DCIT(CC)-8(3) , MUMBAI vs. VARUN VIMLESH MEHTA, MUMBAI
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SMT. BEENA PILLAI () & SHRI MAKARAND VASANT MAHADEOKAR ()
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. "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.
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"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 ITA No. 3726/Mum/2025 and ITA No. 3777/Mum/2025 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:-
The assessee field its return of income for the year under consideration on 19/12/2012
declaring total income of Rs.16,64,980/-. Subsequently, the Ld.AO received information from the investigation unit Mumbai wherein, it was informed that in the investigation carried out by Mumbai and Kolkata Investigation unit, it was revealed that M/s Banas Finance Ltd is a penny stock and this company has been used to facilitate introduction of unaccounted income of various beneficiaries in the form of exempted capital gains/loss. The assessee is one such beneficiaries who sold the shares of M/s Banas Finance Ltd during the AY 2012-
13 for Rs. 4,16,49,216/-.
3.1. On the basis of Information, the Ld.AO had reasons to believe that the income to the extent of Rs. 4,16,49,216/- escaped assessment. Accordingly, the assessment was reopened u/s 147 of the I.T. Act and notice u/s 148 was issued on 25.03.2019. The 3
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assessment u/s 143(3) r.w.s 147 was completed on 25.04.2022 by assessing total income at Rs. 4,10,90,940/-. The Ld.AO also made addition of Rs. 3,94,25,961/- u/s 69A of the I.T. Act by holding the LTCG as bogus.
Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A).
4. Before Ld.CIT(A), assessee submitted as under:-
“The investments of the appellant were managed by his late father. The appellant’s father was approached by Banas Finance Ltd for preferential allotment of shares and the appellant’s father on his behalf invested Rs.
20,00,000 in the shares of Banas Finance Ltd. The said funds were arranged by withdrawal of capital from M/s. Mehta Emporium, in which the appellant is a Partner. Furthermore, the said investment of Rs.
20,00,000 was made through proper banking channel thereon. Appellant has already submitted copy of bank statement and copy of cheque highlighting it for your kind perusal. The appellant during the course of assessment had already submitted a copy of preferential share allotment letter issued to the appellant by Banas Finance Ltd. briefing the details regarding the said allotment. The shares of Banas Finance Limited post allotment were dematerialised in FY 2010-11. The appellant was initially allotted one lakh shares of Rs. 10 each at a premium of Rs 10 per share.
Later on, the shares of Banas Finance Ltd were split in the ratio of 1:10 on 12/09/2011. Thus, making the quantum of preferential shares present in the appellant’s demat account from 1, 00,000 shares to 10,00,000 shares.
Further, in FY 2011-12, the shares were sold by the assessee in the month of February and March of 2012 and the said shares were sold in the following manner:
Date
Name of Scripts
Amount (Rs.)
Quantity
Holding Period (Days)
06-02-2012
Banas Finance Ltd
63,15,994.73
1,13,787
401
07-02-2012
Banas Finance Ltd
20,35,085.01
36,213
402
21-02-2012
Banas Finance Ltd
69,40,502.01
1,50,000
416
22-02-2012
Banas Finance Ltd
65,39,937.50
1,50,000
417
24-02-2012
Banas Finance Ltd
60,69,512.24
1,40,000
419
28-02-2012
Banas Finance Ltd
58,17,063.10
1,50,000
423
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01-03-2012
Banas Finance Ltd
32,68,888.49
1,00,000
425
06-03-2012
Banas Finance Ltd
44,38,978.32
1,50,000
430
Total
4,14,25,961.40
10,00,000
All the above transactions have been done through recognised Stock
Broker, duly registered with SEBI. The copies of the Broker Contract Notes and Statement of Purchase & Sale of Shares, Settlement Accounts with the Brokers, D-Mat A/c containing complete details in relation to each sale &
purchase transaction of shares as above, viz. contract note No., quantity, scrip name, price per unit, scrip- wise transactions, date of transactions, amounts of sale & purchase, holding etc. have been submitted by the appellant for your kind perusal. It is also pertinent to mention that sales proceeds from the sale of the aforementioned shares are being reflected in the bank account of the appellant, the copy of which has been already submitted by the appellant for your kind perusal. It may be seen from the above that the purchaser and seller are not in a position to know each other. Any person having shares of a company can sell those shares and any person interested in purchase of shares can purchase the shares at the rate at which bids of sale is floating in the system. No human intervention is possible in the whole exercise of purchase/sale of shares as stated above.
4.1. The Ld.CIT(A) thereafter took cognizance of various decisions and manner in which the transactions of purchase and sale of shares of Banas Finance Ltd., and observed and held 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 5
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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.
7. After considering the submission of the appellant, the AO noted that the price rise of this scrip M/s Banas Finance Ltd has a typical bell-shaped pattern which indicates the rigging of price for providing accommodation entries. The AO further analyzed the financials of this company and held that the price rise of this scrip is not supported by the financials. The investigation unit has recorded the statement of Shri Pradeep Dhanuka and various other exit providers. It was revealed that Shri Pradeep
Dhanuka is the key person in the chain who introduced various bogus exit providers. In the statements recorded, Shri Pradeep Dhanuka as well as various exit providers have admitted that they have nothing to do with the concerned companies wherein they are the directors. Shri Pradeep
Dhanuka has also admitted that on the instruction of Shri Giriraj Kishore
Agarwal, one of the promoters of M/s Banas Finance Ltd, he has indulged in manipulating the scrip. The AO further noted that SEBI also levied penalty vide order dated 27.04.2018 in the case of Banas Financial Ltd for violation of provisions of SEBI. Considering the facts of the case, findings of investigation carried out by the investigation unit and the order of SEBI, the AO held that the transaction of LTCG shown by the assessee is beyond any human probability. Relying on the decision of the Hon’ble Supreme
Court in the case of Sumati Dayal, the LTCG shown of Rs. 3,94,25,961 is held as bogus and the same is treated as unexplained money u/s 69A of the I.T. Act.
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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. 9. During the appeal proceedings the appellant has furnished following documents- Application dated 11.12.2010 to the Banas Financial Ltd. for allotment of preferential shares. 1. Copy of cheque of Syndicate Bank dated 11.12.2010 of 20 lakhs issued to Banas Finance Ltd.
Allotment letter dated 01.01.2011 intimating allotment of 1 lakh preferential shares to the appellant by Banas Finance Ltd.
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Copy of demat account. 4. Copy of broker's note issued by RBK Share Broking Ltd. 5. Statement of bank account. 6. Copy of ITAT order dated 02.01.2019 in the case of M/s Banas Finance Ltd. 7. These documents were also furnished before the A.O during the assessment proceedings.” 10. I have considered the assessment order, submission of the appellant and facts available on record. The appellant had applied for allotment of preferential shares of M/s Banas Financial Ltd and for the same has issued a cheque of Syndicate Bank amounting to Rs. 20 lakhs on 11.12.2010. The appellant has furnished the copies of the concerned share application form and statement of bank showing payment of Rs. 20 lakhs for purchase of shares. Thereafter, the company has allotted 1 lakh preferential shares of face value of Rs. 10 each at a premium of Rs. 10 per share. Subsequently, these shares were dematerialized in the demat account maintained with RBK Share Broking Ltd. The appellant has furnished the copy of the demat account to substantiate her claim. Thereafter, the shares of Banas Finance Ltd were split in the ratio of 1:10 on 12.09.2011 and the appellant received total 10 lakh shares. These shares were subsequently sold on the stock exchange in the month of February and March 2012 for Rs. 4,14,25,961/-. The details of sale is as under- Date Name of Scripts Amount (₹) Quantity 06-02-2012 Banas Finance Ltd 63,15,994.73 1,13,787 07-02-2012 Banas Finance Ltd 20,35,085.01 36,213 21-02-2012 Banas Finance Ltd 69,40,502.01 1,50,000 22-02-2012 Banas Finance Ltd 65,39,937.50 1,50,000 24-02-2012 Banas Finance Ltd 60,69,512.24 1,40,000 28-02-2012 Banas Finance Ltd 58,17,063.10 1,50,000 01-03-2012 Banas Finance Ltd 32,68,888.49 1,00,000 06-03-2012 Banas Finance Ltd 44,38,978.32 1,50,000 Total
4,14,25,961.40
10,00,000
The appellant has shown LTCG of Rs. 3,94,25,951/- from the sale of these shares and the same is claimed as exempt u/s 10(38) of the I.T. Act. From the above, it is seen that the appellant has purchased the preferential
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shares of M/s Banas Financial Ltd and for the same payment of Rs. 20
lakh has been made through the banking channels. Subsequently, these shares were sold on the stock exchange and the receipts are reflected in the bank account.
11. Now, coming to the observations of the AO that the price of the shares is not supported by the fundamentals of the company. The appellant has submitted the financials of this company and has contended that when this company started its operation in A.Y 2010-11, the turnover was only
Rs. 2 lakhs which has increased to Rs. 7 crores in the AY 2011-12 and 2012-13 showing revenue growth at 350 times. This growth in revenue has increased investor confidence which led to the rise in the price of these shares. The price rise on the stock exchange depends on multiple factors and mostly it is driven by the investors' sentiment. In this case, the substantial rise in revenue along with future prospects of the company has contributed to the rise in price of this alleged share. Regarding the authenticity of Banas Finance, the appellant has submitted that this company is still listed on BSE and is regularly traded. Further, recently it has acquired another listed company, Proaim Enterprises Ltd. From the details submitted by the appellant, I find that there is substantial force in the appellant's contention and hence the same cannot be brushed aside.
12. The next contention of the appellant that the investments made by the appellant for purchase of the preferential shares of M/s Banas Financial
Ltd is held to be genuine as the Hon’ble ITAT Mumbai has upheld the investment received by M/s Banas Financial Ltd as genuine. It is seen that Hon’ble ITAT vide order in case of M/s Banas Financial Ltd dated02.01.2019 decided the appeal for A.Y 2011-12 (ITA No.
1096/MUM/2016).The relevant portion of the decision of Hon’ble ITAT is reproduced as under:
“We have carefully heard the rival contentions and perused relevant material on record including written submissions / documents placed in the paper-book & judicial pronouncements cited before us.
Some undisputed facts to be noted are that the assessee is a public listed company and the made preferential allotment of shares having face value of Rs. 10/- per share to as many as 49 investors at a premium of Rs. 10/- per share. The Ld. AO has doubted the valuation of shares on the premise that the market value was much lower than the issue price LAW & HUSTI the financials of the company did not justify issue of shares at high premium However, we find that nothing in law prohibits issue of shares at prices higher than the prevailing market prices. The revenue, by questioning the wi om 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.
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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