BHARAT BABUBHAI LUKHI ,MUMBAI vs. INCOME TAX OFFICER 30(1)(2TI, BANDRA EAST MUMBAI

Aggrieved by the order of Ld. AO, the appellant filed an appeal before Ld. CIT(A) and this First Appellate Authority has also confirmed the addition after analyzing all the cases relied on by Ld. AO and the appellant.

Aggrieved by the orders of Ld. AO and Ld. CIT(A), an appeal was filed before ITAT with the following grounds : 1. That the learned AO's order is bad in law and on facts too, arbitrary, and based on surmises and conjectures.

That the learned AO's reliance on case laws that are not factually applicable to the appellant's case led to the unjust treatment of genuine transactions as unexplained income.

The appellant craves leave to amend, modify, delete, add or abandon any ground of appeal

During the hearing proceedings, the Ld. AR of the appellant filed written submission and a paper book containing the details of contract notes issued by stock broker, bank statement showing receipt of purchase consideration and sale proceeds of stock, assessment order passed by Ld. AO and appeal order passed by Ld. CIT(A). It was submitted that the appellant was allotted preferential shares. The appellant has filed a legal paper book containing summary of decisions of more than 100 cases in favour of the appellant for the broad proposition that when the transactions are done on stock exchange through recognized stock broker where “contract notes” were issued and money was paid/received through banking channels, then the transactions should be accepted as genuine and LTCG was being allowed. The Ld. AR of the appellant has also distinguished all the cases relied on by Ld. AO and Ld. CIT(A) where the Revenue won the appeals in the cases where appellant’s exemption under section 10(38)of the Act was denied.

Per contra, Ld. DR has relied on all the decisions in favour of the Revenue and orders of Ld. AO and Ld. CIT(A). The Ld.DR filed written submission in which it was stated that in all manipulated scrips, the shares were split into 1:10 or so, consequently assessee get huge number of shares which can be sold and show that the appellant gets good amount of money. The Ld. DR has analysed the financial fundamentals of the company of Tilak Finance Ltd. which has subsequently changed the name into out of City Travel Solutions Ltd. It was submitted by Ld. DR that from the balance sheet of company for the relevant financial year, there is some intangible asset which is not ascertainable and the company EPS is just 0.07, the company had loss of 0.80 crore and hence could not command the price of Rs. 40 or so. Moreover, the wild price fluctuations from Rs. 400 to Rs. 15/- and still less financial affairs shown that the company does not have any sound financial fundamentals and hence susceptible for price manipulations. The Ld. DR has relied on the decision of Swati Bajaj, 446 ITR 56 (Kol High Court) and Sanjay Bimal Chand Jain, dated 10.4.2017 of Bombay High Court for the proposition that where there are wild price fluctuations in a stock in the absence of fundamentals of the company, addition by Ld.AO was upheld. The Ld. DR has also placed reliance on two Mumbai ITAT decisions - ITO Vs. Kailash Chandra Gupta (ITA No. 4013/Mum/2013) and Kaushik Chander Parikh (ITA No. 2064/Mum/2013) where Hon'ble Coordinate Bench has confirmed the additions after dealing with several cases relied on by appellant and Department. The Ld. DR has argued that all the contentions of appellant that transactions are done through banking channels, copies of contract notes of registered brokers filed etc., were taken into consideration and the Coordinate Bench passed the decision in favour of the Revenue. The Ld. DR submitted that the appellant filed VSV Scheme after ITAT decision and paid taxes. Copies of these two decisions were also enclosed by Ld. DR before the Bench.

The Ld. AR again filed written submission as rebuttal to the arguments of Ld. DR and concluded that all cases relied on by Revenue are not applicable to the facts of his case. Finally, the Ld. AR placed fresh evidence before ITAT stating that he filed an RTI petition before SEBI asking them about SEBI’s investigation report/final order relating to price manipulations of scrip “Tilak Ventures Ltd., formerly Tilak Finance Ltd.” which again changed its name to “Out of City Travel Solutions Ltd.”. The appellant has asked SEBI, whether their names were mentioned as beneficiaries of price manipulation. In reply to this petition, SEBI vide letter dated 7.8.2025 replied that it has passed final order on 27.7.2023 in respect of Tilak Ventures Ltd., Giriraj Kishore Agarwal and Ms. Tanu Giriraj Agarwal in the matter of that company for manipulation of preferential issue proceeds, misrepresentation of business affairs of company and for siphoning of the investor’s money. However, the report is not related to LTCG/penny stock and names of appellants are not included in final SEBI order. Since this is fresh information, the Ld. AR requested the Bench to take into consideration and adjudicate the matter.

Heard both sides. The appellant as well as Revenue filed numerous cases in favour of their arguments as mentioned above. The facts to be seen are whether the company/scrip which is in consideration now really command the share price in normal circumstances. By going through the profit and loss account and bank statement, it is observed that the profits are very meager, it is also not known why the company changed the name so frequently, why shares were split into 1:10, why the scrip of company went from below Rs. 10 to Rs. 400 plus and against below Rs. 10, are all the relevant questions to be resolved. The fresh evidence filed by Ld. AR of the appellant shows that there is misutilsation of preference share capital raised, siphoning of funds by promoters and misrepresentation of business affairs and hence the effect of these aspects coupled with price manipulations it had to be seen whether appellant is a beneficiary to claim of 6 Bharat Babubhai Lukhi LTCG. The Ld. AR of the appellant relied on some cases where it was held that the appellant is entitled to LTCG by ITAT decisions while dealing with this scrip of Tilak Finance Ltd. But, the Coordinate Benches were not having the benefit of recent SEBI’s finding of manipulation of business affairs siphoning of funds and hence to that extent cannot be taken into account. In the light of SEBI’s findings, the AO is directed to get full report of SEBI and analyse whether the findings have any impact on price manipulation as held by Ld. AO and consequently whether the assessee is the beneficiary of claiming LTCG under 10(38) of the Act. With these findings coupled with the decision of Bombay High Court of Sanjay Bimal Chand Jain on huge price rise may be seen and a fresh order may be passed by Ld. AO after giving an opportunity to appellant.

The appeal of appellant is allowed for statistical purposes. Order pronounced in the open Court on 03/12/2025.