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DCIT vs Varun Vimlesh Mehta, Mumbai | ITAT Mumbai 2025 | BharatTax

DCIT(CC)-8(3) , MUMBAI vs. VARUN VIMLESH MEHTA, MUMBAI

ITA 3728/MUM/2025Status: DisposedITAT Mumbai29 December 2025AY 2012-13Bench: SMT. BEENA PILLAI (JUDICIAL MEMBER)\n&\nSHRI MAKARAND VASANT MAHADEOKAR (ACCOUNTANT MEMBER)\nI.T.A. No. 3728/Mum/2025\nAssessment Year: 2012-13\nDCIT(CC)-8(3), Mumbai Vs. Varun Vimlesh Mehta\n(Appellant) 10, Mumba Devi Road\nMumba Devi\nDagina Bazar\nMumbai – 400002\n[PAN: AJIPM5299G]\n(Respondent)\nAssessee by Shri Devendra Jain, A/R\nRevenue by Ms. Kavitha Kaushik, Sr. D/R\nDate of Hearing 11.12.2025\nDate of Pronouncement 29.12.2025\nORDER\nPer Smt. Beena Pillai (Judicial Member)13 pages

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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Before: SMT. BEENA PILLAI & SHRI MAKARAND VASANT MAHADEOKAR

For Appellant: Shri Devendra Jain, A/R

For Respondent: Ms. Kavitha Kaushik, Sr. D/R

Hearing: 11.12.2025Pronounced: 29.12.2025

Per Smt. Beena Pillai, JM: Present appeal filed by revenue arises out of order dated 21/03/2025 passed by Ld.CIT(A) -50 [hereinafter “the Ld. CIT(A)”] for assessment year 2012-13 on the following grounds:-

1.

1. 1. 1. “1. "Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not appreciating the fact that the AO rightly made addition of Rs. 3.94.25.961/- on account of unexplained money u/s 69A of the Act being investment made in penny stock?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO in relation to the alleged manipulation of share prices of M/s Banas Finance Ltd., despite the statement recorded during the course of investigation proceedings, which indicates the appellant's involvement. The CA) failed to appreciate that statements recorded during the search proceedings are credible and were supported by circumstantial incriminating evidence suggesting irregular financial activities.

3. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

2.

At the very outset, the Ld.AR submitted that, identical issue was considered by Co-ordinate Bench of this Tribunal in the case of assessee’s brother in and for assessment year 2012-13. He submitted that, facts in the present appeal as well as the order passed by the Co- ordinate Bench (supra) are identical in terms of the transaction of purchase and sale of shares in M/s. Banas Finance Ltd..

3.

Brief facts of the case are as under:-

“6. In this case, the assessment was reopened on the basis of information received from the investigation unit Mumbai wherein it was communicated that the appellant is one of the beneficiaries who has availed accommodation entry in the form of LTCG on account of sale of shares of M/s Banas Finance Ltd, the scrip which has been manipulated by the entry operators. The assessment was reopened u/s 147 and notice u/s 148 was issued on 25.03.2019. In response to this notice, the appellant filed return of income on 03.06.2019 declaring income of Rs. 16,64,980/-. The reasons for reopening were provided to the appellant and thereafter, the appellant filed objections to reasons of reopening the assessment vide letter dated 08.07.2019. The objections were disposed of vide order dated 08.11.2019. Subsequently, the appellant filed a writ petition before Bombay High Court which was dismissed. During the assessment proceedings, the AO vide notice dated 05.04.2022 asked the assessee to showcause as to why the amount of Rs. 4,16,49,216/- received on account of sale of shares of M/s Banas Finance Pvt Ltd should not be added to the total income. In response to this, the appellant filed written submission dated 11.04.2022. In this submission, the appellant contended that the assessee's father was approached by Banas Finance Ltd for preferential allotment of its shares and he had invested a sum of Rs. 20 lakhs for the same. The amount of Rs. 20 lakhs was arranged from withdrawal of capital from M/s Mehta Emporium in which the assessee is a partner. Further, the same investment of Rs. 20 lakhs was made through the banking channel. One lakh shares of face value of Rs. 10 each were issued at a premium of Rs. 10 per share to the assesse. To substantiate the same, the assessee furnished a copy of letter showing allotment of preferential shares by M/s Banas Finance Ltd. Post allotment of shares, the same were dematerialized immediatelywhich is evident from the demat account. Thereafter, the shares of Banas Finance Ltd were split in the ratio of 1:10 on 12.09.2011 and accordingly total 10 lakhshares were allotted. Subsequently, the shares were sold in the year under consideration for Rs. 4,14,25,961/-. All the transactions have been done through recognized stock exchanges and copies of broker's note, statement of purchase and sale, settlement account with broker, demat account, contract note, etc., have been furnished. It is further contended that the shares were sold at average price of Rs. 450 per share whereas the price of these shares rose up to Rs. 565 per share. The appellant has also requested for the opportunity to cross-examine the persons on whose statement the AO is relying.

8.

During the appeal proceedings, in the written submission filed, the appellant has reiterated the contentions raised before the AO during the assessment proceedings. The appellant further submitted that the AO has not appreciated the facts correctly and relied on various erroneous facts and assumptions. The appellant submitted that the AO’s inference that M/s Banas Financial shares are manipulated as the price rise is not supported by the financials of the company is incorrect. It is contended that this company has commenced its operations in FY 2019 and by FY 2010-11, it not only became profitable but also experienced remarkable growth. Its revenue surged from Rs. 2 lakh in FY 2009-10 to Rs. 7.8 crores in FY 2010-11 and FY 2011-12. Thus, the revenue growth is around 350 times, whereas the price rise in shares is only 20 times. This substantial increase in revenue is likely to have considerable effect on investor sentiment, boosting the investor confidence and driving up the share prices. It is further submitted that the statement of the appellant was recorded during the survey/search conducted on the appellant and from this statement, no adverse inference can be drawn. No incriminating document whatsoever has been found during the survey/search. The appellant further submitted that the assessment in the case of M/s Banas Financial was completed wherein the AO had treated the investment received by this company as bogus. The Hon’ble ITAT has decided this issue vide order dated 02.01.2019, wherein the Hon’ble ITAT has held these investments as genuine. Thus, the investment made by the appellant for purchase of preferential shares of this company was already held by the Hon’ble ITAT as genuine. It is further submitted that the reliance of the AO on the order for SEBI is also erroneous as the period of investigation covered by SEBI was from November 2010 to Sep 2011, whereas the appellant has sold these shares in February and March 2012. Further, it can be seen from SEBI's order that it has penalized the entities involved for the violations of guidelines of SEBI and in this order, thename of the appellant is not appearing. In view of this fact, as the entire transactions of sale and purchase of the shares are carried out through the stock exchange and banking channels and the same are supported by the broker's note, the transactions cannot be held as bogus merely on the basis of third-party statements.

Nothing on record demonstrate such exchange of cash between the investor and the assessee. 5.2 It is noted that the addition has been made as unexplained cash credit u/s 68 which cast onus on the assessee to demonstrate fulfilment of three primary conditions viz. identity of the investor is established by the assessee, the investors had creditworthiness to make those investment and the transactions were genuine. So far as the fulfilment of these primary ingredients of Section 68 is concerned, we find that the assessee has successfully demonstrated the fulfilment of the same which is evident from the orders of both the lower authorities. The transactions have duly been confirmed by the investors in response to notice u/s 133(6). The assessee has filed voluminous documentary evidences before both the lower authorities which prove the fulfilment of these conditions. Even the assessment order u/s 143(3) of an entity who made an investment of Rs.290 Lacs has been placed on record wherein no adverse view has been taken against the investor. The Share allotment has been made after following due procedure of law and after obtaining statutory approval from the concerned government agencies SEBI & Stock Exchanges. The complete details of the same, as required by law, has been filed with Registrar of companies and the new shares have subsequently been listed on the stock exchange. The nature of documents filed by the assessee, to support the transactions, have elaborately been given on page numbers 22 to 24 of the impugned order and the same are not under dispute. 5.3 The Ld. CIT-DR has alleged price rigging /manipulation on the part of the assessee to submit that the same was done to generate fictitious LTCG for the investors. However, we find that this matter is the domain of SEBI / Stock Exchange or other concerned government agencies and this fact, alone, could not be the basis for making addition in the hands of the assessee unless the aforesaid fact of price manipulation is established conclusively and it could be demonstrated that the assee's unaccounted money got routed in the system through this manipulation. It is trite law that the additions could not be made merely on basis of guess work, doubts, suspicion, conjectures of surmise .Nothing on record establishes this fact and secondly, it was not the case of the Ld. AO to make the additions in the hands of the assessee on the sis of subsequent price manipulation in the market. The Ld. AO has doubted the transactions primarily by questioning the high share premium. However, to reiterate, the revenue, by questioning the wisdom of the investor, could not make addition in the hands of the assessee as unexplained cash credit u/s 68 unless it was established that the assessee's unaccounted money was routed in the books through the mechanism of fictitious share allotment. Nothing on record establishes.So far as the nature of proviso to Section 68 as introduced by Financ Act, 2012 with effect from 01/04/2013 is concerned, the same has aptly been settled by jurisdictional Bombay High Court in CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272] wherein it has been held as under: - (e)We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduceto proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identify and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders ie, they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit Respectfully following the same, we find substantial force in this argument advanced by Ld. AR that the assessee was required to prove the source of the money only and nothing beyond. We find that the assessee has demonstrated the same by filing bank statements, Income Tax Returns, financial statements & various other documents as noted by lower authorities and which are not under dispute.”