INCOMETAX OFFICER, WARD-20(3)(1), MUMBAI, MUMBAI vs. VIMAL VALLABHJI GALA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “J(SMC)” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER ITA No. 5946/MUM/2026 (AY: 2012-13) (Physical Hearing) ITO, Ward – 20(3)(1), Mumbai Vimal Vallabhji Gala Room No. 306, 3rd Floor, Piramal vs 1-23, Bhutta Niwas, Dr. Ambedkar Chamber, Lalbaug, Parel, Road, Matunga, Mumbai – 400019. Mumbai – 400012 [PAN: AAFPG3304E] Appellant / Revenue Respondent / Assessee Assessee by Shri Sanjay R. Parikh, CA Revenue by Ms. Jayshree Thakur, Sr. DR Date of Institution 18.05.2026 Date of hearing 12.08.2026 Date of pronouncement 11.09.2026 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by Revenue is directed against the order of ld. CIT(A)/ADDL/JCIT(A)-2, Coimbatore dated 30.03.2026 for Assessment Year (AY) 2012-13. The Revenue has raised following grounds of appeal: “i. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 11,96,548/- made under section 68 of the Income-tax Act, 1961, without appreciating the material brought on record by the Assessing Officer indicating that the impugned transactions were in the nature of accommodation entries through penny stock manipulation. ii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in accepting the assessee's contention of intra- day trading without properly verifying the genuineness and economic substance of the transactions, ignoring the findings of the Investigation Wing. iii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the Assessing Officer had not

ITA No.5946/Mum/2026 (AY: 2012-13) Vimal Vallabhji Gala brought independent evidence on record, without appreciating that the addition was based on credible information received from the Investigation Wing and supported by surrounding circumstances and human probabilities. iv. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.35,896/- made under section 69C of the Act towards commission expenditure, which was consequential to the accommodation entry transactions. v. Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) is perverse inasmuch as it ignores the settled "legal position that apparent transactions in penny stocks, though routed stock exchange, may be treated as non-genuine where surrounding circumstances indicate otherwise. vi. It is prayed that this appeal is filed even if the tax effect is below the monetary limit since the case falls under exception specified in para 3.1(h) of the CBDT Circular05/2024 dated 15.03.2024. vii. The appellant craves leave to add, amend, alter or withdraw any ground of appeal at the time of hearing.” 2. Rival submissions of both the parties have been heard and record perused.At the outset of hearing, the learned Authorized Representative (ld. AR) of the assessee submits that the assessee is a small-time trader and investor. The assessee purchased shares of VMS Industries Limited for intraday transactions and sold the same without delivery of shares. Transaction of purchase and sale was done in the normal course of business. The shares were traded in the normal course through a well- known registered broker, namely Edelweiss Broking Limited on the terminal of Bombay Stock Exchange (BSE). The assessee was never new that the scrip purchased and sold was operating as a penny stock. The assessee earned a very low profit of Rs.7,072/-. The AO added the sale as well as purchase price without appreciating the facts. The learned CIT(A)

ITA No.5946/Mum/2026 (AY: 2012-13) Vimal Vallabhji Gala appreciated the facts and allowed relief to the assessee. The learned Authorized Representative submits that he fully supports the order of the learned CIT(A). 3. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) supported the order of the Assessing Officer. The ld Sr DR for the revenue submits that the assessment order is based on the information of investigation wing about the transaction of penny scrips and the assessee is one of the beneficiary of such transaction. 4. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the AO reopened the case of the assessee on the basis of information gathered during investigation that the assessee was one of the beneficiaries of transactions in penny stocks. On show cause, the assessee explained that he made intraday transaction of shares of VMS Industries Limited and earned profit of Rs. 7072/- only. He has neither earned short term not long term capital gain. The reply of assessee was not accepted by Assessing officer. He has not carried out any verification of fact about the explanation of the assessee. The Assessing Officer, after referring the modus operandi of various penny stock companies, made an addition of Rs. 11,96,548/-. The assessing officer also made addition of unexplained commission expenses @3.00% of sale consideration. The Assessing Officer while passing the assessment order solely relied on the information of investigation wing. The ld CIT(A) allowed relief to the assessee by

ITA No.5946/Mum/2026 (AY: 2012-13) Vimal Vallabhji Gala taking view that assessee claimed it as business income. The assessee submitted the necessary documents during the assessment time itself and the AO has not suspected the authenticity of any of the documents submitted by the assessee nor discussed the contents reply submitted by the assessee in the assessment order. The assessee have also submitted the computation of income and the audited Tax audit report for AY 2012- 13 before the AO, upon perusal of the same the assessee has not shown any Long term capital gain of Rs. 11,96,548/- in the computation of income. The AO has not recorded how the amount of Rs. 11,96,548/- such basis is not discussed in the assessment order. The AO has only discussed the investigation wing report and the statement recorded during the search operation by the investigation wing. The AO failed to appreciate that the transaction done by the appellant is an intraday and there is no actual delivery of stocks and there is no payment made for purchase or payment received for sale as it is intraday transaction. The contract note submitted by the assessee is also extracted by ld. CIT(A) in his order, which is the basis for not claiming exemption u/s 10(38). The assessee claimed trading in shares of M/s. VMS Industries Limited, and as per documents submitted it is only intraday trading and has not shown any bogus capital Gain. The ld. CIT(A) held that the addition of Rs. 11,96,548/- is not correct. Once the addition of transaction was deleted, consequential addition of alleged commission expenditure was also deleted. On independent appreciation of material on record, we do not

ITA No.5946/Mum/2026 (AY: 2012-13) Vimal Vallabhji Gala find any infirmity in the order of ld. CIT(A) in deleting the addition of section 68 as well as addition of unexplained expenditure. In the result, the grounds of appeal raised by Revenue are dismissed. 5. In the result, appeal filed by Revenue is dismissed.

Order was pronounced in open court on 11/09/2026

Sd/- Sd/-

JAGADISH PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 11/09/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant RegistrarITAT, Mumbai