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Facts
The revenue appealed against the order of the CIT(A) allowing the assessee's claim for setting off short-term capital loss from trading in M/s. JMD Telefilms shares against short-term capital gains from other transactions. The Assessing Officer (AO) had disallowed this claim, treating the transactions as dubious and invalid.
Held
The Tribunal held that the assessee had provided sufficient documentary evidence to substantiate the genuineness of the transactions in shares of M/s. JMD Telefilms Ltd. The revenue failed to provide any cogent material to prove that the transactions were not genuine or that the assessee was involved in price rigging. Previous decisions of coordinate benches and higher courts were also in favor of the assessee.
Key Issues
Whether the short-term capital loss from trading in M/s. JMD Telefilms shares can be set off against short-term capital gains, and whether the transactions were genuine.
Sections Cited
147, 148, 143(3), 70(2), 15-1, 68, 69C, 234B, 10(38)
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 22.07.2025 Date of Pronouncement 13.10.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeal has been filed by the revenue challenging the impugned order dt. 10.12.2024 passed Form No. 10AD of the Income Tax Act, 1961 (‘the Act’), by the Commissioner of Income Tax (Appeal) – 50, Mumbai, for the Assessment Year 2011-12.
2. All the grounds raised by the revenue are interrelated and interconnected and relates to challenging order of Ld. CIT(A) in allowing the claim of assessee for setting off of short term capital loss from trading in Ms. JMD Telefilms shares against short term capital gain earned by the assessee from other transactions. Therefore we have to decided to adjudicate these grounds through the present consolidated order.
3. Ld. DR while appearing on behalf of the revenue relied upon the orders passed by the AO and submitted that the setting off of the short term capital loss from trading in M/s JMD Telefilms shares against the short term capital gain earned by the assessee from other transactions during the year could not have been passed by the Ld. CIT(A) as the trading in M/s. JMD Telefilms shares were dubious affairs and the claim of STCL was wrongful. It was further submitted that Ld. CIT(A) has fail to appreciate that the provisions of Sec. 70(2) of the Act clearly stipulates that short term capital loss can only be set off against short term capital loss in the same year subject to genuineness and creditworthiness of the transactions. As per the Ld. DR in the present case the STCL claim M/s. JMD Telefilms shares were based on dubious and unsubstantiated transactions therefore should not have been allowed to be set off. It was further submitted that Ld. CIT(A) failed to appreciate that merely because the transactions were executed online through the stock exchange and reflected in the bank statement and books of account does not automatically establish the genuineness of the transactions, more particularly when there are doubts regarding the authenticity and commercial substance of such transactions. The Ld. CIT(A) ignored the fact that although the transactions were recorded in the books of account, however the nature of trading in M/s. JMD Telefilms shares were questionable thereby making claim of short term capital loss invalid.
On the contrary, Ld. AR appearing on behalf of the assessee while relying upon the orders passed by the Ld. CIT(A) has submitted that the assessee had rightly made claim regarding the set off of short term capital loss against short term capital gain earned by the assessee. It was also submitted that assessee had placed on record all the relevant documents to substantiate that the transactions with the said M/s. JMD Telefilms shares were genuine and nothing contrary was pointed out by the AO during the investigations. It was also submitted that assessee was regularly doing investment and trade in shares from past many years, hence the transactions done in the shares of M/s. JMD Telefilms, wherein the assessee had incurred loss cannot be treated as adjustment entry and also relied upon the decisions of Coordinate Benches of ITAT wherein the same script has already been dealt with in detail.
We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that during the year under consideration, while filing return of income in its computation the assessee had shown consultancy income, income from trading in F & O, income from capital gains on the sale of investments, which consisted of short term capital loss of Rs. 1,83,99,477/- and long term capital gain of Rs. 5,96,46,254/-.
6. However, while initiating reopening the AO made disallowance of STCL amounting to Rs. 2,94,99,567/- arising from the sale of shares of M/s. JMD Telefilms Ltd, which was ultimately allowed by Ld. CIT(A) by holding that the transactions of STCL are genuine.
After having gone through in detail the facts and the legal preposition put forth before us, we found that the sole question for consideration before us is to evaluate as to whether the transactions of the assessee with M/s JMD Telefilms Ltd., and incurring short term capital loss is genuine or not. In this regard we noticed that assessee company had investment in the number of shares both quoted and unquoted which are mentioned in schedule 4 of the balance sheet enclosed at Page No. 31 of the PB-I. Further, the Assessee has also earned a profit on trading in F&O of Rs.5,37,27,222.
We also noted during the year, Assessee company has purchased 4,37,900 shares of Avtar Fin (Name of this company was later changed to M/s JMD Telefilms Ltd., during the period 15-07-2010 to 18-02-2011 and sold these shares during the same period on various dates and thereby Assessee company has incurred short term capital loss of Rs. 2,94,99,567. The Assessee company has provided complete details of STCG and STCL on sale of shares of various companies including shares of M/s JMD Telefilms Ltd on which STCL is incurred and set off against short term capital gain of Rs. 1,11,00,090. And in this way balance short term capital loss of Rs. 1,83,99,477 is Carried Forward. The Assessee company has also provided complete details of short-term capital gain and short-term capital loss on sale of shares of various companies, including shares of M/s JMD Telefilms Ltd, on which short-term capital loss is incurred.
From the above facts it is very clear that the Assessee company is regularly doing Investment and trading in shares & securities from past many years. Therefore, the transaction done in the share of M/s. JMD Telefilms Ltd wherein the Assessee had incurred loss of Rs. 2,94,99,567/- cannot be treated as ‘adjustment entry’ alleged by the AO. Although AO has having relied upon the report of SEBI to come to the conclusion that scripts dealt with by the assessee is penny stock. However, the AO overlooked the various documents and supporting evidences submitted by the assessee and has not analysed these documents and merely proceeded to make the additions.
Whereas the Coordinate Bench of ITAT in the case of M/s Munish Financial in has dealt with similar circumstances and held as under:
11. Considered the rival submissions and material placed on record, we observe that assessee has dealt with various scrips particularly, Global Infratech Limited (GBL), Luminaire Technologies Limited, UNNO Industries Limited and Shree Shalin Textiles Ltd which are suspected to be penny stock and it is also fact on record that these scrips are categorized as penny stock as per the investigation wing, Kolkata reports and Assessing Officer has heavily relied on these reports and report of SEBI to come to the conclusion that the various scrips dealt with by the assessee are penny stock and he discussed various analysis made by the investigation wing of Kolkata and other agencies and relied on various submissions of various dealers in these scrips and proceeded to disallow the claim made by the assessee on the long term capital loss. We also notice from the record that assessee has submitted all the relevant documents of purchase and sale of these scrips in the recognized stock exchange and all the details were submitted before the Assessing Officer including the payments were made through banking channels only. The Assessing Officer completely overlooked the various documents and supporting evidences submitted by the assessee and he has not analysed these documents and he merely proceeded to make the addition based on the investigation carried on by the investigation agencies and he did not eventually make any investigation on the various documents submitted before him, merely because assessee has dealt with suspected scrips, therefore he has proceeded to make the 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 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 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 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 more than 150 scrips and the transactions of the assessee in trading of shares having 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 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 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 revenue is dismissed.
Although Ld. DR submitted an order passed under Section 15-1 of the Securities and Exchange Board of India Act, 1992, wherein penalties were levied on various parties, including M/s JMD Telefilms Industries Limited. However, from a perusal of the said order, it is evident that the name of the assessee does not appear therein, and no penalty has been levied in respect of the transactions involving shares of M/s JMD Telefilms Ltd.
The reliance has also been placed upon the decisions of the Hon'ble Mumbai Tribunal in respect of Long-Term Capital Gains (LTCG) earned from the sale of shares of JMD Telefilms Ltd, which have been accepted by the Coordinate Benches of Hon'ble Tribunal.
In the case of Shri Mahaveer Kanwarlal Ranka Vs ACIT (ITA No. 224 & 965/Mum/2024), dated 29-11-2024, wherein it was held as under:
We have heard the parties and perused the material available on record. The Ld. D.R. at the outset has placed on record one order dated 28.06.2019 passed by the adjudicating authority of SEBI, wherein the M/s. JMD Tele Films Industry Ltd. is also a party against whom the monetary penalty of Rs.5,00,000/- has been levied by considering the allegations of price rigging of shares by some other persons for the period from 15.06.2009 to 02.07.2009. Admittedly there are no allegations have been leveled and even no investigation has been carried out and no penalty or restriction has been imposed against the Assessee herein. The Assessee by filing the relevant documents duly supported the transactions It is also a fact that of purchase and sales as stated above by us. purchase and sale of the transactions have been transacted through banking channel and shares were purchased and sold through Bombay Stock Exchange and the Assessee also kept the share for a period more than one year. On the aforesaid facts and circumstances, it goes to show the Assessee has been able to discharge its onus cast upon u/s 68 of the Act and therefore no addition u/s 68 of the Act is warranted.
Further, the Assessee by producing the relevant documents such as books of accounts, bank statement, contract notes of shares, broker ledger account and Dmat statement etc. has prima-facie discharged its onus to establish the genuineness of the purchase and sale of the shares under consideration.
Further, no role of the Assessee qua rigging of the shares has not been assigned or established by any person including SEBI. Further, no allegations have been leveled by any persons, on whose statement the AO has relied on. Further, even otherwise, no investigation/action has been carried out or taken against the Assessee. Even otherwise the authorities below have not doubted the documents produced by the Assessee. And therefore, on the aforesaid analyzations and in our considered view, the Assessee cannot be fastened with the liability, simply on the findings of the investigation wing, allegations qua rigging of the share prices, unusual rise in the prices of the share, financial analysis of the penny stock company and mode of acquisition etc. as alleged.
5.2 The Jurisdictional High Court in various cases including in the case of Pr. CIT-3 vs. Ziauddin A Siddique in Income Tax Appeal No.2012 of 2017 decided on 04.03.2022 has also dealt with the identical issue as involved in the instant case, where the AO though considered the documents submitted by the Assessee in support of its claim qua sale and purchase of shares however, not criticized the same and there was no allegation against the Assessee that he has participated in any price rigging of the scrips involved. For ready reference, the decision of the Hon'ble High Court is reproduced herein below:
"JUDGEMENT
1. The following question of law is proposed:
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was Justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 19617"
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. Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel 4. Mr. Walve placed reliance on a judgment of the Apex Court in (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.
5. 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.
6. The appeal is devoid of merits and it is dismissed with no order as to costs.
5.3 We further observe that the Hon'ble Apex Court in the case of Pr. CIT vs. Renu Agarwal (2023) 456 ITR 249(SC) has dismissed the SLP against the judgment passed in of 2022 on 06.07.2022 by the Hon'ble Allahabad High Court, wherein the Hon'ble High Court has also dealt with the identical issue as involved in the instant case and ultimately affirmed the deletion of identical addition allegedly made on penny stock, by holding as under: "Judgment Heard Sri Krishna Agarawal, learned counsel for the appellant. This appeal under section 260A of the Income-tax Act, 1961 has been filed challenging the order dated January 17, 2022, passed by the Income- tax Appellate Tribunal, Lucknow Bench 'SMC' Lucknow in I. T. A No. 205 of 2020 (assessment year 2014-15). The basic question involved in the present appeal is with regard to dele- tion of some amount which was added by the Assessing Officer on the allegation of penny stock. The appeal of the respondent-assessee was allowed against the assess- ment order. The appeal filed by the assessee was allowed by the Com- missioner (Appeals) Against the appellate order the Revenue had filed the aforesaid income-tax appeal which has been dismissed by the Income-tax Appellate Tribunal. After detailed discussion, the Income-tax Appellate Tribunal has recorded the following findings of fact: "The above findings recorded by the learned Commissioner (Appeals) are quite exhaustive whereby he has discussed the basis on which the Assessing Officer had made the additions While allowing relief to the assessee, the learned Commissioner (Appeals) has specifically held that there is no adverse comment in the form of general and specific statement by the principal officer of the stock exchange or by the company whose shares were involved in these transactions and he held that the Assessing Officer only quoted the facts pertaining to various completely unrelated persons whose statements were recorded and on the basis of unfounded presumptions. He further held that the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the Investigation Wing The learned Commissioner (Appeals) relying on various orders of the Lucknow Benches and other Benches has allowed relief to the asses- see by placing reliance on the evidence filed by the assessee before the Assessing Officer. I do not find any adversity in the order of the learned Commissioner (Appeals) specifically keeping in view the fact that the Lucknow Benches in a number of cases after relying on the judgment of the hon'ble Delhi High Court in the case of Krishna Devi had allowed relief to various assessees."
The concurrent findings of fact have been recorded by the first appellate authority and the Income-tax Appellate Tribunal Thus, no substantial question of law is involved in the present appeal. The matter is concluded by findings of fact. For the reasons aforestated, we do not find any good reason to entertain this appeal. Consequently, it is dismissed." 5.4 We further observe that the Hon'ble Co-ordinate Bench of the Tribunal at Mumbai in the case of Kamlesh Gupta vs. DCIT 1462/M/2020 has also dealt with the identical scrip as involved in the instant case and ultimately in the similar facts and circumstances as involved in the instant case deleted the identical addition by holding as under: "13. We, thus, in the backdrop of our aforesaid deliberations are of the considered view that de hors any cogent material made available on record by the department which would prove to the hilt that the assessee had not carried out any genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. and, in the garb of bogus entry of a tax exempt LTCG u/s 10(38) of the Act, laundered his unaccounted money, the assessee"s duly substantiated claim of having carried out genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. which is duly supported by him on the basis of documentary evidence, could not have been dislodged. Accordingly, for the reasons discussed at length by hereinabove, not finding favour with the view taken by the lower authorities, we herein set-aside the orders of the lower authorities qua treating the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee as a bogus transaction and, consequently vacate the addition made by the A.O under Sec. 68 of Rs. 6,06,49,780/-. The Grounds of appeal
Nos. 2 & 3 are allowed in terms of our aforesaid observations.
14. As we have held the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd by the assessee as a genuine transaction, therefore, the addition made by the A.O u/s 69C of Rs. 36,38,987/- towards alleged commission which the assessee as per him would have paid for facilitating the bogus transaction of purchase/sale of shares has to meet the same fate and, is resultantly vacated. The Ground of appeal No. 4 is allowed in terms of our aforesaid observations
15. The assessee has further assailed the levy of interest u/s 234B of the Act. As the levy of interest as per the judgment of the Hon'ble Supreme Court in the case of CIT vs. Anjum M.H Ghaswala (2002) 252 ITR 1 (SC) is mandatory, therefore, the A.O is directed to rework out the same while giving appellate effect to our order. The Ground of appeal
No. 5 is allowed for statistical purposes in terms of our aforesaid observations". 5.5 Coming to the instant case, we reiterate that the Assessee by producing the relevant documents referred to above before the authorities below as well as before us has duly discharged the onus cast upon him u/s 68 of the Act and admittedly there is no adverse order/penalty order against the Assessee. Even otherwise, no role has been attributed and/or established qua rigging of the shares upon the Assessee. Hence, considering the peculiar facts and circumstances in totality, we are inclined to allow the claim of the Assessee u/s 10(38) of the Act, by deleting the additions under consideration. Hence, the additions under consideration are deleted. Thus, the instant appeal i.e. is allowed.
6. Coming to we observe that in this case identical addition have been made and affirmed by the AO and Ld. Commissioner respectively, hence in view of our judgment in ITA No.224/M/2024, this appeal is also allowed on and additions stands deleted.
1. Kamlesh Gupta Vs DCIT (ITA No. 1462/Mum/2020), dated 25-11-2021
2 ACIT vs. Ankur Agrawal (ITA No. 5179/Mum/2024), dated 16-06-2025 3. ACIT vs. Abhishek Rajendrakumar Mundra (ITA No. 3929/Mum/2024), dated 16-06-2025
Apart from above the Coordinate Bench of ITAT in the following cases have also dealt with the capital gain earned by respective assessee’s.
1. Leela Tarachand Kothari Vs. ITO, 2. Pritin Nilesh Jain Daga Vs. ITO, ITO 4507 and 4616/Mum/2024 3. PCIT Vs. Neelu mahansaria (2025) 175 taxmann.com 236 (SC) 4. PCIT Vs. Divyaben Prafulchandra Parmar (2025) 172 taxmann.com 572 (SC)
Considering the overall facts and circumstances of the present case and findings of the CIT(A) and respectfully following the judicial precedents cited above, we are of the view that Ld. CIT(A) has rightly allowed the claim of the assessee by passing a detailed and well reasoned order.
No new facts or circumstances have been brought before us during the course of arguments in order to controvert or rebut the findings so recorded by Ld.CIT(A). Therefore we have no reasons to deviate from the lawful findings so recorded by Ld. CIT(A). Hence, we uphold the decision of the Ld. CIT(A) and dismiss the grounds raised by the revenue.
In the result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 13.10.2025 Sd/- Sd/- (PRABHASH SHANKAR) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 13/10/2025 KRK, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Assessee 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण,मु�बई/ DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//
उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई / ITAT, Mumbai मु�बई मु�बई