing in the case of one of the assessees.

AO himself has not cross-verified anything. He only followed some information available on the revenue portal without cross-verifying any circumstance. The Commissioner (Appeals) appreciated the controversy from the right perspective and rightly concluded that no incriminating material was found demonstrating the alleged transactions as bogus during the search. Given this, this appeal had no merit, and it was dismissed.

List of Cases Reviewed

• CIT v. Kabul Chawla [2015] 61 taxmann.com 412 (Para 15)followed.