ANANDKUMAR NAGARMAL AGRAWAL,MUMBAI vs. ADDL/JCIT (A)-6 DELHI, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL“A” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 8625/MUM/2025 (AY: 2014-15) (Hybrid Hearing) Anandkumar Nagarmal Agrawal ITO, Ward-42(2)(1), Mumbai 143, Kalpataru Pinnacle, Opp. vs Inorbit Mall, Goregaon (West), Mumbai – 400104. [PAN: AAKPA1170F] Appellant / Assessee Respondent / Revenue Assessee by Shri Khem Chand Garg, Advocate (virtually) & Shri Amit Mehta (AR) Revenue by Shri Surendra Mohan, Sr. DR Date of hearing 28.08.2026 Date of pronouncement 18.09.2026 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. CIT(A)/ADDL/JCIT(A)-6 dated 14.10.2025 for Assessment Year (AY) 2014- 15. The assessee has raised following grounds of appeal: “1. That the Ld. CIT(A), NFAC Delhi has grossly erred in law as well as on facts in sustaining the addition of Rs. 56,67,785/- u/s 68 on account of income from unexplained sources being bogus purchase of shares during the year. 2. That the Ld. CIT(A), NFAC has grossly erred in law as well as on facts in sustaining the addition against the bogus purchase of shares only on the basis of surmises and conjectures without proper application of mind. 3. That the order passed by Ld. CIT(A), ADDL/JCIT (A)-6 Delhi is bad in law and required to be quashed as no independent inquiries were made and thereby violating the Principles of Natural Justice. That the above grounds of appeal are independent of and without prejudice to each other.

That the appellant craves leave to add, alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing of these grounds.” 2. Brief facts of the case are that the assessee is a proprietor of Supreme Freight Way Carriers, Dabdiwal Bhavan, Near SBI, Camp Road, Malegaon, District Nashik. He filed his return of income for assessment year (AY) 2014-15 on 29-01-2015, declaring income of Rs. 5,68,560/-. The case was selected for scrutiny. During the assessment, the assessing officer (AO) noted that the assessee had claimed exemption of long term capital gain under section 10(38) on sale of stocks and securities Rs. 56,85,843/-. On further perusal of the computation of long-term capital gain, the AO found that the assessee had purchased shares of SRK Industries on 01-04-2012 for Rs. 72,737/- and sold them on 31-12-2013 for a total consideration of Rs. 57,40,522/-. The assessee purchased 10,000 shares at the rate of Rs. 10/- per share and paid Rs. 1.00 lakh. The assessee purchased shares of Transend Commerce Limited, which were later converted into SRK Industries under the Scheme of Amalgamation approved by the High Court of Madras. The shares of Transend Commerce Limited, were split in the ratio of 1:2.22. The assessee purchased such shares off-market from Iceland Media Entertainment Private Limited. The AO further recorded that, in response to the show-cause notice, the assessee has not submitted any documentary evidence in support of the mode of payment and purchase of the impugned shares. Further, the shares were sent for dematerialisation during the relevant financial year only, that is, prior to the sale of shares. The AO, by referring to the information received from the Investigation Wing, Kolkata, and the modus operandi of entry providers in relation to penny scrips, treated the transaction of sale of shares as bogus. The AO also held that the assessee was not a regular investor in shares and had earned an abnormal, phenomenal return. Such transaction is considered suspicious. The AO added the entire transaction under Section 68 while passing the assessment order on 29-12-2016. 3. Aggrieved by the additions in the assessment order, the assessee filed an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee challenged the validity of the addition under Section 68 on the ground that the AO had acted on the report of the Investigation Wing without making any independent inquiry. Before the ld. CIT(A), the assessee filed a detailed statement of facts, as recorded on page 5 of the order of the ld. CIT(A). The assessee also filed detailed written submissions and relied upon various case laws. The assessee, in its submissions, submitted that the assessee has shown income under various heads while filing the return of income and had also claimed exempt long-term capital gain. The assessee filed various details on the ITBA portal, which wasnot considered by the AO during assessment. The assessee also stated that during the assessment proceedings, the assessee furnished various documentary evidences, including statement of account, statement of capital gain, demat account and bank statement. The shares were purchased through banking channels. The sale consideration was paid through cheque drawn on Punjab and Maharashtra Cooperative Bank. The shares of Transend Commerce Limited were converted into SRK Industries. The shares were split in the ratio of 1:2.22 under the Scheme of Amalgamation approved by the High Court of Madras. The assessee earned capital gain on the sale of such shares. The AO, while making the addition, solely relied upon the report and inquiry of the Investigation Wing, Kolkata. The AO has not brought any material in support of his finding that there was collusion between the broker and the assessee. The AO ignored the evidence furnished by the assessee. The assessee purchased 10,000 shares at the rate of Rs. 10/- per share on 23.05.2012. On 15.5.2013, the shares were split in the ratio of 1:2.22 under the scheme of arrangement approved by the Madras High Court. The assessee sold the shares through Anand Rathi Share and Stock Broker Limited and claimed long-term capital gain. The copy of the purchase bill, bank statement, ledger account and demat account was furnished. When the shares were splitted, the assessee got resultant 22,200 shares. Out of the total shares of 22,200, the assessee sold 2,775 shares on 16.8.2023, 4,000 shares on 19.8.2023, and the remaining 15,425 shares were again split in the ratio of 1:2.22, and the holding of shares became 30,850 as on 11.10.2013. Further, on 25.11.2013, the assessee sold 10,000 shares and 8,500 shares on 11.12.2013, and the balance shares of 12,350 were left in his hand. On the sale of the aforesaid shares, the assessee earned total capital gain of Rs. 56,67,785/-, which is reflected in his Income tax Return (ITR). 4. The learned CIT(A), on considering the submissions of the assessee, recorded his finding in paragraph 6 at pages 59-69 of his order. The ld. CIT(A) noted that the core contention of the assessee is that the purchase, holding and sale of shares were genuine. The transaction is carried out through a recognised stock exchange and supported by banking transactions. The AO has not carried out any independent inquiry and merely relied upon the report of the Investigation Wing, which violated the principles of natural justice. The convergent of shares were pursuant to a scheme approved by the High Court. The learned CIT(A) noted that the burden to prove the transaction is on the assessee to explain the nature and source of any sum credited in the books of account to the satisfaction of the AO. The assessee must establish the identity of the person from whom the credit is received, the genuineness of the transaction and the creditworthiness of such person. Mere filing of documents such as contract notes, demat account and bank statements does not, by itself, discharge the burden if the surrounding circumstances and probabilities point towards a different conclusion. To support his view, the learned CIT(A) referred to the decision of the Hon'ble Apex Court in Sumati Dayal [1995] 214 ITR 80 (SC). The ld. CIT(A) further recorded that the assessee purchased 10,000 shares of Transcend Commerce Limited at the rate of Rs. 10/- per share on 23-05-2012. Pursuant to the scheme of arrangement, the said shares were converted into shares of SRK Industries Limited in the ratio of 1:2.22. The assessee sold these shares in FY 2013-14 and claimed the resultant long-term capital gain as exempt under section 10(38) of the Act. The AO, after detailed examination and on the basis of comprehensive material received from the Investigation Wing, Kolkata, concluded that the transactions were part of a pre- arranged scheme of price manipulation in penny stocks to generate artificial long-term capital gain. The AO also discussed the report of the Investigation Wing, Kolkata, based on the survey conducted under section 133A at the office of Anand Rathi Share and Stock Brokers, Kolkata, which revealed a countrywide racket involving certain operators and shell companies engaged in providing accommodation entries by artificially inflating the prices of shares of worthless companies. Transcend Commerce Limited was also identified as part of such network. The company had no substantial business activities, there was no significant financial performance, and it was used merely as a conduit for providing accommodation entries. The assessee purchased the shares at Rs. 1.00 lakhs and, within a short span, sold them for about Rs. 57.00 lakhs, There is no material evidence to establish that such an astronomical rise in the share price was backed by the financial fundamentals of the company. The assessee failed to demonstrate any commercial rationale or economic justification for such price movement. No evidence regarding the company's performance, dividend history, market potential or industrial growth was furnished. The ld. CIT(A) also rejected the contention of the assessee that the AO had solely relied upon the Investigation Wing's report without conducting any independent inquiry by taking view that such contention is without any merit. The report of the Investigation Wing was not blindly accepted but was used as credible intelligence for forming the basis of further examination. The AO also discussed the assesses investment history, showing that he had hardly invested in the stock market, yet had earned a phenomenal rise in the form of capital gain. The AO, therefore, was having sufficient material for making the addition. The assessee failed to rebut such evidence, including the contention regarding non-grant of cross-examination of third party on the basis of which the additions were made, the ld. CIT(A) held that such argument is not tenable as AO has not solely relied on third party statement but on comprehensive evidence including the trading pattern, financial data and the Investigation Wing's report. The right of cross examination is not absolute and arise only when addition is based exclusively on third party testimony. Absence of cross-examination is not fatal if assessee is given opportunity to explain the transaction. The assessee failed to counter the finding of the AO to support his case. The ld. CIT(A) also relied upon various case laws and held that the assessee failed to give any satisfactory explanation and that the AO was justified in treating the amount as unexplained income. The assessee is a beneficiary of an accommodation entry scheme. Thus, the action of the AO was justified. Being aggrieved, the assessee has filed the present appeal before the Tribunal. 5. We have heard the rival submissions of both parties and have carefully gone through the orders of the lower authorities carefully. The ld. AR of the assessee submitted that his case was selected for complete scrutiny under CASS due to suspicious long-term capital gain on the sale of shares of SRK Industries. In response to show cause notices issued by the AO, the assessee furnished complete documentary evidence to substantiate the transaction. The AO instead of making any comments on the various evidences solely relied upon the Investigation Wing. The assessee’s bonafide investor in share of SRK industries. Purchase were made by making payment through cheque. The shares were later on splitted under the scheme approved by High Court. Shares were held in demat account and sold through SEBI registered broker. Security transaction tax was paid. The AO disallowed exemption on the basis of suspicious and presumption. Similar transaction has been accepted by Tribunal in Ketan Harilal Mehta vs ACIT in ITA No. 6689/M/2025, in Ketan Harilal Mehta HUF vs ITO in ITA No. 770/M/2023 dated 30.06.2024 and in Rekha Rakesh Jogani vs ITO in ITA No. 2916/M/2023 dated 28.03.2025. 6. On the other hand, the ld. Sr. DR for the Revenue supported the order of lower authorities. The ld. Sr. DR for the Revenue submits that the assessee is beneficiary of penny scrip which were thoroughly investigated by Investigation Wing. There is huge increase in the price of impugned share which is not possible without manipulation. Hence, he fully supports the finding of AO and ld. CIT(A). 7. At the time of hearing, we confronted the facts that in the case laws relied by ld AR of the assessee are at variance in those cases the assessee were regular investor. The ld AR of the assessee submits that assessee is one time investor and may be treated at parity. 8. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that the AO treated the capital gain as income from unexplained source and added under section 68. We find that before AO as well as before ld CIT(A), the assessee has furnished complete evidence including contract note of shares, Demat account details, detail of bank account. We find that neither the AO made adverse comment on the various evidences filed by the assessee or brought any adverse material to disbelieve such evidences. The AO has not made any independent investigation of facts to connect the assessee or his broker with the transaction of alleged price rigging. So far as allegation of price rigging is concerned, no role or the activities of the brokers of assessee in price manipulation is brought on record. We find that when the assessee made transaction in respect of impugned scrips, there is no allegation or adverse finding or report of SEBI about price manipulation by the broker of assessee. The assessee paid transaction tax on the sales of such shares. The sale of shares was made on BSE platform through SEBI registered broker. 9. We find that on similar allegation, the similar transaction in respect of SRK Industries, the co-ordinate bench of this Tribunal in Ketan Harilal Mehta vs ACIT (supra), in Ketan Harilal Mehta HUF vs ITO (supra) and in Rekha Rakesh Jogani vs ITO (supra) accepted / allowed similar capital gain on sale of scrip of SRK Industries by taking view that when the assessee has discharged his primary onus in furnishing complete evidence to substantiate the transaction and the AO neither commented on such evidence nor brought any adverse material on record, the reliance on the third party statement for making addition is not justified. We find that this combination in ACIT Vs Avni Paresh Shah in ITA No. 1965/Mum/2025 has also confirmed the order of ld CIT(A) in deleting the similar addition though on different scrips, which were also based merely on the information received from Investigation Wing Kolkata. 10. We find that Hon'ble Gujarat High Court in the case of Himani M. Vakil (2014) 41 taxmann.com 425 (Guj) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and Demat account showing transfer in and out of shares, AO was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. Gujarat High Court in the case of Parasben Kasturchand Kocher (2021) 130 taxmann.com 176 (Guj), also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished to Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished Demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. 11. Further, we find of Hon'ble Jurisdictional High Court in the case of PCIT Vs. Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. In a recent decision in PCIT Vs Mamta Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that where the assessee had sold the shares and earned LTCG and the Assessing Officer alleged that transaction was penny stock deal aim at illegitimately claiming LTCG exemption under section 10(38), since there was no allegation on record suggesting the assessee or his broker involved in rigging up the price of scrips, the addition was rightly deleted by Tribunal. We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence against the assessee specific. Thus, in view of aforesaid factual and legal discussion, we do not find any justification of addition under section 68. In the result, various grounds of appeal raised by assessee is allowed. 12. In the result, appeal filed by assessee is allowed. Order was pronounced in open court on 18/09/2026 Sd/- Sd/- GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 18/09/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); By Order (4) The DR, ITAT, Mumbai; and (5) Guard file. Assistant Registrar ITAT, Mumbai