BHARTI CHIRANIA,MUMBAI vs. DCIT, CIRCLE - 23(1), MUMBAI

Since the facts and issues involved in both the appeals are identical and interconnected, they were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.

In this appeal, the assessee has challenged the addition of Rs. 2,10,14,489/- made under section 68 of the Income-tax Act, 1961 (the "Act"), treating the sale consideration received on transfer of shares as unexplained cash credit, and the consequential addition of Rs. 6,24,446/- made under section 69C of the Act on account of alleged commission paid for obtaining bogus Long Term Capital Gains (LTCG).

Briefly stated, the assessee is an individual regularly assessed to tax. For AY 2014-15, she filed her return of income on 22.08.2014 declaring total income of Rs. 3,74,390/-, comprising income under the heads salary, house property, business or profession, capital gains and other sources. In the return of income, the assessee claimed exemption under section 10(38) of the Act in respect of Long Term Capital Gains arising from sale of equity shares of two companies, namely M/s Moryo Industries Limited (MIL) and M/s Tilak Ventures Limited (formerly known as Tilak Finance Ltd. / OCTS), through a recognized stock exchange on payment of Securities Transaction Tax (STT).

The Ld. AR submitted that the transactions in both the scrips are duly supported by contemporaneous documentary evidence.

In respect of Moryo Industries Limited, it was submitted that the assessee purchased 28,200 physical equity shares on 26.06.2012 for a consideration of Rs. 6,50,900/- from Shri Mohan Jain through account payee cheque No. 454804 drawn on HDFC Bank, Crawford Market Branch, Mumbai. The shares were transferred in the assessee's name on 29.09.2012 by the Registrar and Transfer Agent, M/s Purva Sharegistry India Pvt. Ltd., and were subsequently dematerialised on 10.01.2013. Pursuant to a stock split from face value of Rs. 10/- to Rs. 5/- per share, 56,400 shares were credited to the assessee's demat account on 16.01.2013. During AY 2014-15, the assessee sold 2,600 shares on 17.02.2014 through SEBI-registered broker M/s Nirmal Bang Securities Pvt. Ltd. on the stock exchange for net consideration of Rs. 5,13,506/-, which was received through banking channels.

In respect of Tilak Ventures Limited, the learned AR submitted that the assessee had applied for and was allotted 50,000 equity shares of M/s Tilak Finance Ltd. on preferential basis at Rs. 15/- per share, including premium of Rs. 5/- per share, vide allotment letter dated 22.07.2010. The share application money was paid through banking channels by cheque No. 103748 drawn on HDFC Bank, which was debited on 19.07.2010, and the shares were credited to the assessee's demat account on 24.09.2010. Pursuant to a stock split into shares of Re. 1/- face value, 4,80,000 shares were credited to the assessee's demat account on 19.09.2011. After sale of 75,000 shares during FY 2011-12, which was accepted by the Department in AY 2012-13, the assessee sold 1,13,070 shares during AY 2014-15 through the recognized stock exchange and received net sale proceeds of Rs. 2,05,00,981/- through account payee banking channels.

The learned AR further submitted that the ex-parte ad-interim order passed by SEBI on 04.12.2014, which was relied upon by the AO in respect of MIL, was subsequently revoked by the Whole Time Member of SEBI vide final order dated 21.09.2017. It was submitted that the preferential allottees were thereby exonerated from the allegations of price manipulation. As regards Tilak Ventures Limited, it was submitted that no adverse order or finding of SEBI or any other regulatory authority implicating the assessee had been brought on record. It was further submitted that the additions were made primarily on the basis of generalized investigation material and statements of third parties, without establishing any cash trail between the assessee and the alleged operators or brokers and without affording an opportunity of cross- examination.

The learned AR also relied upon the decisions of the coordinate Benches of the Tribunal in the cases of family members and other assessees involving identical scrips, including Sudheer Chirania (ITA No. 5263/Mum/2025), Smt. Anju Chirania (ITA No. 3158/Mum/2024), Smt. Preeti Chirania (ITA No. 4245/Mum/2024), Smt. Veena Chaturvedi (ITA No. 1702/Mum/2021) and Prakashmal Malraj Jain (ITA No. 3271/Mum/2023), as well as the judgments of the Hon'ble Bombay High Court in PCIT v. Indravadan Jain, HUF [2023] 156 taxmann.com 605 (Bom) and CIT v. Shyam R. Pawar [2015] 54 taxmann.com 108 (Bom).

The Ld. DR, on the other hand, relied upon the findings recorded by the AO and the learned CIT(A). He submitted that the financial fundamentals of the companies did not justify the steep appreciation in their share prices and that the transactions bore the characteristics of accommodation entries.

We have heard the rival submissions and perused the material available on record, including the factual paper book containing the contract notes, bank statements, demat statements, STT certificates in Form 10DB and broker ledgers.

On perusal of the record, we find that the assessee has placed on record documentary evidence relating to acquisition and sale of shares of both the companies. The shares were acquired through banking channels, held in demat form for the requisite period and subsequently sold through the electronic trading platform of a recognized stock exchange through SEBI-registered brokers. The consideration paid for acquisition and the sale proceeds were routed through banking channels, and STT was paid on the transactions.

Insofar as Moryo Industries Limited is concerned, the AO primarily relied upon the ex-parte ad-interim order passed by SEBI on 04.12.2014. However, it is an undisputed position that the said interim directions were subsequently revoked by the Whole Time Member of SEBI vide final order dated 21.09.2017. The coordinate Benches of the Tribunal in Smt. Veena Chaturvedi v. DCIT (ITA No. 1702/Mum/2021) and ITO v. Prakashmal Malraj Jain (ITA No. 3271/Mum/2023) have also considered the subsequent developments concerning the said scrip and held that the additions under section 68 could not be sustained merely on the basis of the interim SEBI order which had subsequently been revoked.

In respect of Tilak Ventures Limited, the Revenue has not brought on record any adverse finding or order of SEBI or any other regulatory authority implicating the assessee or her broker in any price manipulation or accommodation entry. There is also no material on record establishing any connection of the assessee with the promoters, directors or alleged entry operators. We further note that, in cases involving identical transactions in the same scrip, coordinate Benches of the Tribunal have deleted similar additions, including in Sudheer Chirania (ITA No. 5263/Mum/2025) and Smt. Anju Chirania (ITA No. 3158/Mum/2024).

The Hon'ble Bombay High Court in PCIT v. Indravadan Jain, HUF [2023] 156 taxmann.com 605 (Bom) and CIT v. Shyam R. Pawar [2015] 54 taxmann.com 108 (Bom) has considered the evidentiary requirements in cases involving alleged bogus share transactions. Where the purchase and sale transactions are supported by documentary evidence such as contract notes, demat statements and banking records, and STT has been paid, an addition cannot be sustained merely on the basis of general investigation material or suspicion in the absence of cogent evidence linking the assessee with the alleged accommodation entry or price manipulation.

In the present case, the assessee has discharged the initial onus cast upon her by furnishing the primary documentary evidence in support of the transactions. The Revenue, in our considered view, has not brought on record cogent material to establish that the sale proceeds received by the assessee represented her own unaccounted money introduced in the guise of LTCG. In particular, no evidence of any cash payment by the assessee to any alleged entry provider has been brought on record.

In view of the foregoing discussion and having regard to the facts and material available on record, we hold that the addition of Rs. 2,10,14,489/- made under section 68 of the Act is not sustainable and is accordingly deleted.

Since the addition under section 68, which constitutes the basis for the alleged commission expenditure, has been deleted, the consequential addition of Rs. 6,24,446/- made under section 69C of the Act towards alleged commission is also deleted.

Accordingly, the appeal of the assessee for AY 2014-15 is allowed.

In this appeal, the assessee has challenged the validity of the reassessment proceedings initiated under sections 147/148 of the Act and the additions of Rs. 1,21,63,083/- made under section 68 in respect of sale proceeds of shares of Moryo Industries Limited and Rs. 3,64,893/- made under section 69C towards alleged commission.

The learned AR submitted that the assessee filed her return of income in response to notice under section 148 on 15.11.2018 and specifically requested the AO to furnish the reasons recorded for reopening the assessment. It was submitted that the AO did not furnish the recorded reasons or dispose of the assessee's objections thereto and instead proceeded to issue notice under section 143(2) on 20.11.2018 and thereafter completed the reassessment. According to the learned AR, such non-compliance vitiates the reassessment proceedings in view of the judgment of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC).

On merits, both the learned representatives agreed that the additions of Rs. 1,21,63,083/- under section 68 and Rs. 3,64,893/- under section 69C relate to sale of shares of Moryo Industries Limited and arise from facts and documentary evidence identical to those considered by us in AY 2014-15.

We have considered the rival submissions. In the present case, the assessee filed the return of income in response to the notice issued under section 148 and thereafter specifically requested the AO to furnish the reasons recorded for reopening. However, the reasons recorded were not furnished to the assessee before the assessment proceedings were proceeded with. The AO, instead, issued notice under section 143(2) on 20.11.2018 and completed the reassessment.

The Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) has laid down the procedure to be followed where an assessment is reopened under section 147 of the Act. The assessee is entitled to receive the reasons recorded by the AO on request, and objections, if any, are required to be disposed of by the AO before proceeding further in the matter.

In the facts of the present case, the AO proceeded with the reassessment without furnishing the recorded reasons despite the specific request made by the assessee. The reassessment proceedings, therefore, suffer from non- compliance with the procedure laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra). Accordingly, the reassessment order cannot be sustained.

Even otherwise, on merits, we have already considered the transactions relating to Moryo Industries Limited in the assessee's appeal for AY 2014-15. As discussed in paragraphs 13 to 16 above, the addition cannot be sustained merely on the basis of the interim SEBI order dated 04.12.2014, particularly 8 when the interim directions were subsequently revoked by the Whole Time Member of SEBI vide final order dated 21.09.2017. The assessee has furnished documentary evidence in support of the acquisition and sale of the shares, while the Revenue has not brought on record cogent material establishing that the sale proceeds represented unexplained money of the assessee.

Consistent with our findings for AY 2014-15, the addition of Rs. 1,21,63,083/- made under section 68 is accordingly deleted. Consequently, the addition of Rs. 3,64,893/- made under section 69C towards alleged commission is also deleted.

In view of the above, the grounds raised by the assessee are allowed and the additions are deleted.

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