SALONI GIRRAJKISHOR AGRAWAL,MUMBAI vs. INCOME TAX OFFICER, WARD - 25(1)(1), MUMBAI

The grounds of appeal are as under:

At the outset, in the course of hearing before the Bench, the ld.AR submitted that the assessee does not want to press ground no.1.Allowiing the request we therefore, dismiss the ground.

1 As per the assessment order, it was noticed by the AO that the assessee was not an experienced share trader and yet she had traded in single scrip and made huge profit without any optimistic cost benefit analysis or satisfactory reasoning. She was stated to have opted to engage intrading shares of the said penny stock company, which was found to exist without any basic financial parameters. Based on transaction of such a penny stock company which existed on paper, she booked exponential profits @ 947.6% on selling of such shareswhich

In the subsequent appeal before the ld.CIT(A), the assessee submitted details such as bank statement, contract notes transacted through registered brokers. Besides, it was claimed that she had never known parties to book bogus gain from sale of shares, in a pre-arranged manner. The Departmental report did not mention nor started investigation in her casewhich were carried out on the operators. 56,(Calcutta)[14-06-2022] wherein the Hon’ble Calcutta High Court on the similar set of facts related to taxability of LTCG on sale of shares considered as manipulated Penny stocks.

Before us, the ld.DR has placed reliance on the orders of authorities below .He also places reliance on the coordinate bench decision of ITAT, Mumbai in the case of Shanno Md. Yusuf Warsi ITA No,306/Mum/2024 in which disallowance made by the AO in respect of the same scrip has been upheld.

1 Per contra, the ld.AR has made a detailed submission contesting the disallowance of the claim of LTCG on sale of shares of ESL. It is contended that the assessee is a regular investor in shares. It submitted before the AO, copies of the preferential allotment letter for purchase of shares, contract notes for sales, demat account statements showing holding period more than 12 months, bank statements evidencing receipt of sale proceeds by cheque, broker’s confirmation, and Stock Exchange trade records. Since all trades were through recognized stock exchange with STT paid, the conditions of section 10(38) of the Act were fully satisfied. It was submitted that the assessee originally acquired for Rs.20,00,000 (40,000 shares at Rs.50 each, allotted in 2011), which after a 10:1 stock split became 4,00,000 shares. These were sold in FY 2012-13 for Rs.2,09,79,000/-, yielding a reported profit of Rs.1.89 crore. The sale was through normal market transactions in early 2013.It was also submitted that SEBI order was not applicable to it. The ld.AR submitted that SEBI conducted an investigation into the P a g e | 6 A.Y. 2013-14 Saloni Girrajkishor Agarwal trading activities of the scrip Esaar India Ltd for the period 30.06.2011 TO 28.02.2015.Copy of the final order of SEBI dated 31.05.2019 has been placed on record. It is pointed out that as per para 14 of the order, the scrip has been given clean chit.

We have duly considered the facts of the case, the contents of the assessment order, detailed submissions of the assessee as also various case laws. We also find that the co-ordinate benches of ITAT, Mumbai have in several cases considered similar cases of addition of LTCG arising out of Investigation wing Kolkata report in such penny shares. One such case of Manisha Narpatkumar Chopra in dealt with similar issue though involving another scrip of Pine Animation. However, the findings and observations in the following paras as below squarely apply to the facts of the instant case well:

Considering the fact that there are no adverse findings against the aforementioned 114 entities with respect to their role in the manipulation of the scrip of PAL, I am of the considered view that the directions issued against them vide interim order dated May 08, 2015 which were confirmed vide Orders dated June 02, 2016, July 05, 2016, August 22, 2016 and June 02, 2017 need not be continued."

We noticed earlier that the assessee has sold the shares during the period from June 05, 2014 to September 15, 2014. Thus, the transactions of purchase and sale of shares by the assessee have happened prior to the passing of initial order by SEBI, which has been later revoked. Hence, we are of the view that the transactions of purchase and sale of shares of M/s. Pine Animation Ltd., by the assessee would not be affected by the above said orders of the SEBI.

In the statement recorded from the assessee, she has stated that she was guided by her husband in making the investment, who is a Chartered Accountant by profession. The AO has also recorded statement from her husband, but did not find any adverse feature in the statements given by both the parties. We also notice that - a) the assessee has purchased these shares by paying consideration through banking channels. a. the shares of M/s. Pine Animation Ltd., have been purchased from an existing share holder in the off market. The copy of physical share certificate is given, wherein the name of the assessee has been to have been endorsed. b. the shares have been later dematerialised and kept in the Demat account. c. the assessee has sold the shares through stock exchange platform d. the assessee has received the sale consideration through banking channels. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, the AO has not brought on record any material to show that the assessee was part of the group, which involved in the manipulation

Both the parties relied on various case laws before us. We may refer to the some of the decisions rendered by Hon'ble juri ictional Bombay High Court. In the case of Shyam Pawar (54 taxmann.com 108) (Bom), the Hon'ble Bombay High Court has observed as under:-

In the case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022), the Hon'ble Bombay High Court has observed as under:-

We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of P a g e | 11 A.Y. 2013-14 Saloni Girrajkishor Agarwal shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL.

Therefore we find nothing perverse in the order of the Tribunal.

Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different.

In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.

Further, in the case of CIT vs. Jamnadevi Agarwal (20) taxmann.com 529 (Bom), the Hon'ble Bombay High Court has held that the transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. In the case of PCIT vs. Indravadan Jain (HUF) (ITA No. 454 of 2018) (Bom), the broker through whom, the assessee had carried out the transactions have been alleged to have been indulged in price manipulations and the SEBI had also passed an order regarding irregularities and synchronized trades carried out in the shares by the said broker. However, the evidences furnished by the assessee with regard to purchase and sale of shares were not doubted. Under these set of facts, the Hon'ble Bombay High Court held as under:-

In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the addition of value of sale consideration arising on sale of shares of M/s. Pine Animation Ltd. Since we have confirmed the decision of Ld CIT(A) in holding that the sale transactions of shares cannot be doubted with, the addition made by the AO with regard to estimated commission expenses is also liable to be deleted. Accordingly, we confirm the order passed by Ld. CIT(A).

In the result, the appeal of the Revenue is dismissed.”

1 We also find that the coordinate bench of ITAT ,Mumbai in the case of Dharmendra Jayantilal Shah (AYs 2013-14/2014-15 ) in ITA No.3897 & 3879/MUM/2023 dated 10.06.2024 involving the same scrip decided the issue in favour of the assessee as per paras below:

We note that transactions for purchase and sale of the aforesaid shares were undertaken on the stock exchange platform through the SEBI registered broker on which STT was levied and the consideration was routed through normal banking channel. The entire flow of these transactions is corroborated by relevant documentary evidences placed on record. While making the addition, there are no discrepancies pointed out by the Assessing Officer in the documents and the details furnished by the assessee. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. At any stage of the present case, Revenue has not brought on record any material about participation of the assessee with any such dubious transactions relating to accommodation entry, price rigging or exit providers. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office. Once the assessee has produced documentary evidence to establish the veracity of his claim, the burden would shift on the Revenue to establish its case.

For the above observations and findings, we place our reliance on the decision in the case of CIT vs. Jamnadevi Agrawal[2012] 20 taxmann.com 529 (Bom), wherein it was held that transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. We also draw our force from the decision of Hon'ble High Court of Delhi in the case of PCIT v. Krishna Devi [2021] 126 taxmann.com 80 (Del) wherein the Court noticed that the reasoning given by the Assessing Officer to disbelieve the capital gain declared by the assessee, viz. astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures.

Also, reliance placed by the ld. Assessing Officer on the report of investigation wing without further corroboration based on cogent material does not justify the conclusion that the impugned transaction is bogus, sham and part of racket of accommodation entries. It does not prove that the assessee has carried out the impugned transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of share prices. In absence of any such material, enquiry and examination, the addition made pertaining to receipt of sale consideration of the impugned transaction cannot be sustained. In our considered view, ld. Assessing Officer has not established that the assessee was involved in price rigging.

We note that ld. Assessing Officer has observed about the so called purchasers of shares sold by the assessee who have not been identified as none responded to the notices issues u/s.133(6) of the Act. In this context, it is P a g e | 15 A.Y. 2013-14 Saloni Girrajkishor Agarwal worth noting that impugned share sale transactions undertaken by the assessee are on the online digital trading platform of stock exchange of BSE which is a regulated market under the aggies of a regulator viz. SEBI. There is nothing on record from the market regulator SEBI for the relevant periodwhich establishes the 'tainted' status of the scripinvolved in the present case, so as to hold the share sale transactions as bogus/accommodation entry as alleged by the ld. AO. Also, the operations and modus operandi of this regulated market does not in any way provide for any mechanism by which assessee can bring forth the identity of the buyers of his shares and their creditworthiness. Further, sale proceeds are received through the stock market process into the pre- identified bank account of the seller i.e., the assessee which cannot be tainted as 'unexplained or unaccounted or undisclosed' money for the addition madeu/s. 68 by the ld. Assessing Officer.

From the perusal of the statement of assessee recorded by the ld. Assessing Officer during the course of assessment for Assessment Year 2013- 14 as reproduced in the impugned order demonstrates that he is a long-term investor, investing since year 2006 and is aware of his DMAT account, brokers through whom transactions were undertaken, shares in which he had invested and stock market operations. He produced all the relevant documentary evidences before the ld. Assessing Officer in support of his deposition in the statement recorded. From all of this, we notice that assessee has - a. purchased the shares under preferential allotment by making payment through banking channel. b. dematerialized the shares purchased by credit to the DMAT account and were later sold out of the same holding. c. sold the shares on the platform of recognised stock exchange on the then prevailing prices. d. received the sale proceeds through stock market process in his bank account.

From the above, we note that ld. Assessing Officer has not brought on record any material to show that assessee was part of any group which was involved in the manipulation of share prices. Suspicion by the ld. Assessing Officer on the purchase and sale of shares is baseless.

Ld. Assessing Officer, while drawing the adverse conclusion noted about the cash trail in the accounts of entry providers. He based his conclusion on the finding of investigations done by the Investigation Wing rather than P a g e | 16 A.Y. 2013-14 Saloni Girrajkishor Agarwal bringing on record any direct and cogent material to establish existence of such a cash trail where the assessee has transacted in cash. In this respect, ld. CIT(A) has supported the ld. Assessing Officer by stating that Assessing Officer cannot be expected to produce such evidences and has merely harped on general proposition of having circumstantial evidence leading to inference or presumption. In this respect in the absence of any corroborative material brought on record by the authorities below, we hold against drawing such inference or presumption.

We also note that in the first appellate order, Ld. CIT(A)while dismissing the appeal observed that ld. Assessing Officer by not allowing the assessee to cross examination the brokers, operators and exit providers whose statements were relied upon by the ld. Assessing Officer, does not vitiate the assessment. Negating the request made by the assessee, Ld. CIT(A) confirmed the addition. The approach adopted by ld. CIT(A) while dismissing the appeal and stating that assessment order passed by the Assessing Officer does not get vitiated merely because Assessing Officer did not allow cross examination, is not in compliance with the provisions of section 142(3) of the Act which is a statutory mandatory procedural requirement for making a valid assessment. We note that the required compliance with section 142(3) has not been met.

We refer to the relevant provisions of sec. 142 which are reproduced as under: Sec. 142 (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub- section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,- 142(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. 142(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub- section (2) or any audit under sub- section (2A) and proposed to be utilised for the purpose of the assessment. [emphasis supplied by us by bold and underline]

From the above and in the present context, we note that section 142(2) empowers the AO to make such enquiry as he considers necessary. The discretion is on the AO under the said section.

As already noted above, Ld. CIT(A) dealt with extensive literature on the concept of preponderance of probability and other doctrines to dismiss the appeal of the assessee. According to us, the theory of preponderance of probability is applied to weigh the evidence of either side and draw a conclusion in favour of a party which has more favourable factor in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of fact that might go against the assessee. Once nothing has been proved against the assessee with the aid of any direct material, nothing can be implicated against the assessee on the presumption or suspicion, howsoever, strong it might appear to be true.

Considering the totality of the facts and circumstances of the case, factual matrix and submissions of parties narrated above as well as discussion and observations made herein above, we delete the addition made u/s 68 towards proceeds of sale of listed shares which gave rise to Long Term Capital Gain on the said sale claimed exempt by the assessee u/s 10(38), in both the assessment years. Accordingly, grounds taken by the assessee in this respect are allowed in both the appeals.

For the aforesaid findings, we find force of binding nature from the decisions of Hon'ble High Court of Bombay being a juri ictional High Court:

We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.

Therefore we find nothing perverse in the order of the Tribunal."

Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 v. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.

In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.

The appeal is devoid of merits and it is dismissed with no order as to costs." ii) PCIT vs. Indravadan Jain HUF [2023] 156 taxmann.com 605 (Bom) wherein it was held:

In the result, both the appeals of the assessee are allowed.”

2 In yet another decision by the coordinate bench of ITAT, Nagpur in the case of Sanjay Gaurishankar Agrawal, dated ITA no. 109/Nag/2025 dated 3.4.2025, identical issue of LTCG in the shares of ESL has been deleted.

Considering the above discussion, the facts on record and the legal position emerging out of catena of decisions of the juri ictional High Court and direct decisions rendered by the co-ordinate benches of Mumbai,ITAT(supra),and respectfully following them, we hold that the addition made by the AO u/s 68 of the Act in the year under consideration is not justified and devoid of any merit. The claim of the assessee u/s 10(38) of the Act has been based on facts which could not be rebutted by the AO. The documentary evidences could not be rejected without bringing on record any substantial piece of evidence and not on P a g e | 20 A.Y. 2013-14 Saloni Girrajkishor Agarwal the basis of admission of certain individuals. Apparently, the ld.CIT(A) in the appellate order has, in a preconceived manner dittoed the assessment order rather than adjudicating by way of independent application of mind on his part. We have no hesitation in deleting the addition. The AO is therefore, directed to delete the impugned addition made thus, allowing the ground nos. 2 and 3. 8. In the result, appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 04/11/2025. [Justice (Retd.)C V BHADANG] [PRABHASH SHANKAR] PRESIDENT ACCOUNTANT MEMBER

Mumbai