SUDHIR RAMESH PATEL,MUMBAI vs. ITO WARD 25(1)(4), MUMBAI

Ground Nos. 1, 2 and 3 raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in upholding the additions on account of disallowance of long-term capital gain and also in upholding the additions under section 68 and section 69C of the Income Tax Act. Therefore, they are being taken up together.

Brief facts of the present case are that the assessee had claimed exempt income, which includes Rs. 26,70,370/- on account of long-term capital gain on sale of shares. However, the said claim was denied by the A.O. on the ground that the long-term capital gain of Rs. 26,70,370/- earned by the assessee from sale of 17,000 shares of Richway International Trade Limited (the name changed later to Somaya Lifestyle Limited) was not genuine.

As per the A.O., the shares in question were purchased by a company named Everblink Agency Private Limited, and the investigation carried out by the Investigation Wing of the Department in respect of some other scrips, which were also allegedly used by the entry provider, showed that the name of M/s Everblink Agency Private Limited was struck off. Therefore, the transaction of the assessee was not found to be genuine.

However, in this regard, the learned AR drew my attention to the fact that the A.O. has wrongly concluded that the assessee had not carried out genuine transactions, as the said Richway International Trade Limited, whose shares the assessee had sold, was not a penny stock company. In this regard, reliance was placed upon the report of Richway International Trade Limited for the financial year 2015-16, which refers to a growth of 143.70% as compared to the previous year and the profit before tax was Rs. 44.83 lakhs.

The Ld. AR also submitted that the A.O. has observed that Richway International Trade Limited is a penny stock company, which is not a fact. In this regard, the assessee submits that the annual report of Richway International Trade Limited for F.Y. 2015-16 refers to a growth of 143.70% as compared to the previous year. The profit before tax was Rs. 44.83 lakhs, which had grown by 190.54%. It is also submitted that the promoters held 26.62% stake in the company and the balance 73.38% was held by non- promoters and the public. 18,03,400 shares were held by individuals holding nominal share capital up to Rs. 1 lakh and 1,20,29,200 shares were held by individual shareholders holding nominal share capital in excess of Rs. 1 lakh. Thus, about 54% holding was by public individual shareholders and 18.88% holding was by Indian body corporates. These documents are available on the respective sites of Government departments.

Secondly, the investigation report of the DRI, relied upon by the A.O., has not been produced before the assessee. The assessee is not even aware as to whether his name or the name of Richway International Trade Limited appears in the said report of the DRI. As per the understanding of the assessee, no search action or survey action has been carried out against Richway International Trade Limited or its associates giving rise to a belief that the company or the transaction of sale and purchase of shares was bogus.

Thirdly, Richway International Trade Limited has not issued shares to the assessee. The assessee had purchased the shares from another party, namely, Intimate Tradelinks Pvt. Ltd. The shares were held in the demat account, the evidence of which was already furnished. Thus, once the holding of shares in the demat account is not disputed, the transaction cannot be held to be bogus.

Fourthly, the price of equity shares on the Stock Exchange is governed by market sentiments, demand and supply of the equity shares.

Apart from this, Ld. AR has also drawn my attention to the fact that he had placed on record and proved the documents in the shape of a paper book to substantiate that the transaction of sale of the scrip was genuine. The assessee also relied upon the decision of the coordinate bench of the ITAT in the case of Jitendra Udaylal Jain in ITA No. 7173/Mum/2025, and the operative portion of the same is reproduced hereinbelow:

After having considered the entire facts of the case, I find that the assessee has duly discharged its onus by placing on record all the documents in the shape of a paper book and has successfully discharged its initial onus. However, the A.O. could not find any fault with the documentary evidences relied upon by the assessee. Moreover, considering the fact that the entire transactions were routed through banking channels, and the detailed discussions have already been made by me in the above paras, and also considering the decision of the coordinate bench of the ITAT in the case of Jitendra Udaylal Jain in ITA No. 7173/Mum/2025, I find no justification to sustain the impugned additions.

Therefore, keeping in view the totality of facts and circumstances and respectfully following the doctrine of binding precedent and maintaining judicial consistency, I delete the impugned additions.

Since I have deleted the addition made by the A.O. under section 68 of the Income Tax Act, the other ground raised by the assessee relates to challenging the order of the Ld. CIT(A) in sustaining the addition under section 69C of the Income Tax Act, which is consequential to the addition made under section 68. Since I have deleted the addition under section 68, the consequential addition made under section 69C also stands deleted.

In the result, appeal filed by the Assessee stands allowed.