DCIT, CENTRAL CIRCLE-8(1), MUMBAI, MUMBAI vs. JAINAM INVESTMENTS, MUMBAI

Multimedia India Limited/ Kaleidoscopic Films Ltd) for providing accommodation Multimedia India Limited/ Kaleidoscopic Films Ltd) for providing accommodation Multimedia India Limited/ Kaleidoscopic Films Ltd) for providing accommodation entries; 6. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred circumstances of the case and in law, the Ld CIT(A) had erred circumstances of the case and in law, the Ld CIT(A) had erred in not considering the fact that many signed cheque-books, demat instruction in not considering the fact that many signed cheque books, demat instruction slips etc of dummy persons who were used as exit providers, were found at the slips etc of dummy persons who were used as exit providers, were found at the slips etc of dummy persons who were used as exit providers, were found at the residence of Shri Bhupesh Jain, an associate of Shri Naresh Jain and a member residence of Shri Bhupesh Jain, an asso ciate of Shri Naresh Jain and a member of the syndicate who admitted to be indulged in the activity of providing of the syndicate who admitted to be indulged in the activity of providing of the syndicate who admitted to be indulged in the activity of providing accommodation entries; accommodation entries; 7. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred 7. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred 7. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not considering the statement of Shri Bhupesh Jain, an associate of Shri in not considering the statement of Shri Bhupesh Jain, an associate of Shri Naresh Jain and a member of the syndicate, wherein he had explained the Naresh Jain and a member of the syndicate, wherein he had explained the Naresh Jain and a member of the syndicate, wherein he had explained the entire modus operandi of the activity of providing accommodation entries entire modus operandi of the activity of providing accommodation entries entire modus operandi of the activity of providing accommodation entries through trading in scrips operated by Shri Naresh Jain; through trading in scrips operated by Shri Naresh Jain; 8. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred ircumstances of the case and in law, the Ld CIT(A) had erred ircumstances of the case and in law, the Ld CIT(A) had erred in not considering the statement of Shri Bhavesh Pabari, an associate of Shri in not considering the statement of Shri Bhavesh Pabari, an associate of Shri in not considering the statement of Shri Bhavesh Pabari, an associate of Shri Naresh Jain and a member of the syndicate, wherein he had explained the Naresh Jain and a member of the syndicate, wherein he had explained the Naresh Jain and a member of the syndicate, wherein he had explained the movement of cash in the activity of providing accommodation entries through movement of cash in the activity of providing accommodation entries through trading in scrips operated by Shri Naresh Jain; trading in scrips operated by Shri 2.1 The grounds raised by the assessee in cross The grounds raised by the assessee in cross The grounds raised by the assessee in cross-objection is reproduced as under: reproduced as under:

2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in dismissing the ground of cross examination, without appreciating the erred in dismissing the ground of cross examination, without appreciating the erred in dismissing the ground of cross examination, without appreciating the fact that assessment under 147 r.w.s 143(3) of the Act was made relying on fact that assessment under 147 r.w.s 143(3) of the Act was made relying on fact that assessment under 147 r.w.s 143(3) of the Act was made relying on statements of third parties and without providing any opportunity of cross statements of third parties and without providing any opportuni statements of third parties and without providing any opportuni examination to the assessee which against the principles of natural justice. examination to the assessee which against the principles of natural examination to the assessee which against the principles of natural 3. Briefly stated, the material facts of the case are Briefly stated, the material facts of the case are Briefly stated, the material facts of the case are that assessee, a partnership firm, has been carrying on the business of trading in a partnership firm, has been carrying on the business of trading in a partnership firm, has been carrying on the business of trading in shares, derivatives and futures & options for several years. For the shares, derivatives and futures & options for several years. For the shares, derivatives and futures & options for several years. For the year under consideration, it filed its return of income on 27.08.2016 year under consideration, it filed its return of income on 27.08.2016 year under consideration, it filed its return of income on 27.08.2016 declaring a total income of declaring a total income of ₹1,89,05,300/–. The said return was . The said return was & CO 54/MUM/2025 & CO 54/MUM/2025 subjected to scrutiny and the assessment was completed under subjected to scrutiny and the assessment was completed under subjected to scrutiny and the assessment was completed under section 143(3) of the Inco section 143(3) of the Income-tax Act, 1961 (“the Act”) on tax Act, 1961 (“the Act”) on 12.12.2018, determining the total income at 12.12.2018, determining the total income at ₹6,60,25,080/ 6,60,25,080/–.

3.1 Subsequently, Subsequently, Subsequently, the the the Assessing Assessing Assessing Officer Officer Officer received received received specific sp sp intelligence from the Investigation Wing, Mumbai indicating that the intelligence from the Investigation Wing, Mumbai indicating that the intelligence from the Investigation Wing, Mumbai indicating that the assessee had allegedly booked fictitious losses through coordinated assessee had allegedly booked fictitious losses through coordinated assessee had allegedly booked fictitious losses through coordinated and premeditated trading in illiquid stock options on the stock and premeditated trading in illiquid stock options on the stock and premeditated trading in illiquid stock options on the stock exchange, amounting to exchange, amounting to ₹1,96,04,400/–. Further i . Further information was also received from the same Wing alleging that the assessee had also received from the same Wing alleging that the assessee had also received from the same Wing alleging that the assessee had availed accommodation entries in the nature of long-term capital availed accommodation entries in the nature of long availed accommodation entries in the nature of long gain/loss arising from manipulation of penny gain/loss arising from manipulation of penny-stock prices by one stock prices by one Shri Naresh Jain and his associates, and that t Shri Naresh Jain and his associates, and that the assessee was a he assessee was a beneficiary to the extent of beneficiary to the extent of ₹45,500/– 3.2 On the basis of the aforesaid information, the Assessing Officer On the basis of the aforesaid information, the Assessing Officer On the basis of the aforesaid information, the Assessing Officer recorded reasons to believe that income chargeable to tax had recorded reasons to believe that income chargeable to tax had recorded reasons to believe that income chargeable to tax had escaped assessment and, accordingly, issued notice under section escaped assessment and, accordingly, issued notice under section escaped assessment and, accordingly, issued notice under section 148 of the Act on 31.03.2021. In response, the assessee filed a of the Act on 31.03.2021. In response, the assessee filed a of the Act on 31.03.2021. In response, the assessee filed a return on 06.04.2021 declaring the same income as originally return on 06.04.2021 declaring the same income as originally return on 06.04.2021 declaring the same income as originally returned. The reasons recorded for reopening were furnished to the returned. The reasons recorded for reopening were furnished to the returned. The reasons recorded for reopening were furnished to the assessee on 07.06.2021; the objections filed by the assessee on assessee on 07.06.2021; the objections filed by the assessee on assessee on 07.06.2021; the objections filed by the assessee on 18.08.2021 were disposed of by the Assessing Officer through a 08.2021 were disposed of by the Assessing Officer through a 08.2021 were disposed of by the Assessing Officer through a speaking order dated 19.11.2021. speaking order dated 19.11.2021.

& CO 54/MUM/2025 3.3 Thereafter, the assessee approached the Hon’ble Bombay High Thereafter, the assessee approached the Hon’ble Bombay High Thereafter, the assessee approached the Hon’ble Bombay High Court seeking disclosure of the underlying material based on which Court seeking disclosure of the underlying material based on which Court seeking disclosure of the underlying material based on which the reassessment proceedings had the reassessment proceedings had been initiated. Pursuant to the been initiated. Pursuant to the directions of the Hon’ble High Court vide order dated 22.02.2022, directions of the Hon’ble High Court vide order dated 22.02.2022, directions of the Hon’ble High Court vide order dated 22.02.2022, the Assessing Officer supplied to the assessee the information the Assessing Officer supplied to the assessee the information the Assessing Officer supplied to the assessee the information received from the Investigation Wing concerning alleged tax-evasion received from the Investigation Wing concerning alleged tax received from the Investigation Wing concerning alleged tax through manipulated transa through manipulated transactions using expiry-day trades in the day trades in the BSE options segment, along with a copy of the expiry-trade data on BSE options segment, along with a copy of the expiry BSE options segment, along with a copy of the expiry the BSE platform pertaining to the assessee for the financial year the BSE platform pertaining to the assessee for the financial year the BSE platform pertaining to the assessee for the financial year 2015-16.

3.4 In the course of reassessment proceedings, the assessee In the course of reassessment proceedings, the assessee In the course of reassessment proceedings, the assessee furnished multiple submissions and explanations in response to iple submissions and explanations in response to iple submissions and explanations in response to queries raised by the Assessing Officer. Upon consideration of the queries raised by the Assessing Officer. Upon consideration of the queries raised by the Assessing Officer. Upon consideration of the entire material on record, the Assessing Officer proceeded to treat entire material on record, the Assessing Officer proceeded to treat entire material on record, the Assessing Officer proceeded to treat the loss of ₹1,96,04,400/ 1,96,04,400/– claimed on the BSE equity derivatives on the BSE equity derivatives segment as a fictitious loss and made an addition accordingly. The as a fictitious loss and made an addition accordingly. The as a fictitious loss and made an addition accordingly. The Assessing Officer further made an addition of Assessing Officer further made an addition of ₹11,50,557/ 11,50,557/– treating the same as a bogus loss entry allegedly obtained from entities the same as a bogus loss entry allegedly obtained from entities the same as a bogus loss entry allegedly obtained from entities linked to Shri Naresh Jain linked to Shri Naresh Jain.

5.1 The Assessing Offic The Assessing Officer, drawing upon the said investigation er, drawing upon the said investigation report, recorded that several entities were consistently engaging in report, recorded that several entities were consistently engaging in report, recorded that several entities were consistently engaging in reversal or expiry-day trades in illiquid option series, resulting day trades in illiquid option series, resulting day trades in illiquid option series, resulting invariably in substantial losses to one party and corresponding invariably in substantial losses to one party and corresponding invariably in substantial losses to one party and corresponding gains to the counter- party. In support of this inference, reliance was party. In support of this inference, reliance was placed upon the judgment of the Hon’ble Supreme Court in Rakhi placed upon the judgment of the Hon’ble Supreme Court in placed upon the judgment of the Hon’ble Supreme Court in & CO 54/MUM/2025 & CO 54/MUM/2025 Trading Pvt. Ltd. (2018), wherein it was held that synchronized (2018), wherein it was held that synchronized (2018), wherein it was held that synchronized transactions executed with prior meeting of minds, and intended to transactions executed with prior meeting of minds, and intended to transactions executed with prior meeting of minds, and intended to book artificial losses, constituted a manipulative and distortive tificial losses, constituted a manipulative and distortive tificial losses, constituted a manipulative and distortive device rather than genuine trading activity. device rather than genuine trading activity.

5.2 A detailed analysis of the assessee’s trades was thereafter A detailed analysis of the assessee’s trades was thereafter A detailed analysis of the assessee’s trades was thereafter undertaken. The Assessing Officer noted that the transactions in undertaken. The Assessing Officer noted that the transactions in undertaken. The Assessing Officer noted that the transactions in question were confined question were confined almost entirely to highly illiquid stock almost entirely to highly illiquid stock option series, predominantly executed on the date of expiry, and option series, predominantly executed on the date of expiry, and option series, predominantly executed on the date of expiry, and that the assessee had incurred losses in each such trade. that the assessee had incurred losses in each such trade. that the assessee had incurred losses in each such trade. Conversely, the respective counter Conversely, the respective counter-parties had earned matching parties had earned matching profits. It was emphatically profits. It was emphatically recorded that nearly 90% of the trades recorded that nearly 90% of the trades were entered into and permitted to expire on the very same day were entered into and permitted to expire on the very same day were entered into and permitted to expire on the very same day without any corresponding reversal or hedging transaction. Further, without any corresponding reversal or hedging transaction. Further, without any corresponding reversal or hedging transaction. Further, the quantities purchased by the assessee were found to match, with the quantities purchased by the assessee were found to match, with the quantities purchased by the assessee were found to match, with mathematical precision, the quantities sold by a single counter ion, the quantities sold by a single counter ion, the quantities sold by a single counter- party in each instance, thereby, in the view of the Assessing Officer, party in each instance, thereby, in the view of the Assessing Officer, party in each instance, thereby, in the view of the Assessing Officer, evidencing a predetermined, synchronized, and orchestrated evidencing a predetermined, synchronized, and orchestrated evidencing a predetermined, synchronized, and orchestrated pattern of trading.

5.3 The Assessing Officer concluded that such a uniform tradi The Assessing Officer concluded that such a uniform tradi The Assessing Officer concluded that such a uniform trading pattern could not reasonably occur in the ordinary course of pattern could not reasonably occur in the ordinary course of pattern could not reasonably occur in the ordinary course of commerce, and that it was inconceivable for an experienced market commerce, and that it was inconceivable for an experienced market commerce, and that it was inconceivable for an experienced market participant such as the assessee to incur losses in every transaction participant such as the assessee to incur losses in every transaction participant such as the assessee to incur losses in every transaction unless the trades were pre unless the trades were pre-designed for the sole objecti designed for the sole objective of creating & CO 54/MUM/2025 & CO 54/MUM/2025 artificial artificial losses. losses. Certain Certain counter-parties—namely counter namely M/s JRM Securities Finance P Ltd ; Securities Finance P Ltd ; Shri Tiruputi Steal Cost Ltd Tiruputi Steal Cost Ltd and members of the Jhaveri family Jhaveri family were identified as having repeatedly were identified as having repeatedly engaged in such expiry engaged in such expiry-based trades with the assessee, based trades with the assessee, suggesting collusion and manipulation. On the strength of this reasoning, the collusion and manipulation. On the strength of this reasoning, the collusion and manipulation. On the strength of this reasoning, the Assessing Officer held that the loss of Assessing Officer held that the loss of ₹1,96,04,400/ 1,96,04,400/– claimed on such trades represented a fictitious, pre such trades represented a fictitious, pre-arranged loss intended arranged loss intended exclusively to reduce taxable income, and acco exclusively to reduce taxable income, and accordingly disallowed rdingly disallowed the same as bogus and artificial. the same as bogus and artificial.

5.4 Additionally, Additionally, Additionally, the the the Assessing Assessing Assessing Officer Officer Officer determined determined determined that that that commission expenditure of commission expenditure of ₹3,92,088/–, being 2% of the alleged , being 2% of the alleged fictitious fictitious fictitious loss, loss, loss, had had had been been been incurred incurred incurred for for for procuring procuring procuring such such such accommodation entries, and the accommodation entries, and therefore brought the same to tax refore brought the same to tax under section 69C of the Act. In essence, the Assessing Officer section 69C of the Act. In essence, the Assessing Officer section 69C of the Act. In essence, the Assessing Officer concluded that the assessee had indulged in manipulative, concluded that the assessee had indulged in manipulative, concluded that the assessee had indulged in manipulative, synchronized trading devised to generate artificial losses, and made synchronized trading devised to generate artificial losses, and made synchronized trading devised to generate artificial losses, and made additions to the income accordingl additions to the income accordingly.

5.5 Regarding the second issue of accommodation entry of sale of Regarding the second issue of accommodation entry of sale of Regarding the second issue of accommodation entry of sale of penny stock of M/s Divine Multimedia Ltd provided by Mr Naresh penny stock of M/s Divine Multimedia Ltd provided by Mr Naresh penny stock of M/s Divine Multimedia Ltd provided by Mr Naresh Jain, the Assessing Officer contended that business loss claimed of Jain, the Assessing Officer contended that business loss claimed of Jain, the Assessing Officer contended that business loss claimed of Rs. 11,50,557/- was bogus or fictitious. The assessee ho was bogus or fictitious. The assessee however filed was bogus or fictitious. The assessee ho documentary evidence comprising of copies of contract notes, copies documentary evidence comprising of copies of contract notes, copies documentary evidence comprising of copies of contract notes, copies of De-mat accounts, copies of bank statement, lwdger accounts of mat accounts, copies of bank statement, lwdger accounts of mat accounts, copies of bank statement, lwdger accounts of & CO 54/MUM/2025 & CO 54/MUM/2025 brokers etc and submitted that assessee being a trader in a stock brokers etc and submitted that assessee being a trader in a stock brokers etc and submitted that assessee being a trader in a stock market, entered transactions with the aim of market, entered transactions with the aim of earning profit from earning profit from frequent fluctuations in the stock market but suffered losses on frequent fluctuations in the stock market but suffered losses on frequent fluctuations in the stock market but suffered losses on said transactions. It was contended that assessee was not aware of said transactions. It was contended that assessee was not aware of said transactions. It was contended that assessee was not aware of Sri Naresh Jain and not involved or connected either in the Sri Naresh Jain and not involved or connected either in the Sri Naresh Jain and not involved or connected either in the manipulation of the stock price or availing manipulation of the stock price or availing of the accommodation of the accommodation entries. According to the assessee transaction was carried out on entries. According to the assessee transaction was carried out on entries. According to the assessee transaction was carried out on the platform of the stock exchange, without any interface and the platform of the stock exchange, without any interface and the platform of the stock exchange, without any interface and payment made through banking channel, the allegation of payment made through banking channel, the allegation of payment made through banking channel, the allegation of accommodation entry obtained are baseless and without any accommodation entry obtained are baseless and witho accommodation entry obtained are baseless and witho foundation. But, the learned Assessing Officer, rejected the foundation. But, the learned Assessing Officer, rejected the foundation. But, the learned Assessing Officer, rejected the contention of the assessee and disallowed the business loss of ₹ 11, contention of the assessee and disallowed the business loss of contention of the assessee and disallowed the business loss of 50, 557/-. On further appeal, the Ld. CIT(A) deleted the . On further appeal, the Ld. CIT(A) deleted the . On further appeal, the Ld. CIT(A) deleted the disallowance of business loss, which was made by the Assessing disallowance of business loss, which was made by the Assessing disallowance of business loss, which was made by the Assessing Officer.

5.6 Aggrieved with the finding of the Ld. CIT(A), the revenue is on Aggrieved with the finding of the Ld. CIT(A), the revenue is on Aggrieved with the finding of the Ld. CIT(A), the revenue is on appeal before the Tribunal whereas the assessee is before the appeal before the Tribunal whereas the assessee is before the appeal before the Tribunal whereas the assessee is before the Tribunal by way of cross objection, Tribunal by way of cross objection,

Jainam Investments 10 & CO 54/MUM/2025 & CO 54/MUM/2025

“9. Section 147 of the Act authorizes and permits the “9. Section 147 of the Act authorizes and permits the “9. Section 147 of the Act authorizes and permits the Assessing Officer to assess or reassess income c Assessing Officer to assess or reassess income chargeable to Assessing Officer to assess or reassess income c tax if he has reason to believe that income for any assessment tax if he has reason to believe that income for any assessment tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the year has escaped assessment. The word "reason" in the year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If phrase "reason to believe" would mean cause or justification. If phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or the Assessing Officer has cause or justification to know or the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said uppose that income had escaped assessment, it can be said uppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped to have reason to believe that an income had escaped to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the assessment. The expression cannot be read to mean that the assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by Assessing Officer should have finally ascertained the fact by Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing legal evidence or conclu sion. The function of the Assessing Officer is to administer the statute with solicitude for the public Officer is to administer the statute with solicitude for the public Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. exchequer with an inbuilt idea of fairness to taxpayers. exchequer with an inbuilt idea of fairness to taxpayers.

Jainam Investments 11 & CO 54/MUM/2025 & CO 54/MUM/2025

(SC)and in the case of Raymond Woollen Mills Ltd. v. ΙΤΟ (SC)and in the case of Raymond Woollen Mills Ltd. v. ΙΤΟ (SC)and in the case of Raymond Woollen Mills Ltd. v. ΙΤΟ [1999] 236 ITR 34 (SC). [1999] 236 ITR 34 (SC).

11. The Hon'ble Apex Court in the case of ACIT vs. Rajesh 11. The Hon'ble Apex Court in the case of ACIT vs. Rajesh 11. The Hon'ble Apex Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) (291 ITR 500) has Jhaveri Stock Brokers Pvt. Ltd. (2007) (291 ITR 500) has categorically stated that "reason to believe" does not mean that categorically stated that "reason to believe" does not mean that categorically stated that "reason to believe" does not mean that the reason for re-opening should have been factually the reason for re opening should have been factually ascertained by legal evidence or conclusion before the re ascertained by legal evidence or conclusion before the re- ascertained by legal evidence or conclusion before the re opening of an assessment. The relevant excerpts of the said opening of an assessment. The relevant excerpts of the said opening of an assessment. The relevant excerpts of the said judgment are reproduced hereunder: t are reproduced hereunder:-

"29. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. "29. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. "29. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC), relied upon by Mr. [2007] 161 Taxman 316/291 ITR 500 (SC), relied upon by Mr. [2007] 161 Taxman 316/291 ITR 500 (SC), relied upon by Mr. Putney, the Supreme Court held:- Putney, the Supreme Court held:

'16 Section 147 authorises and permits the Assessing Officer to '16 Section 147 authorises and permits the Assessing Officer to '16 Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason reassess income chargeable to tax if he has reason reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped to believe that income for any assessment year has escaped to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to assessment. The word "reason" in the phrase "reason to assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing believe" would mean cause or justification. If the Assessing believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that Officer has cause or justifica tion to know or suppose that income had escaped assessment, it can be said to have reason income had escaped assessment, it can be said to have reason income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The to believe that an income had escaped assessment. The to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer expression cannot be read to mean that the Assessing Officer expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal e should have finally ascertained the fact by legal evidence or should have finally ascertained the fact by legal e conclusion. The function of the Assessing Officer is to conclusion. The function of the Assessing Officer is to conclusion. The function of the Assessing Officer is to Jainam Investments 12 & CO 54/MUM/2025 & CO 54/MUM/2025 administer the statute with solicitude for the public exchequer administer the statute with solicitude for the public exchequer administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by with an inbuilt idea of fairness to taxpayers. As observed by with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. the Supreme Court in Central Provinces Manganese Ore Co. the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under . ITO [1991] 191 ITR 662, for initiation of action under . ITO [1991] 191 ITR 662, for initiation of action under section 147 (a) (as the provision stood at the relevant time) section 147 (a) (as the provision stood at the relevant time) section 147 (a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is fulfilment of the two requisite conditions in that regard is fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is essential. At that stage, the final outcome of the proceeding is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is t. In other words, at the initiation stage, what is t. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of required is "reason to believe", but not the established fact of required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only escapement of income. At the stage of issue of notice, the only escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a question is whether there was relevant material on which a question is whether there was relevant material on which a reasonable person could have formed a requisite belief. reasonable perso n could have formed a requisite belief. Whether Whether Whether the the the materials materials materials would would would conclusively conclusively conclusively prove prove prove the the the escapement is not the concern at that stage. This is so because escapement is not the concern at that stage. This is so because escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the the formation of belief by the Assessing Officer is within the the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. ITR 34 (SC). Coal Co. P. Ltd. ITR 34 (SC).

[1996] 217 ITR 597 (SC), Raymond Woollen Mills Ltd. v. ITO [1996] 217 ITR 597 (SC), Raymond Woollen Mills Ltd. v. ITO [1996] 217 ITR 597 (SC), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). [1999] 236 ITR 34 (SC).

Jainam Investments 13 & CO 54/MUM/2025 & CO 54/MUM/2025

Supreme Court in Claggett Brachi Co. Ltd. vs CIT 177 ITR 409 Supreme Court in C laggett Brachi Co. Ltd. vs CIT 177 ITR 409 (SC) that information obtained during assessment proceedings (SC) that information obtained during assessment proceedings (SC) that information obtained during assessment proceedings of a subsequent year can also validate the proceedings of a subsequent year can also validate the proceedings of a subsequent year can also validate the proceedings initiated u/s.147 for earlier year. Similarly, Hon'ble Bombay initiated u/s.147 for earlier year. Similarly, Hon'ble Bombay initiated u/s.147 for earlier year. Similarly, Hon'ble Bombay High Court in the case of Anusandhan Investments Ltd. vs. High Court in the case of Anusandha n Investments Ltd. vs. M.R.. Singh, DCIT, 287 ITR 482 held that a notice issued M.R.. Singh, DCIT, 287 ITR 482 held that a notice issued M.R.. Singh, DCIT, 287 ITR 482 held that a notice issued u/s.148 based on assessment of subsequent assessment year u/s.148 based on assessment of subsequent assessment year u/s.148 based on assessment of subsequent assessment year is valid even if the appeal is pending for such assessment. is valid even if the appeal is pending for such assessment. is valid even if the appeal is pending for such assessment.

13. The Hon'ble Supreme Court in the case of Raymond 13. The Hon'ble Supreme Court in the case of Raymond 13. The Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. VS. ITO 236 ITR 34, 35 (SC) has held that for en Mills Ltd. VS. ITO 236 ITR 34, 35 (SC) has held that for en Mills Ltd. VS. ITO 236 ITR 34, 35 (SC) has held that for determining whether initiation of reassessment proceedings determining whether initiation of reassessment proceedings determining whether initiation of reassessment proceedings was valid, it has only to be seen whether there was prima was valid, it has only to be seen whether there was prima was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could facie some material on the basis of which the department could facie some material on the basis of which the department could reopen the case. It further held that the sufficiency or reopen the case. It further held that the sufficiency or correctness of the material is not a thing to be considered at correctness of the material is not a thing to be considered at correctness of the material is not a thing to be considered at this stage. The relevant portion of the said judgment is this stage. The relevant portion of the said judgment is this stage. The relevant portion of the said judgment is reproduced here under:- reproduced here under:

"In this case, we do not have to give a final decision as to "In this case, we do not have to give a final decision as to "In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee ere is suppression of material facts by the assessee ere is suppression of material facts by the assessee or not. We have only to see whether there was prima facie or not. We have only to see whether there was prima facie or not. We have only to see whether there was prima facie some material on the basis of which the Department could some material on the basis of which the Department could some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material reopen the case. The sufficiency or correctness of the material reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view is not a thing to be con sidered at this stage. We are of the view

Jainam Investments 14 & CO 54/MUM/2025 & CO 54/MUM/2025 that the court cannot strike down the reopening of the case in that the court cannot strike down the reopening of the case in that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove the facts of this case. It will be open to the assessee to prove the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. that the assumption of facts made in the notice was erroneous. that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the The assessee may also p rove that no new facts came to the knowledge of the Income-tax Officer after completion of the knowledge of the Income tax Officer after completion of the assessment proceeding. We are not expressing any opinion on assessment proceeding. We are not expressing any opinion on assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left the merits of the case. The questions of fact and law are left the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points authority. The appellant will be entitled to take all the points authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. before the assessing authority. The appeals are dismissed. before the assessing authority. The appeals are dismissed. There will be no order as to costs." There will be no order as to costs."

"It is true that if the ITO had made some investigation, "It is true that if the ITO had made some investigation, "It is true that if the ITO had made some investigation, particularly if he had looked into the previous assessment particularly if he had looked into the previous assessment particularly if he had looked into the previous assessment records, he would have been able to find out what the written records, he would have been able to find out what the written records, he would have been able to find out what the written down value of the assets sold was and consequently he would down value of the assets sold was and conseq uently he would have been able to find out the price in excess of their written have been able to find out the price in excess of their written have been able to find out the price in excess of their written down value realized by the assessee. It can be said that the ITO down value realized by the assessee. It can be said that the ITO down value realized by the assessee. It can be said that the ITO if he had been diligent could have got all the necessary if he had been diligent could have got all the necessary if he had been diligent could have got all the necessary information from his records. But that is not the same information from his records. But that is not the same thing as information from his records. But that is not the same saying that the assessee had placed before the ITO truly and saying that the assessee had placed before the ITO truly and saying that the assessee had placed before the ITO truly and fully all material facts necessary for the purpose of assessment. fully all material facts necessary for the purpose of assessment. fully all material facts necessary for the purpose of assessment.

Jainam Investments 15 & CO 54/MUM/2025 & CO 54/MUM/2025

The law casts a duty on the assessee to 'disclose fully and truly The law casts a duty on the assessee to 'disclose fully and truly The law casts a duty on the assessee to 'disclose fully and truly all material facts necessary for his assessment for t all material facts necessary for his assessment for that year'". all material facts necessary for his assessment for t

Jainam Investments 16 & CO 54/MUM/2025 & CO 54/MUM/2025 7.1 The learned counsel for the assessee submitted, at the outset, The learned counsel for the assessee submitted, at the outset, The learned counsel for the assessee submitted, at the outset, that during the original scrutiny assessment completed under that during the original scrutiny assessment completed under that during the original scrutiny assessment completed under section 143(3) of the Act on 12.12.2018, the assessee had duly section 143(3) of the Act on 12.12.2018, the assessee had duly section 143(3) of the Act on 12.12.2018, the assessee had duly furnished all material particulars relating to its share and derivative furnished all material particulars relating to its share and derivative furnished all material particulars relating to its share and derivative transactions, including contract notes, demat statements, payment transactions, including contract notes, demat statements, p transactions, including contract notes, demat statements, p confirmations and broker confirmations and broker-wise bank statements. It was contended wise bank statements. It was contended that the assessee had made a full and true disclosure of all primary that the assessee had made a full and true disclosure of all primary that the assessee had made a full and true disclosure of all primary and material facts necessary for the assessment, and therefore, in and material facts necessary for the assessment, and therefore, in and material facts necessary for the assessment, and therefore, in the absence of any failure on its part, the juris the absence of any failure on its part, the jurisdictional condition dictional condition for invoking section 147 stood unfulfilled. The reopening, it was for invoking section 147 stood unfulfilled. The reopening, it was for invoking section 147 stood unfulfilled. The reopening, it was urged, is thus without sanction of law. urged, is thus without sanction of law.

The learned counsel further placed reliance upon the 7.2 The learned counsel further placed reliance upon the The learned counsel further placed reliance upon the judgment of the Hon’ble Supreme Court in judgment of the Hon’ble Supreme Court in ITO v. Lakhmani Mewal ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), to contend that where all primary 103 ITR 437 (SC), to contend that where all primary 103 ITR 437 (SC), to contend that where all primary facts were fully and truly disclosed at the time of the original facts were fully and truly disclosed at the time of the original facts were fully and truly disclosed at the time of the original assessment, any subsequent attempt by the Assessing Officer to assessment, any subsequent attempt by the Assessing Officer to assessment, any subsequent attempt by the Assessing Officer to draw a different inference from the same material would amount draw a different inference from the same material would amount draw a different inference from the same material would amount merely to a change of opinion. Such a re change of opinion. Such a re-appraisal, it was appraisal, it was submitted, cannot be made the basis for reopening a concluded submitted, cannot be made the basis for reopening a concluded submitted, cannot be made the basis for reopening a concluded assessment.

7.3 The learned counsel next submitted that the very foundation The learned counsel next submitted that the very foundation The learned counsel next submitted that the very foundation of the reopening was factually erroneous. Attention was invited to of the reopening was factually erroneous. Attention was invited to of the reopening was factually erroneous. Attention was invited to the reasons recorded, wherein it was alleged that the assessee had reasons recorded, wherein it was alleged that the assessee had reasons recorded, wherein it was alleged that the assessee had Jainam Investments 17 & CO 54/MUM/2025 & CO 54/MUM/2025 obtained an accommodation entry of obtained an accommodation entry of ₹45,500/– from Shri Naresh from Shri Naresh Jain. It was contended that the assessee had not purchased any of It was contended that the assessee had not purchased any of It was contended that the assessee had not purchased any of the securities alleged to have been manipulated by Shri Naresh Jain the securities alleged to have been manipulated by Shri Naresh Ja the securities alleged to have been manipulated by Shri Naresh Ja during the relevant year. The Assessing Officer, according to the during the relevant year. The Assessing Officer, according to the during the relevant year. The Assessing Officer, according to the learned counsel, had not undertaken any independent enquiry learned counsel, had not undertaken any independent enquiry learned counsel, had not undertaken any independent enquiry before issuing the notice under section 148, and had merely before issuing the notice under section 148, and had merely before issuing the notice under section 148, and had merely reproduced information provided by the Investigation Wing without reproduced information provided by the Investigation Wing without reproduced information provided by the Investigation Wing without any application of mind. Reliance in this regard was placed on the ny application of mind. Reliance in this regard was placed on the ny application of mind. Reliance in this regard was placed on the decision of the Hon’ble Gujarat High Court in decision of the Hon’ble Gujarat High Court in Sagar Enterprises v. Sagar Enterprises v. ACIT [2002] 257 ITR 335 (Guj), wherein it was held that reasons [2002] 257 ITR 335 (Guj), wherein it was held that reasons [2002] 257 ITR 335 (Guj), wherein it was held that reasons based on factually incorrect premises cannot confer jurisdiction to based on factually incorrect premises cannot confer jurisdi based on factually incorrect premises cannot confer jurisdi reopen an assessment. reopen an assessment.

7.4 The learned counsel further assailed the reasons recorded as The learned counsel further assailed the reasons recorded as The learned counsel further assailed the reasons recorded as vague, non-specific and inconclusive. It was submitted that the specific and inconclusive. It was submitted that the specific and inconclusive. It was submitted that the Assessing Officer had merely set out a list of twelve scrips and the Assessing Officer had merely set out a list of twelve scrips and the Assessing Officer had merely set out a list of twelve scrips and the modus operandi allegedly un modus operandi allegedly unearthed in the investigation pertaining earthed in the investigation pertaining to Shri Naresh Jain, without anywhere stating that the assessee to Shri Naresh Jain, without anywhere stating that the assessee to Shri Naresh Jain, without anywhere stating that the assessee had dealt in those scrips. Thus, the reasons were said to be based had dealt in those scrips. Thus, the reasons were said to be based had dealt in those scrips. Thus, the reasons were said to be based on investigation conducted in the case of an unrelated third party, on investigation conducted in the case of an unrelated third party, on investigation conducted in the case of an unrelated third party, rendering them inherently misleading and incapable of supporting herently misleading and incapable of supporting herently misleading and incapable of supporting the statutory formation of belief. The counsel emphasised that the statutory formation of belief. The counsel emphasised that the statutory formation of belief. The counsel emphasised that reliance placed by the Assessing Officer on the decision in Rakhi reliance placed by the Assessing Officer on the decision in reliance placed by the Assessing Officer on the decision in Trading Pvt. Ltd. (supra) was wholly misplaced, as the factual (supra) was wholly misplaced, as the factual (supra) was wholly misplaced, as the factual ase bore no nexus to the assessee’s transactions. matrix of that case bore no nexus to the assessee’s transactions. ase bore no nexus to the assessee’s transactions.

Jainam Investments 18 & CO 54/MUM/2025 & CO 54/MUM/2025 7.5 It was urged that the Assessing Officer had merely adopted the It was urged that the Assessing Officer had merely adopted the It was urged that the Assessing Officer had merely adopted the conclusions of the Investigation Wing in a mechanical manner, conclusions of the Investigation Wing in a mechanical manner, conclusions of the Investigation Wing in a mechanical manner, without independent application of mind, thereby rendering the without independent application of mind, thereby rendering the without independent application of mind, thereby rendering the reasons a mere “borrowed satisfaction.” The report of the “borrowed satisfaction.” The report of the “borrowed satisfaction.” The report of the Investigation Wing, it was submitted, was itself based only on Investigation Wing, it was submitted, was itself based only on Investigation Wing, it was submitted, was itself based only on exchange-level data and not on any enquiry with brokers, operators level data and not on any enquiry with brokers, operators level data and not on any enquiry with brokers, operators or counterparties alleged to be part of the purported scheme. No or counterparties alleged to be part of the purported scheme. No or counterparties alleged to be part of the purported scheme. No corroborative material, it was contended, had been furnished to the erial, it was contended, had been furnished to the erial, it was contended, had been furnished to the assessee assessee assessee to to to substantiate substantiate substantiate the the the allegations allegations allegations of of of pre-meditated pre pre transactions. According to the learned counsel, the entire reopening transactions. According to the learned counsel, the entire reopening transactions. According to the learned counsel, the entire reopening rested on unverified and undifferentiated data, and the Department rested on unverified and undifferentiated data, and the Department rested on unverified and undifferentiated data, and the Department had brought no material on record to demonstrate any actual no material on record to demonstrate any actual no material on record to demonstrate any actual collusion. Hence, the issuance of notice under section 148 was collusion. Hence, the issuance of notice under section 148 was collusion. Hence, the issuance of notice under section 148 was contended to be arbitrary and legally unsustainable. contended to be arbitrary and legally unsustainable. contended to be arbitrary and legally unsustainable.

7.6 Per contra, the learned Departmental Representative supported , the learned Departmental Representative supported , the learned Departmental Representative supported the order of the learned the order of the learned CIT(A) and contended that the reopening in CIT(A) and contended that the reopening in the present case had been initiated within four years from the end the present case had been initiated within four years from the end the present case had been initiated within four years from the end of the relevant assessment year. Consequently, the first proviso to of the relevant assessment year. Consequently, the first proviso to of the relevant assessment year. Consequently, the first proviso to section 147—requiring a failure on the part of the assessee to make requiring a failure on the part of the assessee to make requiring a failure on the part of the assessee to make a full and true disclosure of all material facts true disclosure of all material facts—had no application to had no application to the facts of the case. It was submitted that the reassessment was the facts of the case. It was submitted that the reassessment was the facts of the case. It was submitted that the reassessment was founded upon specific and tangible information received from the founded upon specific and tangible information received from the founded upon specific and tangible information received from the Investigation Wing, Mumbai, pursuant to extensive enquiries Investigation Wing, Mumbai, pursuant to extensive enquiries Investigation Wing, Mumbai, pursuant to extensive enquiries carried out in respect of transactions on the Bombay Stock ied out in respect of transactions on the Bombay Stock ied out in respect of transactions on the Bombay Stock

Jainam Investments 19 & CO 54/MUM/2025 & CO 54/MUM/2025 Exchange. The learned DR argued that the Assessing Officer had Exchange. The learned DR argued that the Assessing Officer had Exchange. The learned DR argued that the Assessing Officer had not revisited any issue previously examined in the original not revisited any issue previously examined in the original not revisited any issue previously examined in the original assessment, assessment, assessment, and and and therefore, therefore, therefore, the the the reopening reopening reopening could could could not not not be be be characterised as a mere characterised as a mere change of opinion.

8.1 The assessee’s next submission is that t The assessee’s next submission is that the reassessment is he reassessment is vitiated by a mere change of opinion. We find no merit in this vitiated by a mere change of opinion. We find no merit in this vitiated by a mere change of opinion. We find no merit in this contention. The reopening has been triggered on the basis of contention. The reopening has been triggered on the basis of contention. The reopening has been triggered on the basis of Jainam Investments 20 & CO 54/MUM/2025 & CO 54/MUM/2025 specific information received from the Investigation Wing of the specific information received from the Investigation Wing of the specific information received from the Investigation Wing of the Department, which had undertaken an extensive enquiry into Department, which had undertaken an extensive en Department, which had undertaken an extensive en transactions in illiquid stock options on the Bombay Stock transactions in illiquid stock options on the Bombay Stock transactions in illiquid stock options on the Bombay Stock Exchange. The formation of belief by the Assessing Officer was, Exchange. The formation of belief by the Assessing Officer was, Exchange. The formation of belief by the Assessing Officer was, therefore, not based on a re therefore, not based on a re-examination of material already on examination of material already on record, but on tangible information coming into his possession record, but on tangible information coming into his posses record, but on tangible information coming into his posses subsequent to the original assessment. The doctrine of change of subsequent to the original assessment. The doctrine of change of subsequent to the original assessment. The doctrine of change of opinion is thus wholly inapplicable. opinion is thus wholly inapplicable.

8.2 The assessee has further urged that the reopening rests on The assessee has further urged that the reopening rests on The assessee has further urged that the reopening rests on factually incorrect premises, particularly the reference to an factually incorrect premises, particularly the reference to an factually incorrect premises, particularly the reference to an accommodation entry all accommodation entry allegedly obtained from Shri Naresh Jain. On egedly obtained from Shri Naresh Jain. On a careful perusal of the reasons recorded, we find that the a careful perusal of the reasons recorded, we find that the a careful perusal of the reasons recorded, we find that the Assessing Officer has adverted to specific transactions in shares of Assessing Officer has adverted to specific transactions in shares of Assessing Officer has adverted to specific transactions in shares of Divine Multimedia Ltd. / Kaleidoscopic Films Ltd., the sale of which Divine Multimedia Ltd. / Kaleidoscopic Films Ltd., the sale of which Divine Multimedia Ltd. / Kaleidoscopic Films Ltd., the sale of which stands reflected in the assessee’s own books. The reasons, in the assessee’s own books. The reasons, in the assessee’s own books. The reasons, therefore, cannot be characterised as having been founded on a therefore, cannot be characterised as having been founded on a therefore, cannot be characterised as having been founded on a factual error so fundamental as to vitiate the assumption of factual error so fundamental as to vitiate the assumption of factual error so fundamental as to vitiate the assumption of jurisdiction.

8.3 The allegation that the reasons recorded were vague or non The allegation that the reasons recorded were vague or non The allegation that the reasons recorded were vague or non- conclusive also does not impress us. At the stage of recording conclusive also does not impress us. At the stage of recording conclusive also does not impress us. At the stage of recording reasons to believe, the Assessing Officer is not required to establish reasons to believe, the Assessing Officer is not required to establish reasons to believe, the Assessing Officer is not required to establish escapement of income to the point of conclusion; it is sufficient that escapement of income to the point of conclusion; it is sufficie escapement of income to the point of conclusion; it is sufficie there exists relevant and intelligible material from which a there exists relevant and intelligible material from which a there exists relevant and intelligible material from which a Jainam Investments 21 & CO 54/MUM/2025 & CO 54/MUM/2025 reasonable person could form such a belief. The information reasonable person could form such a belief. The information reasonable person could form such a belief. The information furnished by the Investigation Wing specifically pertained to expiry- furnished by the Investigation Wing specifically pertained to expiry furnished by the Investigation Wing specifically pertained to expiry day trades in illiquid stock options undertaken by, inter alia, the day trades in illiquid stock options undertaken by, inter day trades in illiquid stock options undertaken by, inter assessee, and cannot be said to be either vague or extraneous. assessee, and cannot be said to be either vague or extraneous. assessee, and cannot be said to be either vague or extraneous.

8.4 The submission that the Assessing Officer acted without The submission that the Assessing Officer acted without The submission that the Assessing Officer acted without application of mind is equally unfounded. The record demonstrates application of mind is equally unfounded. The record demonstrates application of mind is equally unfounded. The record demonstrates that the Assessing Officer examined the information received, found that the Assessing Officer examined the information rece that the Assessing Officer examined the information rece it germane to the assessee’s transactions, and thereafter formed the it germane to the assessee’s transactions, and thereafter formed the it germane to the assessee’s transactions, and thereafter formed the belief that income had escaped assessment. The process adopted belief that income had escaped assessment. The process adopted belief that income had escaped assessment. The process adopted conforms to the statutory requirement. conforms to the statutory requirement.

8.5 The further contention that no fresh material had come to the The further contention that no fresh material had come to the The further contention that no fresh material had come to the possession of the Assessing Officer is factually untenable. The ion of the Assessing Officer is factually untenable. The ion of the Assessing Officer is factually untenable. The report of the Investigation Wing, based on a systematic analysis of report of the Investigation Wing, based on a systematic analysis of report of the Investigation Wing, based on a systematic analysis of exchange-level data and identifying patterns of synchronized and level data and identifying patterns of synchronized and level data and identifying patterns of synchronized and pre-meditated trading involving multiple entities including the meditated trading involving multiple entities including the meditated trading involving multiple entities including the assessee, constituted fresh and tangible material sufficient to sessee, constituted fresh and tangible material sufficient to sessee, constituted fresh and tangible material sufficient to trigger the jurisdiction under section 147. trigger the jurisdiction under section 147.

8.6 In light of the foregoing discussion, we find no infirmity in the In light of the foregoing discussion, we find no infirmity in the In light of the foregoing discussion, we find no infirmity in the assumption of jurisdiction by the Assessing Officer. We accordingly assumption of jurisdiction by the Assessing Officer. We accordingly assumption of jurisdiction by the Assessing Officer. We accordingly uphold the order of the learned CIT(A) on this issue. The grounds rder of the learned CIT(A) on this issue. The grounds rder of the learned CIT(A) on this issue. The grounds raised by the assessee challenging the validity of the reassessment raised by the assessee challenging the validity of the reassessment raised by the assessee challenging the validity of the reassessment are, therefore, dismissed. are, therefore, dismissed.

Jainam Investments 22 & CO 54/MUM/2025 & CO 54/MUM/2025

“18. I have considered the assessment order, submission of the I have considered the assessment order, submission of the I have considered the assessment order, submission of the appellant and facts available on record. In the assessment order, appellant and facts available on record. In the assessment order, the AO has discussed the details of findings of Project Falcon the AO has discussed the details of findings of Project Falcon the AO has discussed the details of findings of Project Falcon carried out by the Investigation Directorate, Mumbai, regarding the carried out by the Investigation Directorate, Mumbai, regarding the carried out by the Investigation Directorate, Mumbai, regarding the claim of fictitious losses due to coordinated and predetermined claim of fictitious losses due to coordinated and predetermined claim of fictitious losses due to coordinated and predetermined trading in illiquid stock options. The AO found that the appellant trading in illiquid stock options. T he AO found that the appellant has carried out such manipulative trading in the equity derivative has carried out such manipulative trading in the equity derivative has carried out such manipulative trading in the equity derivative segment. The observation of the AO is summarized as under: segment. The observation of the AO is summarized as under: segment. The observation of the AO is summarized as under:

1. 1. The assessee is booking losses in all the transactions by The assessee is booking losses in all the transactions by The assessee is booking losses in all the transactions by virtue of expiry trades getting expired. virtue of expiry trades getting expired.

2. Almost 90% of the total trades are bearing zero trade age. It Almost 90% of the total trades are bearing zero trade age. It Almost 90% of the total trades are bearing zero trade age. It means the assesse is buying the various illiquid derivatives mostly means the assesse is buying the various illiquid derivatives mostly means the assesse is buying the various illiquid derivatives mostly on the day when they were supposed to be expired. on the day when they were supposed to be expired.

3. All the counterparties are continuously booking profits All the counterparties are continuously booking profits All the counterparties are continuously booking profits through trades executed with the assesse, resulting in continuous through trades execu ted with the assesse, resulting in continuous loss to the assessee company. loss to the assessee company.

4. The assessee has purchased derivatives which were highly The assessee has purchased derivatives which were highly The assessee has purchased derivatives which were highly illiquid at the time of trading. The assesse traded in 1.80 lakh illiquid at the time of trading. The assesse traded in 1.80 lakh illiquid at the time of trading. The assesse traded in 1.80 lakh quantities in series code name “JSWEA8P75” on 06.08.2015, quantities in series code name “JSWEA8P75” on 06.08.2015, which quantities in series code name “JSWEA8P75” on 06.08.2015, was highly illiquid. was highly illiquid.

5. The assesse company has done a total of 17 different trades The assesse company has done a total of 17 different trades The assesse company has done a total of 17 different trades with 1 counterparty, i.e., M/s JRM Securities Finance Private Ltd. with 1 counterparty, i.e., M/s JRM Securities Finance Private Ltd. with 1 counterparty, i.e., M/s JRM Securities Finance Private Ltd. The AO concluded that all these transactions are make The AO concluded that all these transactions are make-believe The AO concluded that all these transactions are make transactions. Therefore, the loss incurr Therefore, the loss incurred from such transactions of ed from such transactions of Rs. 1,96,04,400/- is held as bogus, and the same is disallowed. is held as bogus, and the same is disallowed. The AO also added commission paid @2% on this transaction of The AO also added commission paid @2% on this transaction of Rs. The AO also added commission paid @2% on this transaction of 1,69,04, 400/-.Accordingly, the AO made an addition of .Accordingly, the AO made an addition of .Accordingly, the AO made an addition of Rs. 3,92,088/-.

Jainam Investments 23 & CO 54/MUM/2025 & CO 54/MUM/2025

Jainam Investments 24 & CO 54/MUM/2025 & CO 54/MUM/2025

19.3 The appellant has also contended that each transaction in The appellant has also contended that each transaction in The appellant has also contended that each transaction in shares are supported by copies of contract notes of stock broker shares are supported by copies of contract notes of stock broker shares are supported by copies of contract notes of stock broker evidencing transactions through BSE & NSE with payment of evidencing transactions through BSE & NSE with payment of evidencing transactions through BSE & NSE with payment of Securities Transaction Tax (STT) and margin money as per rules of Securities Transaction Tax (STT) and margin mon ey as per rules of Stock Exchange and SEBI. All the transactions in delivery based Stock Exchange and SEBI. All the transactions in delivery based Stock Exchange and SEBI. All the transactions in delivery based shares were received in the Demat account and transferred through shares were received in the Demat account and transferred through shares were received in the Demat account and transferred through the Demat account of the Appellant and all payments/receipts with the Demat account of the Appellant and all payments/receipts with the Demat account of the Appellant and all payments/receipts with the brokers are through proper banking channels and are reflected the brokers are through proper banking ch annels and are reflected in the bank statements of the appellant. in the bank statements of the appellant. 19.4 Each contract cum bill of the Appellant has a unique contract Each contract cum bill of the Appellant has a unique contract Each contract cum bill of the Appellant has a unique contract number, settlement number, trade date, pay in date and pay out settlement number, trade date, pay in date and pay out settlement number, trade date, pay in date and pay out date. Further, each trade of the Appellant has a unique date. Further, each trade of the Appellant has a unique order no, order time, trade no, and trade time. All STT, Stamp Duty, Service order time, trade no, and trade time. All STT, Stamp Duty, Service Tax and other charges in respect of each transaction is paid Tax and other charges in respect of each transaction is paid and is Tax and other charges in respect of each transaction is paid

Jainam Investments 25 & CO 54/MUM/2025 & CO 54/MUM/2025 reflected in all the contracts cum bills. The appellant has paid reflected in all the contracts cum bills. The appellant has paid reflected in all the contracts cum bills. The appellant has paid margin money on each contract executed in futu on each contract executed in futures and options as res and options as per requirement of SEBI. per requirement of SEBI. 19.5 Further, in its submissions made during the appellate Further, in its submissions made during the appellate Further, in its submissions made during the appellate proceedings the appellant has placed its reliance on the several appellant has placed its reliance on the several appellant has placed its reliance on the several judgments of Hon’ble Mumbai Benches of the ITAT in which the judgments of Hon’ble Mumbai Benches of the ITAT in which the Hon’ble Bench have decided the issue in favour of the assessee in Hon’ble Bench have decided the assessee in similar transactions in the alleged penny stocks in which the similar transactions in the alleged penny stocks in which the similar transactions in the alleged penny stocks in which the additions were made on the reports of the Directorate of additions were made on the reports of the Directorate of additions were made on the reports of the Directorate of Investigations and orders of the SEBI. Investigations and orders of 20. On perusal of the profit and loss account for the AY un On perusal of the profit and loss account for the AY un On perusal of the profit and loss account for the AY under consideration, it is seen that the appellant has shown revenue of consideration, it is seen that the appellant has shown revenue of consideration, it is seen that the appellant has shown revenue of Rs. 25,35,10,605/ 25,35,10,605/- from the activity of trading of shares. It has also from the activity of trading of shares. It has also shown dividend income of Rs. 4,60,700/- and closing stock of shown dividend income of and closing stock of shares of Rs. 1,55,10,586/ 1,55,10,586/-. The appellant has shown speculative . The appellant has shown speculative loss of Rs. 15,197/ 15,197/- and loss from future and option trading of and loss from future and option trading of Rs. 1,20,14,502/-. On perusal of scrip . On perusal of scrip-wise details of future and option wise details of future and option trading, it is observed that during the year under consideration, th trading, it is observed that during the year under consideration, the trading, it is observed that during the year under consideration, th appellant has shown trading in around 34 scrips and has shown a appellant has shown trading in around 34 scrips and has shown a appellant has shown trading in around 34 scrips and has shown a cumulative loss of Rs. 1,20,14,502/-. The appellant has also shown cumulative loss of . The appellant has also shown profit from trading in some scrips. profit from trading in some scrips.

Jainam Investments 26 & CO 54/MUM/2025 & CO 54/MUM/2025

Year No. No. of of Shares Shares losses losses 1 11,50,557 disallowed by the Ld. AO disallowed by the Ld. AO

Sr. Nature of Trading Nature of Trading Amount in No crores 1. F&O Sale F&O Sale 56.57 2. F &O Purchase F &O Purchase 57.77 3. Amount disallowed by the Ld. AO Amount disallowed by the Ld. AO 1.96

investigation carried on by the investigation agencies and he did not eventually make investigation carried on by the investigation agencies and he did not eventually make investigation carried on by the investigation agencies and he did not eventually make any investigation on the various documents submitted before him, merely because any investigation on the various documents submitted before him, merely because any investigation on the various documents submitted before him, merely because assessee has dealt with suspected scrips, therefore he has proceeded to make the assessee has dealt with suspected sc rips, therefore he has proceeded to make the disallowance. We observe from the record that assessee has purchased and sold these disallowance. We observe from the record that assessee has purchased and sold these disallowance. We observe from the record that assessee has purchased and sold these shares through recognized stock exchange and authorised brokers and nowhere it is shares through recognized stock exchange and authorised brokers and nowhere it is shares through recognized stock exchange and authorised brokers and nowhere it is brought on record that assessee is one of the party involved in the entry provider or brought on record that assessee is one of the party involved in the entry provider or involved in manipulating the prices or it is proved that assessee is one of the exit involved in manipulating the prices or it is proved that assessee is one of the exit involved in manipulating the prices or it is proved that assessee is one of the exit provider. It is fact on record that all the scrips in which assessee has dealt with were provider. It is fact on record that all the scrips in which assessee has dealt with were provider. It is fact on record that all the scrips in which assessee has dealt with were already proved to be a non penny stock based on the various decisions of the various already proved to be a non penny stock ba sed on the various decisions of the various Hon'ble High Courts and Tribunal benches. Apart from that, we observe that assessee is Hon'ble High Courts and Tribunal benches. Apart from that, we observe that assessee is Hon'ble High Courts and Tribunal benches. Apart from that, we observe that assessee is a regular trader in various scrips and particularly in this year assessee has dealt with a regular trader in various scrips and particularly in this year assessee has dealt with a regular trader in various scrips and particularly in this year assessee has dealt with more than 150 scrips and the transactions of the assessee in trading of shares having more than 150 scrips and the transac tions of the assessee in trading of shares having turnover of more than ₹.528.9 crores and also having substantial dividend and turnover of more than ₹.528.9 crores and also having substantial dividend and speculation income during this year. This proves to show that assessee is a regular speculation income during this year. This proves to show that assessee is a regular speculation income during this year. This proves to show that assessee is a regular investor and may be assessee has dealt with suspected scrip merely on the basis of investor and may be assessee has dealt with suspected scrip merely on the basis of movement of share prices and there is nothing on record to prove that assessee has movement of share prices and there is nothing on record to prove that assessee has movement of share prices and there is nothing on record to prove that assessee has anywhere involved in any types of irregularities. Therefore, we do not find any reason anywhere involved in any types of irregularities. Therefore, we do not find any reason anywhere involved in any types of irregularities. Therefore, we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the to interfere with the findings of the Ld.CIT(A) . Accordingly, ground raised by the revenue is dismissed.

12. In the result, appeal filed by the Revenue is dismissed.”

12. In the result, appeal filed by the Revenue is dismissed.

26. On the identical issue of losses incurred from trading in illiquid On the identical issue of losses incurred from trading in illiquid On the identical issue of losses incurred from trading in illiquid options, the Hon’ble ITAT “D” Bench (Delhi) in case of M/s Hon’ble ITAT “D” Bench (Delhi) in case of M/s Hon’ble ITAT “D” Bench (Delhi) in case of M/s Kundan Rice Mills Vs ACIT (ITA NO 853/DEL/2020) vide order Kundan Rice Mills Vs ACIT NO 853/DEL/2020) vide order dated 09.07.2020 has held as under: dated 09.07.2020 has held as under: “14.6 The issue in appeal regarding violation of provisions of SEBI issue in appeal regarding violation of provisions of SEBI issue in appeal regarding violation of provisions of SEBI Rule was decided based on the facts and circumstances available decided based on the facts and circumstances available decided based on the facts and circumstances available on record and intention of the parties and ultimately the issue with on record and intention of e parties and ultimately the issue with regard to avoidance of payment of tax and act of tax planning was regard to avoidance of payment of tax and act of tax planning was not adjudicated because the Adjudicating Officer has not gone not adjudicated because the Adjudicating Officer has not gone into not adjudicated because the Adjudicating Officer has not gone this aspect. However, in the present case, the A.O./Ld. CIT(A) have this aspect. However, in the present case, the A.O./Ld. CIT(A) have this aspect. However, in the present case, the A.O./Ld. CIT(A) have not gone into the facts and material evidence on record and merely the facts and material evidence on record and merely the facts and material evidence on record and merely referring to the interim order of the SEBI and subsequent order have referring to the interim order of the SEBI and subsequent order have decided the issue against the assessee. Since in the case of Rakhi decided the issue against the assessee. Since in the case of Rakhi Trading Pvt. Ltd., (supra), the issue under Income Tax Act was Trading Pvt. Ltd., (supra), the issue under Income Tax Act was also Trading Pvt. Ltd., (supra), the issue under Income Tax Act was not adjudicated upon, therefore, in our humble opinion the decision not adjudicated upon, therefore, in our humble opinion the decision not adjudicated upon, therefore, in our humble opinion the decision

Jainam Investments 29 & CO 54/MUM/2025 & CO 54/MUM/2025 in the case of Rakhi Trading Pvt. Ltd., (supra), would not support Rakhi Trading Pvt. Ltd., (supra), would not support Rakhi Trading Pvt. Ltd., (supra), would not support the case of Revenue. the case of Revenue. 14.7. Considering the totality of the facts and circumstances of the 14.7. Considering the totality of the facts and circumstances of the 14.7. Considering the totality of the facts and circumstances of the case in the light of material/evidences available on record and in case in the light of evidences available on record and in the absence of any investigation carried-out by the authorities the absence of any investigation out by the authorities below, we are of the view that assessee has been able below, we are of the view that assessee has been able to establish below, we are of the view that assessee has been able that assessee company has suffered genuine business loss as had that assessee company has suffered genuine business loss as had that assessee company has suffered genuine business loss as had also been suffered in ea been suffered in earlier years, therefore, authorities below years, therefore, authorities below should not have disallowed the same against the assessee. In view should not have disallowed the same against the assessee. In view of the above findings, we set aside the Orders of the authorities of the above findings, we set aside the Orders of the authorities below and delete the entire addition. In the result, Ground below and delete the entire addition. In the result, Ground No.1 of the appeal of Assessee is allowed.” Assessee is allowed.” The Hon’ble Tribunal has held that the loss shown from The Hon’ble Tribunal has held that the loss shown from The Hon’ble Tribunal has held that the loss shown from trading in illiquid options as genuine loss as there is no trading in illiquid options as genuine loss as there is no adverse material against the assesse. adverse material against the assesse.

Jainam Investments 30 & CO 54/MUM/2025 & CO 54/MUM/2025 the commission estimated to be paid in cash @ 2% of Rs 3,92,088 the commission estimated to be paid in cash @ 2% of Rs 3,92,088 on this transaction will also not survive. Accordingly, on this transaction will also not survive. Accordingly, this addition on this transaction will also not survive. Accordingly, of Rs 3,92,088 is also deleted. Appeal on these grounds is thus of Rs 3,92,088 is also deleted. Appeal on these grounds is thus of Rs 3,92,088 is also deleted. Appeal on these grounds is thus ALLOWED.” 9.1 Aggrieved by the order of the learned CIT(A), the Revenue has Aggrieved by the order of the learned CIT(A), the Revenue has Aggrieved by the order of the learned CIT(A), the Revenue has preferred the present appeal before the Tribunal. The principal preferred the present appeal before the Tribunal. The principal preferred the present appeal before the Tribunal. The principal grievance urged in the grounds of appeal is that the learned CIT(A) grievance urged in the grounds of appeal is that the learned CIT(A) grievance urged in the grounds of appeal is that the learned CIT(A) erred in (i) deleting the disallowance of losses claimed by th deleting the disallowance of losses claimed by the deleting the disallowance of losses claimed by th assessee in respect of its BSE derivative transactions and (ii) in the assessee in respect of its BSE derivative transactions and assessee in respect of its BSE derivative transactions and scrip of Divine Multimedia Limited, without duly appreciating the scrip of Divine Multimedia Limited, without duly appreciating the scrip of Divine Multimedia Limited, without duly appreciating the material unearthed by the Investigation Wing, Mumbai, in relation material unearthed by the Investigation Wing, Mumbai, in relation material unearthed by the Investigation Wing, Mumbai, in relation to synchronised trades in illiquid stock options an to synchronised trades in illiquid stock options and reversal trades d reversal trades executed within a closed group of entities. executed within a closed group of entities.

9.2 As far as losses on derivative transactions alleged to in losses on derivative transactions alleged to in losses on derivative transactions alleged to in illiquid stock, the he he learned learned learned Departmental Departmental Departmental Representative, Representative, Representative, supporting the assessment order, placed strong reliance on the supporting the assessment order, placed strong reliance on the supporting the assessment order, placed strong reliance on the findings of the Investigation Wing which formed an integral part of the Investigation Wing which formed an integral part of the Investigation Wing which formed an integral part of the Assessing Officer’s reasoning. It was submitted that the the Assessing Officer’s reasoning. It was submitted that the the Assessing Officer’s reasoning. It was submitted that the assessee was a participant in trades involving highly illiquid stock assessee was a participant in trades involving highly illiquid stock assessee was a participant in trades involving highly illiquid stock options, all of which were executed within a narrow window of zero options, all of which were executed within a narrow window of zero options, all of which were executed within a narrow window of zero to two days, with the sole object of generating artificial losses for the two days, with the sole object of generating artificial losses for the two days, with the sole object of generating artificial losses for the purposes of setting off genuine gains. According to the learned DR, purposes of setting off genuine gains. According to the learned DR, purposes of setting off genuine gains. According to the learned DR, such losses were merely a device to evade legitimate tax liability. such losses were merely a device to evade legitimate tax liability. such losses were merely a device to evade legitimate tax liability.

Jainam Investments 31 & CO 54/MUM/2025 & CO 54/MUM/2025 9.3 The learned DR further contended that the Ass The learned DR further contended that the Ass The learned DR further contended that the Assessing Officer on the basis of the investigation conducted under “Project Falcon,” on the basis of the investigation conducted under “Project Falcon,” on the basis of the investigation conducted under “Project Falcon,” clearly identified the assessee as a beneficiary of fictitious losses in clearly identified the assessee as a beneficiary of fictitious losses in clearly identified the assessee as a beneficiary of fictitious losses in the guise of long-term and short term and short-term capital transactions. It was term capital transactions. It was argued that the findings recorded argued that the findings recorded by the learned CIT(A) were by the learned CIT(A) were contrary to the material on record and failed to accord due weight contrary to the material on record and failed to accord due weight contrary to the material on record and failed to accord due weight to the investigation report which demonstrated clear instances of to the investigation report which demonstrated clear instances of to the investigation report which demonstrated clear instances of pre-arranged and manipulated trades. arranged and manipulated trades.

9.4 On the other hand, the learned counsel for the assesse On the other hand, the learned counsel for the assesse On the other hand, the learned counsel for the assessee submitted that the assessee has been engaged, for more than a submitted that the assessee has been engaged, for more than a submitted that the assessee has been engaged, for more than a decade, in the regular business of trading in shares and derivatives decade, in the regular business of trading in shares and derivatives decade, in the regular business of trading in shares and derivatives and that the transactions under scrutiny constitute a routine and that the transactions under scrutiny constitute a routine and that the transactions under scrutiny constitute a routine component of such business activity. The assessee placed on record component of such business activity. The assessee placed on r component of such business activity. The assessee placed on r a paper book comprising pages 1 to 97 containing all primary a paper book comprising pages 1 to 97 containing all primary a paper book comprising pages 1 to 97 containing all primary evidences, including contract notes, broker ledger, bank statements evidences, including contract notes, broker ledger, bank statements evidences, including contract notes, broker ledger, bank statements and complete F&O transaction details. and complete F&O transaction details.

9.5 The learned counsel submitted that the assessee had The learned counsel submitted that the assessee had The learned counsel submitted that the assessee had undertaken only three optio undertaken only three option-trade transactions during the relevant trade transactions during the relevant previous year, on 04.06.2015, 10.06.2015 and 06.08.2015, all of previous year, on 04.06.2015, 10.06.2015 and 06.08.2015, all of previous year, on 04.06.2015, 10.06.2015 and 06.08.2015, all of which were executed on the screen which were executed on the screen-based, anonymous trading based, anonymous trading system of a recognised stock exchange through duly registered system of a recognised stock exchange through duly registered system of a recognised stock exchange through duly registered brokers. It was emphasised tha brokers. It was emphasised that the magnitude of these trades was t the magnitude of these trades was insignificant when viewed against the backdrop of the assessee’s insignificant when viewed against the backdrop of the assessee’s insignificant when viewed against the backdrop of the assessee’s

Jainam Investments 32 & CO 54/MUM/2025 & CO 54/MUM/2025 overall trading volume and that all transactions were duly reflected overall trading volume and that all transactions were duly reflected overall trading volume and that all transactions were duly reflected in the audited financial statements. in the audited financial statements.

9.6 Explaining the nature of the trades, it was s Explaining the nature of the trades, it was submitted that the ubmitted that the assessee had entered into expiry assessee had entered into expiry-week options where premiums are week options where premiums are typically low due to time decay and the accelerated volatility typically low due to time decay and the accelerated volatility typically low due to time decay and the accelerated volatility prevailing near expiry. Such trades, according to the counsel, are a prevailing near expiry. Such trades, according to the counsel, are a prevailing near expiry. Such trades, according to the counsel, are a legitimate and recognised feature of deri legitimate and recognised feature of derivative markets, and the vative markets, and the premiums paid by the assessee represented the sole cost of premiums paid by the assessee represented the sole cost of premiums paid by the assessee represented the sole cost of acquiring a contractual right contingent on the underlying scrip acquiring a contractual right contingent on the underlying scrip acquiring a contractual right contingent on the underlying scrip moving favourably. It was further submitted that the assessee had moving favourably. It was further submitted that the assessee had moving favourably. It was further submitted that the assessee had dealt in multiple scrips and at multiple s dealt in multiple scrips and at multiple strike prices, all of which trike prices, all of which were duly listed on the BSE and within the exchange-prescribed were duly listed on the BSE and within the exchange were duly listed on the BSE and within the exchange ranges. No trade was in breach of SEBI regulations. ranges. No trade was in breach of SEBI regulations.

9.7The learned counsel emphasised that the allegation of fictitious 9.7The learned counsel emphasised that the allegation of fictitious 9.7The learned counsel emphasised that the allegation of fictitious loss is misconceived, as the assessee had mere loss is misconceived, as the assessee had merely purchased options ly purchased options which eventually expired worthless. There were no corresponding which eventually expired worthless. There were no corresponding which eventually expired worthless. There were no corresponding sale transactions, and hence none of the characteristics commonly sale transactions, and hence none of the characteristics commonly sale transactions, and hence none of the characteristics commonly associated with pre associated with pre-arranged or manipulated trades arranged or manipulated trades—such as matching purchase and sale quantities, circula matching purchase and sale quantities, circular trading, inflated r trading, inflated entry prices or depressed exit prices entry prices or depressed exit prices—arose in the present case. arose in the present case.

9.8 It was submitted that option pricing is governed by recognised It was submitted that option pricing is governed by recognised It was submitted that option pricing is governed by recognised market variables such as volatility, demand market variables such as volatility, demand–supply, time value and supply, time value and Jainam Investments 33 & CO 54/MUM/2025 & CO 54/MUM/2025 the comparative movement of the under the comparative movement of the underlying scrip. No statutory or lying scrip. No statutory or regulatory prescription mandates that options must trade at regulatory prescription mandates that options must trade at regulatory prescription mandates that options must trade at intrinsic value. The premise adopted by the Assessing Officer, thus, intrinsic value. The premise adopted by the Assessing Officer, thus, intrinsic value. The premise adopted by the Assessing Officer, thus, was contrary to both market practice and regulatory norms. was contrary to both market practice and regulatory norms. was contrary to both market practice and regulatory norms.

9.9 The learned counsel also submitted The learned counsel also submitted that the assessee has no that the assessee has no relationship, direct or indirect, with the alleged counterparties relationship, direct or indirect, with the alleged counterparties relationship, direct or indirect, with the alleged counterparties mentioned in the assessment order. Under the electronic, screen- mentioned in the assessment order. Under the electronic, screen mentioned in the assessment order. Under the electronic, screen based mechanism, orders are matched automatically on price–time based mechanism, orders are matched automatically on price based mechanism, orders are matched automatically on price priority, rendering it impossible for priority, rendering it impossible for either participant to know the either participant to know the counter-party or selectively transact with any identified entity. party or selectively transact with any identified entity. party or selectively transact with any identified entity. There is no complaint from any investor, no adverse remark from There is no complaint from any investor, no adverse remark from There is no complaint from any investor, no adverse remark from the BSE, and SEBI has neither raised any query nor initiated any the BSE, and SEBI has neither raised any query nor initiated any the BSE, and SEBI has neither raised any query nor initiated any regulatory action against the regulatory action against the assessee or its brokers. The data assessee or its brokers. The data extracted by the Assessing Officer from BSE records, it was extracted by the Assessing Officer from BSE records, it was extracted by the Assessing Officer from BSE records, it was contended, was applied mechanically and without any correlation to contended, was applied mechanically and without any correlation to contended, was applied mechanically and without any correlation to the assessee’s actual trades. the assessee’s actual trades.

9.10 The assessee also referred to the detailed submissions The assessee also referred to the detailed submissions The assessee also referred to the detailed submissions furnished before the Assessing Officer vide letters dated 15.03.2022 ished before the Assessing Officer vide letters dated 15.03.2022 ished before the Assessing Officer vide letters dated 15.03.2022 and 17.03.2022, wherein each allegation regarding the genuineness and 17.03.2022, wherein each allegation regarding the genuineness and 17.03.2022, wherein each allegation regarding the genuineness of trades was addressed point of trades was addressed point-by-point. It was urged that once point. It was urged that once primary evidences— —namely contract notes, broker ledger, bank namely contract notes, broker ledger, bank statements and F&O statements tatements and F&O statements—were produced, the initial onus were produced, the initial onus placed on the assessee stood satisfied. Thereafter, the burden placed on the assessee stood satisfied. Thereafter, the burden placed on the assessee stood satisfied. Thereafter, the burden

Jainam Investments 34 & CO 54/MUM/2025 & CO 54/MUM/2025 shifted upon the Revenue to establish, with substantive material, shifted upon the Revenue to establish, with substantive material, shifted upon the Revenue to establish, with substantive material, that the transactions were sham. The Assessing Officer, however, that the transactions were sham. The Assessing Officer, however, that the transactions were sham. The Assessing Officer, however, proceeded to summarily reject the explanation without any roceeded to summarily reject the explanation without any roceeded to summarily reject the explanation without any independent enquiry, contrary to the settled law that suspicion independent enquiry, contrary to the settled law that suspicion independent enquiry, contrary to the settled law that suspicion cannot take the place of proof. cannot take the place of proof.

9.11 The learned counsel then dealt with the reliance placed by the The learned counsel then dealt with the reliance placed by the The learned counsel then dealt with the reliance placed by the Assessing Officer on the judgment o Assessing Officer on the judgment of the Hon’ble Supreme Court in f the Hon’ble Supreme Court in Rakhi Trading Pvt. Ltd.(supra). It was submitted that the facts of It was submitted that the facts of Rakhi Trading Pvt. Ltd. that case—such as identical buy such as identical buy-sell quantities, trades squared off sell quantities, trades squared off within seconds, repetitive dealing with the same counter-parties, within seconds, repetitive dealing with the same counter within seconds, repetitive dealing with the same counter abnormal disparity betw abnormal disparity between option price and underlying price een option price and underlying price movement, and concentrated volume in illiquid scrips—are entirely movement, and concentrated volume in illiquid scrips movement, and concentrated volume in illiquid scrips absent here. The assessee had only purchased options, had not absent here. The assessee had only purchased options, had not absent here. The assessee had only purchased options, had not executed any sale transactions, did not engage with any known executed any sale transactions, did not engage with any known executed any sale transactions, did not engage with any known counter-party, and its trade party, and its trades constituted no significant portion of s constituted no significant portion of market volume. It was submitted that It was submitted that the decision in he decision in Rakhi Trading (supra), cannot be applied mechanically divorced from its factual , cannot be applied mechanically divorced from its factual , cannot be applied mechanically divorced from its factual substratum.

9.12 The counsel further explained, by reference to standard The counsel further explained, by reference to standard The counsel further explained, by reference to standard derivative-market market behaviour, behaviour, that that out-of-the-money out money options options routinely expire at zero value, especially near expiry when volatility routinely expire at zero value, especially near expiry when volatility routinely expire at zero value, especially near expiry when volatility spikes. The mere fact that an option expires worthless cannot, spikes. The mere fact that an option expires worthless cannot, spikes. The mere fact that an option expires worthless cannot, therefore, lead to the inference of fictitious trading. therefore, lead to the inference of fictitious trading.

Jainam Investments 35 & CO 54/MUM/2025 & CO 54/MUM/2025 9.13 Summarising his submissions, the learned counsel contended mmarising his submissions, the learned counsel contended mmarising his submissions, the learned counsel contended that— (i) none of the factual indicators or market (i) none of the factual indicators or market-manipulation patterns manipulation patterns noted in SEBI’s investigation reports and relied upon by the noted in SEBI’s investigation reports and relied upon by the noted in SEBI’s investigation reports and relied upon by the Assessing Assessing Assessing Officer Officer Officer pertain pertain pertain to to to the the the assessee; assessee; assessee; (ii) the assessee acte (ii) the assessee acted throughout as a bona fide trader within its d throughout as a bona fide trader within its financial financial financial and and and risk risk risk parameters; parameters; parameters; (iii) all statutory and regulatory requirements were duly complied (iii) all statutory and regulatory requirements were duly complied (iii) all statutory and regulatory requirements were duly complied with; (iv) profit or loss is a natural incident of legitimate market trading (iv) profit or loss is a natural incident of legitimate market trading (iv) profit or loss is a natural incident of legitimate market trading and cannot, without more, warrant a and cannot, without more, warrant an adverse inference; n adverse inference; (v) no nexus with any alleged counter (v) no nexus with any alleged counter-party or entry operator has party or entry operator has been been been established; established; established; and and and (vi) once the assessee has produced all primary evidences (vi) once the assessee has produced all primary evidences (vi) once the assessee has produced all primary evidences substantiating the genuineness of trades, the burden shifts substantiating the genuineness of trades, the burden shifts substantiating the genuineness of trades, the burden shifts decisively to the Revenue to decisively to the Revenue to rebut the same with cogent material, rebut the same with cogent material, which has not been done. which has not been done.

9.14 It was, therefore, urged that the reopening as well as the It was, therefore, urged that the reopening as well as the It was, therefore, urged that the reopening as well as the consequential addition are founded on conjecture rather than consequential addition are founded on conjecture rather than consequential addition are founded on conjecture rather than evidence, and hence cannot be sustained in law. evidence, and hence cannot be sustained in law. of the parties and have 10. We have heard the rival submissions of the parties and carefully perused the material placed on record. The principal carefully perused the material placed on record. The principal carefully perused the material placed on record. The principal contention urged on behalf of the assessee is that the impugned contention urged on behalf of the assessee is that the impugned contention urged on behalf of the assessee is that the impugned

Jainam Investments 36 & CO 54/MUM/2025 & CO 54/MUM/2025 transactions represent bona fide derivative trades carried out in the transactions represent bona fide derivative trades carried out in the transactions represent bona fide derivative trades carried out in the ordinary course of its long of its long-standing business, and that the loss standing business, and that the loss claimed is nothing other than the premium paid for acquiring the claimed is nothing other than the premium paid for acquiring the claimed is nothing other than the premium paid for acquiring the options which ultimately expired worthless. options which ultimately expired worthless.

10.1 On a consideration of the financial records, we find that the On a consideration of the financial records, we find that the On a consideration of the financial records, we find that the assessee has been consistently assessee has been consistently trading in shares and derivatives trading in shares and derivatives over the years, and the transactions of the year under appeal do not over the years, and the transactions of the year under appeal do not over the years, and the transactions of the year under appeal do not constitute any aberration. The contract notes placed before us, constitute any aberration. The contract notes placed before us, constitute any aberration. The contract notes placed before us, which remain uncontroverted, clearly reveal that the assessee did which remain uncontroverted, clearly reveal that the assessee did which remain uncontroverted, clearly reveal that the assessee did not enter into any reve not enter into any reversal trades or matched transactions; the rsal trades or matched transactions; the options purchased were permitted to run their natural course and options purchased were permitted to run their natural course and options purchased were permitted to run their natural course and expired on the exchange platform in the ordinary manner. The expired on the exchange platform in the ordinary manner. The expired on the exchange platform in the ordinary manner. The Departmental Representative has placed no material on record to Departmental Representative has placed no material on record to Departmental Representative has placed no material on record to dislodge this factual pos dislodge this factual position.

10.2 The assessee has produced a complete set of documentary The assessee has produced a complete set of documentary The assessee has produced a complete set of documentary evidence, evidence, evidence, including including including broker’s broker’s broker’s ledger, ledger, ledger, contract contract contract notes, notes, notes, bank bank bank statements, and details of margins paid. It has also demonstrated, statements, and details of margins paid. It has also demonstrated, statements, and details of margins paid. It has also demonstrated, by reference to the architecture of the screen by reference to the architecture of the screen-based electronic based electronic trading system, that it is not possible for a market participant to trading system, that it is not possible for a market participant to trading system, that it is not possible for a market participant to identify or select a counter identify or select a counter-party, the matching of orders being party, the matching of orders being automated and governed by price automated and governed by price–time priority. It is not in dispute time priority. It is not in dispute that Securities Transaction Tax was duly paid, that all trades were that Securities Transaction Tax was duly paid, that al that Securities Transaction Tax was duly paid, that al routed through recognised brokers and banks, and that no adverse routed through recognised brokers and banks, and that no adverse routed through recognised brokers and banks, and that no adverse

Jainam Investments 37 & CO 54/MUM/2025 & CO 54/MUM/2025 comment has emanated from SEBI or the BSE with respect to any comment has emanated from SEBI or the BSE with respect to any comment has emanated from SEBI or the BSE with respect to any of these transactions. Indeed, no material has been brought to our of these transactions. Indeed, no material has been brought to our of these transactions. Indeed, no material has been brought to our notice to suggest that any investigation was undertaken by the notice to suggest that any investigation was und notice to suggest that any investigation was und authorities below qua the assessee which would establish collusion, authorities below qua the assessee which would establish collusion, authorities below qua the assessee which would establish collusion, pre-arrangement, or manipulation. arrangement, or manipulation.

10.3 In the totality of circumstances, and in the absence of any In the totality of circumstances, and in the absence of any In the totality of circumstances, and in the absence of any enquiry specific to the assessee, we are persuaded to accept the enquiry specific to the assessee, we are persuaded to accept the enquiry specific to the assessee, we are persuaded to accept the assessee’s contention that the loss incurred represents a genuine s contention that the loss incurred represents a genuine s contention that the loss incurred represents a genuine business loss. The fact that the assessee entered into only three business loss. The fact that the assessee entered into only three business loss. The fact that the assessee entered into only three option trades and thereafter discontinued such trading, reverting to option trades and thereafter discontinued such trading, reverting to option trades and thereafter discontinued such trading, reverting to its usual short-term share trading activity, further fortifies t term share trading activity, further fortifies the bona term share trading activity, further fortifies t fide nature of the transactions. fide nature of the transactions.

10.4 It is also of significance that the Revenue has not established It is also of significance that the Revenue has not established It is also of significance that the Revenue has not established any nexus between the assessee and the alleged counter-parties. In any nexus between the assessee and the alleged counter any nexus between the assessee and the alleged counter a system where anonymity is inherent and the identity of the a system where anonymity is inherent and the identity of the a system where anonymity is inherent and the identity of the opposite party is unknown to both sides, the burden lay heavily unknown to both sides, the burden lay heavily unknown to both sides, the burden lay heavily upon the Department to demonstrate, by cogent evidence, that the upon the Department to demonstrate, by cogent evidence, that the upon the Department to demonstrate, by cogent evidence, that the trades were collusive or pre trades were collusive or pre-arranged. No such evidence has been arranged. No such evidence has been adduced. Suspicion, however strong, cannot be elevated to proof; adduced. Suspicion, however strong, cannot be elevated to proof; adduced. Suspicion, however strong, cannot be elevated to proof; the theory of preponderance of probabilities cannot be stretched to reponderance of probabilities cannot be stretched to reponderance of probabilities cannot be stretched to substitute conjecture for material facts. substitute conjecture for material facts.

Jainam Investments 38 & CO 54/MUM/2025 & CO 54/MUM/2025 10.5 Once the assessee has discharged its initial onus by producing Once the assessee has discharged its initial onus by producing Once the assessee has discharged its initial onus by producing primary documents of unimpeached character, the burden shifts primary documents of unimpeached character, the burden shifts primary documents of unimpeached character, the burden shifts upon the Revenue to establish t upon the Revenue to establish that the loss is not genuine. In the hat the loss is not genuine. In the present case, the Revenue has failed to discharge this burden. The present case, the Revenue has failed to discharge this burden. The present case, the Revenue has failed to discharge this burden. The disallowance is thus unsustainable. disallowance is thus unsustainable.

10.6 We have also considered the reliance placed by the Assessing We have also considered the reliance placed by the Assessing We have also considered the reliance placed by the Assessing Officer upon the decision of the Hon’ble Supreme Court in Rakhi Officer upon the decision of the Hon’ble Supreme Co Officer upon the decision of the Hon’ble Supreme Co (supra). That decision turned upon the peculiar That decision turned upon the peculiar Trading Pvt. Ltd (supra) features of reversal trades executed with the same counter-party in features of reversal trades executed with the same counter features of reversal trades executed with the same counter a manner suggestive of manipulation. The factual matrix before us a manner suggestive of manipulation. The factual matrix before us a manner suggestive of manipulation. The factual matrix before us is wholly distinct. Here, there are no rever is wholly distinct. Here, there are no reversal trades, no matched sal trades, no matched buy-sell quantities, no repetitive dealings with the same party, and sell quantities, no repetitive dealings with the same party, and sell quantities, no repetitive dealings with the same party, and no trading in dubious or illiquid scrips. Indeed, the assessee’s no trading in dubious or illiquid scrips. Indeed, the assessee’s no trading in dubious or illiquid scrips. Indeed, the assessee’s trades pertain to well trades pertain to well-known blue-chip companies such as JSW, chip companies such as JSW, SAIL, IDBI, PNB and NMDC. The assesse SAIL, IDBI, PNB and NMDC. The assessee’s explanation that the e’s explanation that the trades were entered on the last day of the cycle in expectation of trades were entered on the last day of the cycle in expectation of trades were entered on the last day of the cycle in expectation of favourable price movement, and that the options were allowed to favourable price movement, and that the options were allowed to favourable price movement, and that the options were allowed to expire in the absence of such movement, is both plausible and expire in the absence of such movement, is both plausible and expire in the absence of such movement, is both plausible and consistent with normal market behaviou consistent with normal market behaviour. The Assessing Officer r. The Assessing Officer has, moreover, selectively highlighted transactions resulting in loss has, moreover, selectively highlighted transactions resulting in loss has, moreover, selectively highlighted transactions resulting in loss and ignored instances where the assessee has earned profit from and ignored instances where the assessee has earned profit from and ignored instances where the assessee has earned profit from similar transactions.

Jainam Investments 39 & CO 54/MUM/2025 & CO 54/MUM/2025 10.7 We find no reference in the assessment record or the We find no reference in the assessment record or the We find no reference in the assessment record or the Investigation Wing’s report to any enquiry undertaken with the g’s report to any enquiry undertaken with the g’s report to any enquiry undertaken with the buyer or seller, or with any broker, which would lend support to the buyer or seller, or with any broker, which would lend support to the buyer or seller, or with any broker, which would lend support to the hypothesis of pre-committed or synchronised trading. The entire committed or synchronised trading. The entire committed or synchronised trading. The entire edifice of the addition rests upon presumption rather than proof. edifice of the addition rests upon presumption rather than proof. edifice of the addition rests upon presumption rather than proof.

10.8 We also find substance in the Assessee’s submission that no also find substance in the Assessee’s submission that no also find substance in the Assessee’s submission that no material has been brought on record by the Assessing Officer to material has been brought on record by the Assessing Officer to material has been brought on record by the Assessing Officer to establish that the Assessee was a participant in any pre-meditated establish that the Assessee was a participant in any pre establish that the Assessee was a participant in any pre or contrived scheme of generating artificial losses. Mere reliance on or contrived scheme of generating artificial losses. Mere reliance o or contrived scheme of generating artificial losses. Mere reliance o general investigation findings, without establishing a live nexus general investigation findings, without establishing a live nexus general investigation findings, without establishing a live nexus with the specific conduct of the Assessee, cannot, by itself, discredit with the specific conduct of the Assessee, cannot, by itself, discredit with the specific conduct of the Assessee, cannot, by itself, discredit otherwise documented and verifiable trades. This approach is otherwise documented and verifiable trades. This approach is otherwise documented and verifiable trades. This approach is consistent with the settled principle that, while tax authorities are consistent with the settled principle that, while tax a consistent with the settled principle that, while tax a empowered to pierce the veil of colourable transactions, such empowered to pierce the veil of colourable transactions, such empowered to pierce the veil of colourable transactions, such conclusion must rest on cogent and particularised evidence, and conclusion must rest on cogent and particularised evidence, and conclusion must rest on cogent and particularised evidence, and not on broad or undifferentiated suspicion (cf. the principle affirmed not on broad or undifferentiated suspicion (cf. the principle affirmed not on broad or undifferentiated suspicion (cf. the principle affirmed by the Hon’ble Supreme Court in similar cont by the Hon’ble Supreme Court in similar contexts).

10.9 Viewed cumulatively with the findings recorded hereinbefore, Viewed cumulatively with the findings recorded hereinbefore, Viewed cumulatively with the findings recorded hereinbefore, we are therefore of the considered view that the Assessee has we are therefore of the considered view that the Assessee has we are therefore of the considered view that the Assessee has sufficiently discharged the onus cast upon it to establish the sufficiently discharged the onus cast upon it to establish the sufficiently discharged the onus cast upon it to establish the genuineness of the trades. The evidentiary record does not reveal genuineness of the trades. The evidentiary record does not genuineness of the trades. The evidentiary record does not any basis to disregard the transactions as non-genuine or to any basis to disregard the transactions as non any basis to disregard the transactions as non characterise them as part of a pre characterise them as part of a pre-arranged mechanism for tax arranged mechanism for tax

Jainam Investments 40 & CO 54/MUM/2025 & CO 54/MUM/2025 evasion. Accordingly, the allegation of fictitious loss generation fails evasion. Accordingly, the allegation of fictitious loss generation fails evasion. Accordingly, the allegation of fictitious loss generation fails to withstand scrutiny. to withstand scrutiny.

10.10 In light of the foregoi In light of the foregoing discussion, we hold that the premium ng discussion, we hold that the premium paid by the assessee represents the actual cost of the options and is paid by the assessee represents the actual cost of the options and is paid by the assessee represents the actual cost of the options and is allowable as a business loss. The disallowance made by the allowable as a business loss. The disallowance made by the allowable as a business loss. The disallowance made by the Assessing Officer is directed to be deleted. Ground No. 1 of the Assessing Officer is directed to be deleted. Ground No. 1 of the Assessing Officer is directed to be deleted. Ground No. 1 of the Revenue’s appeal is ac Revenue’s appeal is accordingly dismissed.

11.2 The brief factual backdrop is that a Search and Survey action The brief factual backdrop is that a Search and Survey action The brief factual backdrop is that a Search and Survey action under sections 132 and 133A was carried out on 19.03.2019 on a under sections 132 and 133A was carried out on 19.03.2019 on a under sections 132 and 133A was carried out on 19.03.2019 on a syndicate of persons stated to be led by Shri Naresh Jain by the syndicate of persons stated to be led by Shri Naresh Jain by the syndicate of persons stated to be led by Shri Naresh Jain by the DDIT (Inv.), Units 7(1) & 7(3), Mumbai. On the basis of the .), Units 7(1) & 7(3), Mumbai. On the basis of the .), Units 7(1) & 7(3), Mumbai. On the basis of the materials seized therein, the Assessing Officer proceeded to draw an materials seized therein, the Assessing Officer proceeded to draw an materials seized therein, the Assessing Officer proceeded to draw an inference inference inference that that that the the the assessee assessee assessee had had had participated participated participated in in in a a a larger larger larger accommodation-entry arrangement. The Ld. CIT(A), however, on a entry arrangement. The Ld. CIT(A), however, on a entry arrangement. The Ld. CIT(A), however, on a detailed appraisal of the record, deleted the addition for reasons al of the record, deleted the addition for reasons al of the record, deleted the addition for reasons recorded in paragraphs 30 to 33 of the impugned order, observing recorded in paragraphs 30 to 33 of the impugned order, observing recorded in paragraphs 30 to 33 of the impugned order, observing as under:

Jainam Investments 41 & CO 54/MUM/2025 & CO 54/MUM/2025

availing accommodation entries by trading in such shares. There is availing accommodation entries by trading in such shares. There is availing accommodation entries by trading in such shares. There is no investigation conducted by SEBI in the case of the appellant. The investigation conducted by SEBI in the case of the appellant. The investigation conducted by SEBI in the case of the appellant. The A.O has solely relied on report of investigation unit. No independent A.O has solely relied on report of investigation unit. No independent A.O has solely relied on report of investigation unit. No independent inquiries have been conducted during the assessment proceeding. inquiries have been conducted during the assessment proceeding. inquiries have been conducted during the assessment proceeding. There is no evidence brought on record which indicates There is no evidence brought on record which indicates There is no evidence brought on record which indicates that transaction in the alleged scrip is an accommodation entry transaction in the alleged scrip is an accommodation entry transaction in the alleged scrip is an accommodation entry. Therefore, considering the fact that the appellant is a regular trader Therefore, considering the fact that the appellant is a regular trader Therefore, considering the fact that the appellant is a regular trader in the stock market, and these shares have been purchased in in the stock market, and these shares have been purchased in in the stock market, and these shares have been purchased in regular trading activities, and in view of the decision of regular trading activities, and in view of the decision of regular trading activities, and in view of the decision of Hon'ble ITAT in the case of M/S Munish Financials, as discussed above, the in the case of M/S Munish Financials, as discussed above, the in the case of M/S Munish Financials, as discussed above, the addition made by the AO of the business loss of 11,50,557/ addition made by the AO of the business loss of 11,50,557/ addition made by the AO of the business loss of 11,50,557/- cannot be sustained. Therefore, the AO is directed to delete the same. be sustained. Therefore, the AO is directed to delete the same. be sustained. Therefore, the AO is directed to delete the same. Accordingly, the appeal on this ground Accordingly, the appeal on this ground is ALLOWED.” ” 11.3 Before us, the Ld. Departmental Representative elaborated Before us, the Ld. Departmental Representative elaborated Before us, the Ld. Departmental Representative elaborated upon the purported modus operandi, namely, that the shares of upon the purported modus operandi, namely, that the shares of upon the purported modus operandi, namely, that the shares of beneficiary entities were allegedly traded through paper or shell beneficiary entities were allegedly traded through paper or shell beneficiary entities were allegedly traded through paper or shell companies, enabling the routing of unaccounted money in the guise companies, enabling the routing of unaccounted money in the companies, enabling the routing of unaccounted money in the of exempt LTCG or contrived losses. According to the Revenue, the of exempt LTCG or contrived losses. According to the Revenue, the of exempt LTCG or contrived losses. According to the Revenue, the assessee’s transactions bore the imprint of this larger scheme. assessee’s transactions bore the imprint of this larger scheme. assessee’s transactions bore the imprint of this larger scheme.

11.4 The assessee, on the other hand, contended that its case The assessee, on the other hand, contended that its case The assessee, on the other hand, contended that its case stands on a wholly different footing. It was submitted that the stands on a wholly different footing. It was submitted tha stands on a wholly different footing. It was submitted tha assessee had no nexus assessee had no nexus—direct or indirect—with Shri Naresh Jain or with Shri Naresh Jain or any of his alleged associates. Despite specific directions of the any of his alleged associates. Despite specific directions of the any of his alleged associates. Despite specific directions of the Hon’ble Bombay High Court in Writ Petition No. 478 of 2022, the Hon’ble Bombay High Court in Writ Petition No. 478 of 2022, the Hon’ble Bombay High Court in Writ Petition No. 478 of 2022, the Assessing Officer did not furnish the statement of Shri Naresh Jain, Assessing Officer did not furnish the statement of Shr Assessing Officer did not furnish the statement of Shr though such statement was relied upon in the assessment order. though such statement was relied upon in the assessment order. though such statement was relied upon in the assessment order. This non-production, in the assessee’s submission, constitutes a production, in the assessee’s submission, constitutes a production, in the assessee’s submission, constitutes a clear infraction of the principles of natural justice. With regard to clear infraction of the principles of natural justice. With regard to clear infraction of the principles of natural justice. With regard to the alleged accommodation entry of the alleged accommodation entry of ₹45,500, the assessee

Jainam Investments 43 & CO 54/MUM/2025 & CO 54/MUM/2025 categorically denied any transaction or acquaintance with the said ategorically denied any transaction or acquaintance with the said ategorically denied any transaction or acquaintance with the said person and maintained that the entire allegation is devoid of person and maintained that the entire allegation is devoid of person and maintained that the entire allegation is devoid of evidentiary support.

11.5 As regards the twelve scrips referred to in the show As regards the twelve scrips referred to in the show As regards the twelve scrips referred to in the show-cause notice, the assessee clarifi notice, the assessee clarified that it had not purchased any of them. ed that it had not purchased any of them. The only relevant transaction was the sale of shares of Divine The only relevant transaction was the sale of shares of Divine The only relevant transaction was the sale of shares of Divine Multimedia Ltd. amounting to Multimedia Ltd. amounting to ₹45,150, the complete documentary 45,150, the complete documentary trail of which—including contract notes, demat statements, and including contract notes, demat statements, and including contract notes, demat statements, and bank ledgers—was placed b was placed before the Assessing Officer. Officer.

11.6 Considerable reliance was placed by the assessee upon the Considerable reliance was placed by the assessee upon the Considerable reliance was placed by the assessee upon the order of the coordinate bench in the case of its sister concern, M/s. order of the coordinate bench in the case of its sister concern, order of the coordinate bench in the case of its sister concern, Munish Financial (ITA Nos. 2637 & 2638/Mum/2022), where on (ITA Nos. 2637 & 2638/Mum/2022), where on (ITA Nos. 2637 & 2638/Mum/2022), where on identical allegations— —though in respect of different scrips pect of different scrips—the Tribunal held that mere reliance on investigation reports without Tribunal held that mere reliance on investigation reports without Tribunal held that mere reliance on investigation reports without any cogent evidence linking the assessee to the alleged operators any cogent evidence linking the assessee to the alleged operators any cogent evidence linking the assessee to the alleged operators cannot sustain an addition. The Tribunal had emphasised that the cannot sustain an addition. The Tribunal had emphasised that the cannot sustain an addition. The Tribunal had emphasised that the assessee in that case had furn assessee in that case had furnished complete documentary ished complete documentary evidence of bona fide purchase and sale through recognised stock evidence of bona fide purchase and sale through recognised stock evidence of bona fide purchase and sale through recognised stock exchanges; and that suspicion, however strong, cannot substitute. exchanges; and that suspicion, however strong, cannot substitute. exchanges; and that suspicion, however strong, cannot substitute. The relevant finding of the Tribunal (supra) is reproduced as under: The relevant finding of the Tribunal (supra) is reproduced as under: The relevant finding of the Tribunal (supra) is reproduced as under:

“11. Considered the rival su Considered the rival submissions and material placed on bmissions and material placed on record, we observe that assessee has dealt with various scrips record, we observe that assessee has dealt with various scrips record, we observe that assessee has dealt with various scrips particularly, Global Infratech Limited (GBL), Luminaire Technologies particularly, Global Infratech Limited (GBL), Luminaire Technologies particularly, Global Infratech Limited (GBL), Luminaire Technologies Limited, UNNO Industries Limited and Shree Shalin Textiles Ltd Limited, UNNO Industries Limited and Shree Shalin Textiles Ltd Limited, UNNO Industries Limited and Shree Shalin Textiles Ltd

Jainam Investments 44 & CO 54/MUM/2025 & CO 54/MUM/2025 which are suspected to be pe which are suspected to be penny stock and it is also fact on record nny stock and it is also fact on record that these scrips are categorized as penny stock as per the that these scrips are categorized as penny stock as per the that these scrips are categorized as penny stock as per the investigation wing, Kolkata reports and Assessing Officer has investigation wing, Kolkata reports and Assessing Officer has investigation wing, Kolkata reports and Assessing Officer has heavily relied on these reports and report of SEBI to come to the heavily relied on these reports and report of SEBI to come to the heavily relied on these reports and report of SEBI to come to the conclusion that the various conclusion that the various scrips dealt with by the assessee are scrips dealt with by the assessee are penny stock and he discussed various analysis made by the penny stock and he discussed various analysis made by the penny stock and he discussed various analysis made by the investigation wing of Kolkata and other agencies and relied on investigation wing of Kolkata and other agencies and relied on investigation wing of Kolkata and other agencies and relied on various submissions of various dealers in these scrips and various submissions of various dealers in these scrips and various submissions of various dealers in these scrips and proceeded to disallow the claim made b proceeded to disallow the claim made by the assessee on the long y the assessee on the long term capital loss. We also notice from the record that assessee has term capital loss. We also notice from the record that assessee has term capital loss. We also notice from the record that assessee has submitted all the relevant documents of purchase and sale of these submitted all the relevant documents of purchase and sale of these submitted all the relevant documents of purchase and sale of these scrips in the recognized stock exchange and all the details were scrips in the recognized stock exchange and all the details were scrips in the recognized stock exchange and all the details were submitted before the Assessin submitted before the Assessing Officer including the payments were g Officer including the payments were made through banking channels only. The Assessing Officer made through banking channels only. The Assessing Officer made through banking channels only. The Assessing Officer completely overlooked the various documents and supporting completely overlooked the various documents and supporting completely overlooked the various documents and supporting evidences submitted by the assessee and he has not analysed these evidences submitted by the assessee and he has not analysed these evidences submitted by the assessee and he has not analysed these documents and he merely proceeded t documents and he merely proceeded to make the addition based on o make the addition based on the investigation carried on by the investigation agencies and he did the investigation carried on by the investigation agencies and he did the investigation carried on by the investigation agencies and he did not eventually make any investigation on the various documents not eventually make any investigation on the various documents not eventually make any investigation on the various documents submitted before him, merely because assessee has dealt with submitted before him, merely because assessee has dealt with submitted before him, merely because assessee has dealt with suspected scrips, therefore he has proceeded to make the suspected scrips, therefore he has proceeded to make the suspected scrips, therefore he has proceeded to make the disallowance. We observe from the record that assessee has disallowance. We observe from the record that assessee has disallowance. We observe from the record that assessee has purchased and so purchased and sold these shares through recognized stock exchange ld these shares through recognized stock exchange and authorised brokers and nowhere it is brought on record that and authorised brokers and nowhere it is brought on record that and authorised brokers and nowhere it is brought on record that assessee is one of the party involved in the entry provider or involved assessee is one of the party involved in the entry provider or involved assessee is one of the party involved in the entry provider or involved in manipulating the prices or it is proved that assessee is one of the in manipulating the prices or it is proved that assessee is one of the in manipulating the prices or it is proved that assessee is one of the exit provider. It is fact on record that all the scrips in which assessee exit provider. It is fact on record that all the scrips in which assessee exit provider. It is fact on record that all the scrips in which assessee has dealt with were already proved to be a non penny stock based has dealt with were already proved to be a non penny stock based has dealt with were already proved to be a non penny stock based on the various decisions of the various Hon'ble High Courts and on the various decisions of the various Hon'ble High Courts and on the various decisions of the various Hon'ble High Courts and Tribunal benches. Apart from that, we observe that assessee is a Tribunal benches. Apart from that, we observe that a Tribunal benches. Apart from that, we observe that a regular trader in various scrips and particularly in this year regular trader in various scrips and particularly in this year regular trader in various scrips and particularly in this year assessee has dealt with more than 150 scrips and the transactions assessee has dealt with more than 150 scrips and the transactions assessee has dealt with more than 150 scrips and the transactions of the assessee in trading of shares having turnover of more than of the assessee in trading of shares having turnover of more than of the assessee in trading of shares having turnover of more than ₹.528.9 crores and also having substantial divid .528.9 crores and also having substantial dividend and speculation end and speculation income during this year. This proves to show that assessee is a income during this year. This proves to show that assessee is a income during this year. This proves to show that assessee is a regular investor and may be assessee has dealt with suspected scrip regular investor and may be assessee has dealt with suspected scrip regular investor and may be assessee has dealt with suspected scrip merely on the basis of movement of share prices and there is nothing merely on the basis of movement of share prices and there is nothing merely on the basis of movement of share prices and there is nothing on record to prove that assessee ha on record to prove that assessee has anywhere involved in any types s anywhere involved in any types of irregularities. Therefore, we do not find any reason to interfere of irregularities. Therefore, we do not find any reason to interfere of irregularities. Therefore, we do not find any reason to interfere

Jainam Investments 45 & CO 54/MUM/2025 & CO 54/MUM/2025 with the findings of the Ld.CIT(A). Accordingly, ground raised by the with the findings of the Ld.CIT(A). Accordingly, ground raised by the with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed.” revenue is dismissed.” 11.7 Having carefully perused the material placed on record Having carefully perused the material placed on record Having carefully perused the material placed on record and the findings of the Ld. CIT(A), we find that the present case stands the findings of the Ld. CIT(A), we find that the present case stands the findings of the Ld. CIT(A), we find that the present case stands on the same factual on the same factual footing as M/s. Munish Financial M/s. Munish Financial (supra). The assessee is a regular trader dealing in a large basket of scrips, has assessee is a regular trader dealing in a large basket of scrips, has assessee is a regular trader dealing in a large basket of scrips, has routed all transactions through recognised stoc routed all transactions through recognised stock exchanges and k exchanges and authorised brokers, and has maintained authorised brokers, and has maintained supporting documents supporting documents. The Revenue has not brought any material to demonstrate that the The Revenue has not brought any material to demonstrate that the The Revenue has not brought any material to demonstrate that the assessee participated in price manipulation, acted as an entry assessee participated in price manipulation, acted as an entry assessee participated in price manipulation, acted as an entry provider, or otherwise e provider, or otherwise engaged in any colourable de ngaged in any colourable device except the general statement of sh Naresh Jain, which was not allowed to general statement of sh Naresh Jain, which was not allowed to general statement of sh Naresh Jain, which was not allowed to cross examined.

11.8 We have also examined the assessee’s financials, as placed in We have also examined the assessee’s financials, as placed in We have also examined the assessee’s financials, as placed in the paper book. The assessee has reported a turnover exceeding the paper book. The assessee has reported a turnover exceeding the paper book. The assessee has reported a turnover exceeding ₹100 crores from trading activi 100 crores from trading activity. In such a scenario, faste ty. In such a scenario, fastening an allegation of collusion on the strength of a solitary transaction of a allegation of collusion on the strength of a solitary transaction of a allegation of collusion on the strength of a solitary transaction of a negligible sum—without substantiating any meeting of minds or without substantiating any meeting of minds or without substantiating any meeting of minds or any any nexus nexus with with the the alleged alleged operators—would operators would amount amount to to substituting conjecture for evide substituting conjecture for evidence. The fact that certain brokers nce. The fact that certain brokers or operators may have been involved in manipulation cannot, ipso or operators may have been involved in manipulation cannot, ipso or operators may have been involved in manipulation cannot, ipso facto, lead to an inference that every investor or trader dealing in facto, lead to an inference that every investor or trader dealing in facto, lead to an inference that every investor or trader dealing in the same scrip is complicit in such activity, particularly, when p is complicit in such activity, particularly, when p is complicit in such activity, particularly, when

Jainam Investments 46 & CO 54/MUM/2025 & CO 54/MUM/2025 transaction has been c transaction has been carried out on stock exchange platform arried out on stock exchange platform without any interface. without any interface.

11.9 On an overall conspectus of the matter, taking into account On an overall conspectus of the matter, taking into account On an overall conspectus of the matter, taking into account the scale and nature of the assessee’s trading operations, the the scale and nature of the assessee’s trading operations, the the scale and nature of the assessee’s trading operations, the documentary evidence adduced, and the absence of any direct documentary evidence adduced, and the absence of any direct documentary evidence adduced, and the absence of any direct incriminating material, we are satisfied that the loss claimed by the inating material, we are satisfied that the loss claimed by the inating material, we are satisfied that the loss claimed by the assessee arose in the normal course of business. We therefore assessee arose in the normal course of business. We therefore assessee arose in the normal course of business. We therefore concur with the conclusion of the Ld. CIT(A) that the disallowance concur with the conclusion of the Ld. CIT(A) that the disallowance concur with the conclusion of the Ld. CIT(A) that the disallowance made by the Assessing Officer is unsustainable. made by the Assessing Officer is unsustainable.

11.10. In view of the foregoing discussion, and the Revenue In view of the foregoing discussion, and the Revenue In view of the foregoing discussion, and the Revenue having failed to rebut the factual findings recorded by the Ld. having failed to rebut the factual findings recorded by the Ld. having failed to rebut the factual findings recorded by the Ld. CIT(A), we find no infirmity in the impugned order on the issue in CIT(A), we find no infirmity in the impugned order on the issue in CIT(A), we find no infirmity in the impugned order on the issue in dispute. Accordingly, Grounds Nos. 4 to 8 raised by the Revenue . Accordingly, Grounds Nos. 4 to 8 raised by the Revenue . Accordingly, Grounds Nos. 4 to 8 raised by the Revenue are dismissed.

Order pronounced in the open Court on ounced in the open Court on 25/11/2025. /11/2025.