MANSUKH GALA,MUMBAI vs. ACIT,CC-1(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI HYBRID HEARING BEFORE HON’BLE SHRI PAWAN SINGH, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकरअपीलसं./ ITA No.6029/MUM/2024 (निर्धारणवर्ा / Assessment Year: 2010-11) & 2. आयकरअपीलसं./ ITA No. 6030/MUM/2024 (निर्धारणवर्ा / Assessment Year: 2012-13) & 3. आयकरअपीलसं./ ITA No. 6031/MUM/2024 (निर्धारणवर्ा / Assessment Year: 2014-15) & 4. आयकरअपीलसं./ ITA No. 6032/MUM/2024 (निर्धारणवर्ा / Assessment Year: 2015-16) & 5. आयकरअपीलसं./ ITA No. 6033/MUM/2024 (निर्धारणवर्ा / Assessment Year: 2016-17) Shri Mansukh Gala ACIT – Circle 1(3) 9th Floor, Pratishtha Bhavan 302-A, Vikas Apartment बिधम/ Dadabhai Chamarwala Lane Old CGO Annexe, M.K. Road Vs. Dr. Babasaheb Ambedkar Road Mumbai 400020 Parel TT, Mumbai - 400012 स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AABPG-6662-M (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Sh. Sajjan Kumar Tulsiyan (CA) a/w Ms. Abha Agarwal (CA) (Virtual), Ms. Shivani Shah (CA) and Ms. Kshitija Khangte – Ld. ARs प्रत्यथीकीओरसे/Respondent by : Sh. Nishant Somaiya (CIT) - Ld. DR

सुनवाईकीतारीख/Date of Hearing : 15-06-2026 घोषणाकीतारीख /Date of Pronouncement : 18.08.2026 आदेश / O R D E R Per Bench 1. Aforesaid appeals by assessee for captioned Assessment Years (AY) have identical facts and issues. The impugned order is a common order for all the years. The registry has noted small delay of 12 days in all the appeals which stand condoned. First, we take up appeal for AY 2010-11 which arises out of common order of learned Commissioner of Income Tax (Appeals)-47, Mumbai [CIT(A)] dated 10.09.2024 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 153A r.w.s. 143(3) of the Act on 29.12.2017. The assessee’s grounds of appeal read as under: - 1. On the facts and circumstances of the case, the Ld. CIT (A) has erred in confirming order passed U/s 143 (3) r.w.s. 153A making additions by invoking provisions of Section 68 without any reference to any incriminating material found during the course of search. Such additions are therefore not in accordance with the basic provisions of law. Thus, the impugned order passed deserves to be squashed. 2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in confirming addition of Rs. 57,06,652 (Rs.47,91,452/-being cost of purchase of 112000 equity shares of Prabhav Industries Ltd. as well as Sale proceeds of 5,000 equity shares amounting to Rs.9,15,200/- of M/s. Prabhav Industries Ltd.) without considering facts. Further such amount is added by invoking provisions of Section 68 of the Income Tax Act, 1961 for the year under consideration. In view of the above, addition made to the extent of Rs. 57,06,652 needs to be deleted. 3. On the facts and circumstances of the case, the Ld. CIT (A) has erred in confirming addition of Rs.2.28,266 being alleged 4% commission on an amount of Rs.57,06,652 (Rs.47,91,452/- being cost of purchase of 112000 equity shares of M/s.Prabhav Industries Ltd, as well as Sale proceeds of 5,000 equity shares amounting to Rs.9,15,200/- of M/s.Prabhav Industries Ltd.) without considering facts. Further such amount is added by invoking provisions of Section 69C of the Income Tax Act, it is therefore prayed that impugned addition needs to be deleted. The identical grounds have been raised for subsequent years also. For AYs 2010-11 & 2012-13, the assessee has filed an application u/r

11 of ITAT Rules, 1963 which seek admission of pertinent legal ground for these two years. The said ground read as under: -

On the facts and circumstances of the case, the assessment order is bad in law and deserves to be quashed because the assessment for the year has not abated and no incriminating material was found in the course of search which is evident from the fact that the additions were made without referring to any incriminating material found in the course of search. Thus, the impugned order deserves to be quashed in light of the judgement of Hon’ble Supreme Court in the case of PCIT vs. Abhisar Bildwell Private Limited reported at 149 Taxmann.com 399. Since the additional ground is purely a legal ground which do not require appreciation of new facts, the same is admitted, for both the years, as per the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 (SC) holding that where all the facts of the case are on record and the Tribunal is only required to consider a question of law arising from the facts, the Tribunal has jurisdiction to examine the same which arises from the facts found by the authorities below and decide the case on merits, although the grounds were never raised before it. 2. The Ld. AR advanced arguments on legal grounds as well as on merits and referred to various case laws which are placed on record. On legal grounds, it has been stated that in the absence of any incriminating material found during the course of search on assessee- group, the impugned addition could not be sustained in law for AYs 2010-11 & 2012-13 as per binding judicial decisions. The arguments have been made for all the years on merits also. The written submissions have also been filed raising vehement contentions. The attention has been drawn to various documents as placed in the paper-book. The Ld. CIT-DR also advanced arguments, oral as well

as written and referred to the findings of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident individual filed regular return of income on 13.11.2010 declaring income of Rs.14 Lacs. However, pursuant to search action u/s 132 on assessee-group of cases on 10.09.2015, a notice u/s 153A was issued by Ld. AO to the assessee on 16.12.2016. In response thereto, the assessee offered same return of income. Subsequently, notices u/s 143(2) & 142(1) were issued from time-to-time calling for various details from the assessee. The main issue as identified by Ld. AO was exempt Long-Term Capital Gains (LTCG) as reflected by the assessee on sale of shares of various entities. 3.2 It transpired that during this year, the assessee purchased 112000 number of shares of an entity namely M/s Prabhav Industries Ltd. (in short ‘Prabhav’) on 09.02.2010 for a consideration of Rs.47,91,452/-. On the same date, the assessee sold 5000 shares for a consideration of Rs.9,15,200/-. These transactions were doubted by Ld. AO. 3.3 The Ld. AO, describing general modus operandi to generate bogus Long-Term Capital Gains on shares, alleged that the said gains were bogus in nature since the assessee’s transactions were of similar nature. The said conclusion was in the background of the investigation of various agencies like SEBI etc. in the case of such

similar shares. The Ld. AO extracted the financials of ‘Prabhav’ for various years and noted that the said entity made huge preferential allotment of shares of face value of Rs.10/- each at premium of Rs.25/- per share on 02.03.2010 / 26.03.2010. No investor would invest in a company having such poor financials. Therefore, a conclusion was drawn that ‘Prabhav’ was a paper company being controlled and managed by various accommodation entry providers and this entity was not doing any actual work but used for providing LTCG to various beneficiaries. Therefore, Ld. AO treated entire investment made by the assessee during this year as well as sale consideration received by the assessee as unexplained investment from undisclosed sources u/s 68 and added the same in the hands of the assessee. 3.4 The Ld. AO, going by the statement of the assessee u/s 132(4) on 12.09.2015, also concluded that the assessee paid commission in cash at the rate of 4% to Shri Jagdish Purohit and Shri Deepak Patwari to procure non-genuine transactions of purchase and sale of shares. Though the assessee, in its reply dated 22.12.2017, opposed the aforesaid conclusion of Ld. AO, the same stood rejected by Ld. AO. 3.5 During the course of assessment proceedings, the assessee sought cross-examination of various parties as referred to by Ld. AO to draw such an adverse inference, however, the same was held to be not necessary. As per settled legal position, AO was not debarred from relying on private source of information which may not be

disclosed to the assessee. However, while using such information collected from private sources against the assessee, the source of information is required to be disclosed to the assessee. The assessee was fully communicated and provided with all the relevant details / information being relied upon by the department. The assessee also claimed that his name did not appear in the relied statements. The said argument stood rejected on the ground that such bogus LTCG entries were provided in each of the scrip to various persons. It was impractical to expect that the statements would contain ame of each and every beneficiary. The said fact would not make the transactions of the assessee as genuine one. When the modus operandi was laid down in the statements, the company whose shares were privately allotted to the assessee was mentioned, name of entities who purchased the shares of the assessee at higher rates and all such small details match the case of the assessee, the statement of the brokers / exit providers / promoters could be relied upon, not as a primary evidence, but as corroborating evidence against the assessee. The Ld. AO also referred to the statement of the assessee admitting that the LTCG was non-genuine in nature and arose out of manipulations of the transactions carried out with the help of the operators and the assessee further clarified that in the scheme of bogus LTCG, every transaction was pre-arranged. The same would establish that the LTCG claim of the assessee was bogus. The Ld. AO then referred to the statement of Shri Ashwin Choksi (stockbrokers) to bolster his claim. The provisions of Sec. 115 of Indian Evidence Act,

1872 makes it abundantly clear that the statements which are in the nature of declarations would be binding on the declarant. They can neither be retracted nor do they require any corroboration. Though the provisions of Sec.132(4) create a rebuttable presumption in favor of the assessee qua statement recorded, however, the burden would be on the person who alleges that the statement was not made voluntarily, to prove that it was involuntarily made or made under coercion or undue influence or it was made under mistaken belief or obtained by fraud or misrepresentation. The admission would be a good piece of evidence and could be used against the assessee. The assessee clearly admitted that he had no knowledge about share trading activities and was advised by two people to carry out such transactions which yielded extraordinary gains to the assessee. 3.6 The assessee had retracted the statement on 13.10.2015 which was held to be bereft of legal sanctity since the affidavit was filed after a gap of one month. The Ld. AO, referring to various judicial decisions, rejected the aforesaid retraction made by the assessee. Finally, aggregate of purchase value and sale consideration of Rs.57,06,652/- was added in the hands of the assessee u/s 68 whereas alleged commission paid thereon @4% amounting to Rs.2,28,266/- was added u/s 69C. 3.7 Similar assessment was framed for AY 2012-13 u/s 153A r.w.s. 143(3). The assessee filed return of income on 30.09.2012 which stood revised on 20.10.2012 at Rs.40.04 Lacs. However, the case was subjected to scrutiny pursuant to search action on the assessee-

group. In this year, the assessee had purchased 100000 number of shares of another entity i.e., M/s Blue Circle Services Ltd. on 28.10.2009 for Rs.12 Lacs through A.C. Choksi Share Brokers Pvt. Ltd. The shares were subsequently splitted in the ratio of 1:10 and the assessee received 10 Lacs number of shares. The said shares were sold during the month of November & December 2011 at average sale consideration of Rs.68/- per share and the LTCG for Rs.659.22 Lacs was claimed to be exempt u/s 10(38). The assessee had made similar investment in 100000 shares of Unisoft Holland Ltd. on 02.03.2010 though its brokers which were received in the demat account of the assessee. The said shares were also sold at average price of Rs.126.26 per share yielding similar gains for the assessee.The Ld. AO, in similar background of the facts and referring to the financials of these two entities and considering the statements recorded by the investigation wing in the case of entry operators, negated the exempt LTCG claim of the assessee. Finally, LTCG of Rs.799.23 Lacs was added u/s 68 and along with addition of estimated commission at 4% u/s 69C. 3.8 Similar are the facts in AY 2014-15 wherein an assessment was framed u/s 153A r.w.s. 143(3) of the Act on 29.12.2017. The assessee had filed regular return of income on 31.07.2014 at Rs.68.16 Lacs. The Ld. AO, in similar background of the fact, rejected exempt LTCG claim of the assessee with respect to sale of shares of another entity namely M/s Luminaire Technologies Ltd. The same was brought to tax

u/s 68 along with addition of commission income u/s 69C at the rate of 4%. 3.9 In AY 2015-16, the assessee was assessed u/s 153A r.w.s. 143(3) of the Act on 29.12.2017. The assessee had filed regular return of income on 30.08.2015 at Rs.82.95 Lacs. Pursuant to subsequent search action on assessee group on 10.09.2015, impugned assessment was framed wherein Ld. AO rejected exempt LTCG claim of the assessee with respect to sale of shares of M/s Luminaire Technologies Ltd. The gains so earned by the assessee were brought to tax u/s 68 along with addition of estimated commission income of 4% u/s 69C. 3.10 In AY 2016-17, a regular assessment has been framed u/s 143(3) against the assessee on 29.12.2017 wherein the exempt LTCG earned on sale of shares of M/s Cressanda Solutions Ltd. were brought to tax u/s 68 alongwith addition of estimate commission income of 4% u/s 69C. 3.11 Aggrieved as aforesaid, the assessee preferred further appeals against all these assessment orders which stood disposed-off by Ld. CIT(A) vide common order dated 10.09.2024. Appellate Proceedings 4.1 The assessee assailed the impugned additions on merits as well as on legal grounds. In one of the legal grounds, it was contended that the additions were made u/s 68 without any reference to any incriminating material found during the course of search action on the assessee-group and therefore, the additions were unjustified. The Ld.

AO made addition on the basis of material already available on record and not with specific reference to any material found and seized during the course of search proceedings. As per settled legal position, no addition could be made in respect of an assessment which had attained finality if no incriminating material was found during the search. On merits, it was stated that the shares were sold on the floor of stock exchange which gave rise to exempt capital gains u/s 10(38) of the Act. The assessee furnished plethora of documents substantiating the purchase as well as sale transactions which include Ledger Account of investment in shares, brokers’ note for purchase of shares, bank statement highlighting payment for purchase of shares through banking channels, sales ledger account, brokers’ note for sale of shares, bank statement evidencing receipt of sale consideration through banking channels, ledger account of the assessee in the books of broker, demat statement for the year of purchase reflecting inwards of shares, demat statement for the year of sale reflecting outwards of shares etc. The assessee paid applicable Securities Transactions Tax (STT) at the time of sale of shares. The assessee purchased the shares of a listed entity and shares were transferred in demat account immediately after purchase, the purchase price was paid through bank account & the shares were held for more than one year in demat account. Further, the shares were sold through registered stock-broker at stock exchange, the shares were transferred from demat account and the sales proceeds were received in the bank account. The assessee thus fulfilled all the conditions of

Sec.10(38) to lay claim of exempt LTCG. The provisions of Sec.68 would not apply to the facts of the present case. The assessee also assailed the conclusion of abnormal rise in price of the underlying shares. The assessee also stated that merely on the basis of some investigation done at the back of the assessee, presumption and doubt on high rise in value of share could not be the basis to treat the genuine transaction of the assessee as bogus one. Mere doubt, presumptions, suspicion and on the basis of third-party statements, which were not at all related to the assessee, could not be the basis to draw negative conclusion against the assessee. There was no specific material against the assessee. The shares were purchased through registered stock-broker and not through private placement as alleged by Ld. AO in the show-cause notice. The assessee had furnished all the requisite documents and papers to prove that the transactions were done though proper banking channels and shares were purchased and sold through demat account. The shares were held for more than one year and STT was paid on sale of these shares. Therefore, the gains so earned by the assessee were genuine and allowable u/s 10(38). On the recorded statement, it was stated that the statement was obtained under pressure and the same already stood retracted and therefore, the same lost its evidentiary value. The assessee also stated that the copy of statement recorded from various parties as relied upon by Ld. AO to draw adverse inference was never provided nor any opportunity of cross-examination was ever provided to the assessee. The shares were traded at the prevailing market

price on the floor of stock exchange. The general statement related to some brokers / entry providers etc. and statement as produced in the assessment order were out of context and in none of these statements, any of such party had mentioned the name of the assessee or his family member which would indicate that the transaction as carried out by the assessee were not genuine. No material was found during search to controvert the evidence furnished by the assessee in support of genuineness of the transactions. The conclusion of Ld. AO was based on a general report and modus operandi generally adopted and on general observations only. The assessee also quoted catena of judicial decisions supporting the case of the assessee. 4.2 The substantive decision of Ld. CIT(A) is based on the facts for AY 2014-15. It was observed that the assessee purchased 5 Lac number of shares of M/s Luminaire Tech. Ltd. (formerly known as Paridhi Properties Ltd.) from Dipali Vintrade Pvt. Ltd. on 08.08.2011 in an off-market transaction through stockbroker A.C.Choksi Share Brokers Pvt. Ltd. and the shares were reflected in assessee’s demat account on 09.12.2011. The purchase price was paid through account payee cheque. Later on, the company split the share in the ratio of 1:10 and the additional shares stood credited in assessee’s demat account on 19.10.2012. Pursuant to scheme of amalgamation of M/s Paridhi Properties Ltd. into M/s Luminaire Technologies Ltd. (in short Luminaire), the shareholders of Paridhi Properties Ltd. were allotted shares in M/s Luminaire Technologies Ltd. The director of Luminaire

Technologies Ltd., Shri Brijesh Bhagat, in statement u/s 131, stated that the shares of Luminaire Technologies Ltd. were used for providing accommodation entry of bogus LTCG. The statement of Smt. Veena Bala Subramanya Rao, Director of Paridhi Properties Ltd. was also recorded wherein she stated that whole scheme of amalgamation was an arrangement to provide LTCG to the beneficiaries. During this year, the assessee sold the shares of Luminaire through recognized stock exchange through stockbroker A.C. Choksi Share Brokers Pvt. Ltd. which was evidenced by contract notes, bills and requisite STT was also charged on these transactions. The assessee received sale proceeds of transfer of these shares in the bank account through normal banking channels. The assessee declared the gains in the relevant Income Tax Return. The Ld. AO ignored the supporting documentary evidences whereas the assessee contended that all the evidence for purchase and sale of shares was submitted on record and nothing was found to be forged, illegal or bogus. The copy of documents & evidences received from investigation wing were relied upon by Ld. AO without providing such material to the assessee and no opportunity of cross-examination was ever provided which was in violation of principle of natural justice. The assessee contented that the impugned addition was made by Ld. AO mainly on the basis of statements recorded by the investigation wing during the search action on assessee and his family members. Based on modus operandi of the operator and exit providers in a typical Penny stock entity as described by the AO in the order and the

variation in prices of shares of Luminaire Tech. Ltd. during the years as collected from moneycontrol.com and other websites, Ld. AO held that some brokers were operating the shares and providing bogus LTCG entries. As the assessee had sold the shares and the exit providers purchased the same at a higher price, Ld. AO held that these sales receipts were accommodation bogus LTCG. Another contention was that the assessee made investment in shares and earned gains in earlier years also. The demat accounts were opened by the assessee and his family members with the broker A.C. Choksi Share Brokers Pvt. Ltd in the year 2008. The assessee also stated that the shares were acquired through preferential allotment and from the market through the brokers. As per the statement of the assessee, the investment was made and sold on the advice of Shri Jagdish Purohit and Shri Deepak Patwari. However, the assessee lacked knowledge about these companies. The assessee was ignorant about share trading activities. The assessee came into contact with these two persons who were part of syndicate of generating exempt LTCG by way of investment in shares. The assessee relied on these two persons and did not enquire about the company and made investment on the advice of these persons. The assessee also contended that no single incriminating evidence was found from his premises through an extensive search action was carried at the premises of the assessee. The said argument stood rejected by Ld. CIT(A) on the ground that if the search action established deployment of illegal schemes for introducing bogus LTCG in the books which has been utilized by an

assessee for his own benefit, such finding or information would be sufficient incriminating material for the AO for the purposes of assessment u/s 153A of the act. Reference was made to the decision of Hon’ble Apex Court in the case of P.R. Metrani (287 ITR 209) to conclude that if search action result in identification of certain entities who had indulged in dubious or bogus transactions in general and during such search, it is noted that either some of the searched parties or some other third-party had engaged in similar transactions with these entities, such information would be an information of incriminating in nature. Reference was also made to the decision of Hon’ble Gujarat High Court in the case of Rameshbhai Jivrajbhai Desai (120 Taxmann.com 82) and also to the decision of Hon’ble Delhi High Court in the case of Nau Nidh Overseas Pvt. Ltd. (88 Taxmann.com 665). In terms of these decisions, incriminating material need not be a tangible document incorporating the assessee’s name against a concealed income but also gathering of information or finding of a concerted investigation which evidences that the assessee had not correctly shown his income in its Income Tax Return. 4.3 On the retraction of statement by the assessee, it was noted that the statement was recorded for two days i.e., on 11.09.2015 and 12.09.2015. There was no forced confession evident in any of these statements. The retraction does not provide any evidence that the earlier statement made during search was false and based on wrong assumption of facts. Therefore, the retraction was to be rejected. The

assessee also relied on CBDT instructions which were rejected on the ground that there was no forced confession or undisclosed income. The admission made during search could be disputed by the assessee but it was equally well settled that the statement made voluntarily by the assessee could form the basis of the assessment. Mere retraction would not make the original statement unacceptable. The burden lies on the assessee to show that the admission made by him was incorrect or based on misconception of facts. Such retraction needs to be supported by strong evidence stating that the earlier statement was recorded under duress and coercion. Reference was made to the decision of Hon’ble Supreme Court in the case of Bannalal Jat Constructions P. Ltd. (106 Taxmann.com 128) and also the decision of Hon’ble Kerala High Court in the case of O.Abdul Razak (20 Taxmann.com 48) holding that statement under oath would constitute evidence. The case law of Hon’ble Gujarat High Court in the case of Pardeep Kumar Biyani (101 Taxmann.com 130) was also quoted to defend the action of Ld. AO. The Ld. CIT(A) then referred to the statement of Shri Ashwin Choksi, Director of A.C. Choksi Share Brokers Pvt. Ltd. as recorded u/s 131 during survey at his premises. As per the statement, that entity did not follow the procedures / guidelines as laid down by SEBI. Finally, legal ground qua incriminating material was rejected. 4.4 On merits, it was held that there was phenomenal rise in the price of share of Luminaire whereas no corporate announcement was made about any major investment or acquisition. As per financials of

this entity, there was no major increase in financials of the company. The assessee failed to justify the LTCG to be genuine one. The directorate found out the specific modus operandi of such bogus LTCG generation. Reference was made to the decision of Hon’ble Delhi High Court in the case of Suman Poddar (112 Taxmann.com 329) and the decision in Udit Kalra (ITA No.220/2019), the decision of Hon’ble Bombay High Court in Sanjay Bimal Chand Jain (ITA No.18/2017 dated 10.04.2017) & the decision of Kolkata High Court in Swati Bajaj (139 Taxmann.com 352). In all these decisions, it was held that jump in share price of a company of unknown credentials could not be an accident or windfall but it was possible because of manipulations in a pre-planned manner. Therefore, the documents submitted by the assessee were not sufficient enough to discharge the burden of proof that the purchase and sale transactions were genuine. The onus was on assessee to explain astronomical rise in prices of the scrips purchased by him. The assessee failed to discharge this burden. Finally, the action of Ld. AO in rejecting the exempt LTCG claim of the assessee was rejected. The consequential assessment of commission income was also upheld. Similar view was taken for all the other years. Aggrieved, the assessee is in further appeals before us. Our findings and Adjudication 5. We have carefully considered the findings of lower authorities along with applicable legal positions and case laws. We have also carefully considered the rival submissions, oral as well as written,

examined the assessment records, the impugned orders of the authorities below and the documentary evidences placed before us. The basic facts are not in much dispute. The assessee is a regular investor and it has traded in the listed shares since the year 2008 when the demat account was opened with the share broker. The sales of the shares have happened through stock exchange after due payment of STT. The assessee has regularly carried out trading activities over all these years. Since these scrips fulfilled the conditions laid down u/s 10(38), the gains so earned by the assessee were claimed to be exempt u/s 10(38). However, the said claim has been rejected by lower authorities primarily on the ground that there was abnormal rise in the price of underlying scrips which cast serious doubt on the claim of the assessee. For this, reference has been made by Ld. AO to general modus operandi being adopted by various entry operators to jack up the price of such shares by dubious methods so as to generate bogus LTCG for various beneficiaries. However, the assessee has assailed the action of lower authorities on the ground that its transactions were genuine in nature and the assessee was in possession of all the relevant documentary evidences which were already furnished before lower authorities. It has been contended that by furnishing the same, the onus of the assessee as required under the law stood discharged and the onus was on revenue to dislodge the claim of the assessee. The same has not been done. The assessee has assailed the action of Ld. AO in rejecting the assessee’s claim on general observations and common

modus operandi which do not link the assessee with any of the stated manipulations. It has further been contended that the statements etc. as referred & relied on by Ld. AO were never confronted to the assessee and no cross-examination of persons making adverse statements was ever provided to the assessee which is in gross violation of principles of natural justice and the same would nullify the impugned additions at its threshold. The assessee also contends that the assessee has nowhere been mentioned in these statements and no linkage of the assessee has been established with any of these entry providers. 6. For AYs 2010-11 & 2012-13, the assessee has raised a pertinent ground assailing the jurisdiction of Ld. AO on the ground that in the absence of any incriminating material found during the course of search action on the assessee, the concluded assessment proceedings could not be interfered with as per the landmark decision of Hon’ble Apex Court in the case of PCIT vs. Abhisar Buildwell (P) Ltd. (149 Taxmann.com 399) laying down important principles governing search assessment proceedings. The revenue, on the other hand, has relied upon the statement of the assessee u/s 132(4) to support its allegations whereas the assessee has contended that such a statement was under force / undue pressure and the statement stood retracted within short period of time (one month) and therefore, the same is to be ignored in the absence of any incriminating material as found from the possession of assessee-group during search indicating, in any manner, that such gains were bogus in nature. The

retraction has, therefore, wrongly been rejected by lower authorities. Thus, the effective grievance of the assessee is against the action of the authorities below in treating the exempt long-term capital gain earned on sale of listed equity shares as unexplained income by alleging the transactions to be accommodation entries in penny stock. 7. From case records, it emerges that the assessee had filed the return of income, in all the years, claiming exemption u/s 10(38) of the Act in respect of long-term capital gains arising from sale of listed equity shares. The assessment was completed u/s 153A [except for AY 2016-17 which is an assessment u/s 143(3)] pursuant to a search conducted by the department u/s 132 of the Act. During the course of assessment proceedings, Ld. AO noted that the shares sold by the assessee belonged to a company which is alleged to be a penny stock. During the course of search, the statement of the assessee was recorded wherein he admitted that the investment was made with the assistance of two persons. However, within a short period, the assessee retracted the said statement by filing a written communication explaining that the statement was recorded under pressure and the same did not represent the correct factual position. The AO did not accept the retraction and proceeded to hold that the gains represented accommodation entries. The exemption claimed under section 10(38) was finally denied and the amount of sales as well as purchase consideration was brought to tax along with estimated commission income. The CIT(A) affirmed the addition by

placing reliance upon various judicial decisions which have already been enumerated in preceding paragraphs. 8. For AYs 2010-11 & 2012-13, the first and foremost legal ground as raised by Ld. AR is that these two years are unabated assessment years and since no incriminating material, whatsoever, was found during the course of search action on assessee evidencing that the impugned share transactions were bogus, no addition could be made for these two years. The completed assessment could not have been disturbed in proceedings u/s 153A in view of the law laid down by the Hon'ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd. (supra). It has further been contended that the purchase and sale of impugned shares stood fully supported by documentary evidences including contract notes, demat account statements, broker's ledger, bank statements evidencing payments through banking channels, and evidence of payment of Securities Transaction Tax. The transactions were executed on a recognized stock exchange and no defect was found in these primary documents. It was further been argued that the assessee’s statement recorded during search stood retracted at the earliest opportunity and in the absence of any corroborative material supporting the same, no addition could be sustained merely on the basis of such retracted statement. It has also been submitted that the alleged statements of third-parties as relied upon by Ld. AO were never supplied to the assessee nor were such persons were produced for cross-examination despite specific request, thereby violating the principles of natural justice.

intend to confer unrestricted review jurisdiction u/s 153A in respect of completed assessments. The ratio emerging from this judgment is that completed assessments stand on a different footing from pending assessments; completed assessments can be interfered with only on the basis of incriminating material found during search and in the absence of such material, the earlier assessment must be reiterated. Thus, the existence of incriminating material is not merely a procedural requirement but a jurisdictional pre-condition for making an addition in a concluded assessment. In the present case, the revenue has failed to point out any incriminating material found during search having direct nexus with the impugned addition. Mere reliance upon investigation reports or statements already available with the department cannot substitute the statutory requirement of incriminating material found during search. Therefore, respectfully following the same, the impugned addition for AYs 2010-11 & 2012-13 years deserve to be nullified on this short ground alone. The assessee, accordingly, succeeds in its respective legal grounds for these two years. 10. So far as the statement of the assessee as recorded u/s 132(4) is concerned (placed on Page No. 97 to 120 of the paper-book), we find that revenue has placed considerable emphasis upon the statement of the assessee as recorded u/s 132(4) during search. It is trite law that an admission is an important piece of evidence. However, it is equally well settled that an admission is not conclusive proof of the facts admitted and may be explained or shown to be

incorrect. In the present case, the assessee retracted the statement within a short span of time (one month) by way of an affidavit-cum- declaration (Page Nos.121 to 124 of the Paper book) clarifying that the statements were given due to tremendous pressure and under duress. It is well settled principle that although an admission is relevant evidence, it is not conclusive. A retracted confession requires independent corroboration before it could form sole basis of an addition. An uncorroborated retracted statement cannot, by itself, assume the character of incriminating material as contemplated u/s 153A, particularly when the assessment sought to be disturbed had already attained finality. The Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala(91 ITR 18) held that an admission is an extremely important piece of evidence but it cannot be regarded as conclusive. A person making an admission is entitled to establish that the admission is erroneous or was made under a mistaken belief of facts or law. Once the assessee retracted the statement and simultaneously produced primary documentary evidences in support of the share transactions, the burden shifted upon the revenue to establish, through cogent evidence, that the retraction was false and that the original statement represented the true factual position. Mere suspicion regarding the correctness of the retraction cannot substitute proof. The Assessing Officer was required to collect independent material demonstrating that the assessee had, in fact, introduced unaccounted money in the guise of exempt capital gains. No such exercise appears to have been undertaken. In the

present case, except for the retracted statement, no corroborative evidence has been brought on record to demonstrate that the transactions recorded in the books were sham or that the consideration shown in the bank accounts was not actually exchanged between the parties. Neither the assessment order nor the appellate order points to any seized document corroborating the alleged admission. Consequently, the retracted statement by itself cannot sustain the addition. The CBDT, vide Instruction F.No. 286/2/2003-IT (Inv.) dated 10.03.2003 and further Instruction F. No.286/98/2013-IT dated 18.12.2014, has specifically directed that no undue emphasis should be placed on confessionary statements during search / survey proceedings and that focus should instead be on collection of credible evidence of undisclosed income. These instructions acknowledge that coerced statements made during search are retracted in subsequent proceedings. These circulars are binding on the Revenue. The Hon'ble Supreme Court in Vinod Solanki vs. Union of India [92 SCL 157 (SC) dated 18.12.2008] held that the accused need not prove to the hilt that the confession was obtained by inducement, threat or promise; it is sufficient if it appears to the court to be so. The time of retraction, its nature and the manner in which it was made must all be considered. In the present case, the first retraction was filed within one month of the statement and the second was filed immediately upon receipt of the copy of the statement. Both timelines satisfy any test of promptness and therefore, the retraction of the assessee is to be accepted.

several opportunities. On these facts, the addition was confirmed. Quite clearly, this case law is distinguishable on facts. The case law of Hon’ble Gujarat High Court in the case of Rameshbhai Jivrajbhai Desai (supra) is a case wherein additions were deleted by Tribunal in the absence of any incriminating material found during search. The Hon’ble Court dismissed the appeal of the revenue. In the decision of Hon’ble Delhi High Court in the case of Nau Nidh Overseas Pvt. Ltd. (88 Taxmann.com 665), the admission was not retracted and therefore, the proceedings u/s 153C were held to be valid. In the present case, the statement has been retracted by the assessee which has been held to be acceptable by us. 12. As against above decisions, Hon’ble Bombay High Court in the case of CIT vs. Om Prakash K. Jain (322 ITR 362) held that genuine documentary evidence must prevail over an oral statement and the Ld. AO, considering retraction, must take into account the genuineness of the documents produced. Similarly, Hon’ble Delhi High Court in the case of Harjeev Aggarwal (70 Taxmann.com 95) held that statements recorded u/s 132(4), on a standalone basis and without reference to incriminating material unearthed during search, could not justify block assessment additions. The Hon’ble Court specifically held that there must exist nexus between the statement recorded and incriminating evidence / material found during search. Similar is the view of Hon’ble Court in the case of PCIT vs. Best Infrastructure (India) Pvt. Ltd. (84 Taxmann.com 287) holding that

statements recorded u/s 132(4) do not by themselves constitute incriminating material. The Hon’ble Court further held that surrender made during search for one assessment year cannot automatically constitute incriminating material qua all preceding assessment years. Respectfully following the ratio of these decisions, it could well be concluded that merely on the basis of retracted statement, on standalone basis, the impugned additions could not be sustained in the absence of any incriminating material corroborating such statements. 13. Pertinently, the claim of the assessee is backed up by strong documentary evidence which include purchase bills, contract notes, demat account statements, broker's ledger, bank statements evidencing payment of purchase price and receipt of sale price through banking channels, sale contract notes. The sales transaction has been carried out at stock exchange and the transactions have suffered Securities Transaction Tax. All these investments have duly been reflected in the Balance Sheet of the assessee for respective years which are placed on record. The revenue has not demonstrated that any of these documents are fabricated or false. No enquiry has been conducted from the stock exchange and no material has been produced to show that the broker denied execution of the transactions. No evidence has been brought establishing reversal of funds or circulation of cash from the assessee. There is no investigation to demonstrate that the shares were never credited into the demat account or that the sale proceeds never reached the assessee

through banking channels. It is trite law that suspicion, however strong, cannot substitute legal proof. It is also settled law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained as per decision of Hon’ble Supreme Court in Omar Salay Mohamed Sait vs. CIT (1959 37 ITR 151). The suspicion, however strong, could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. vs. CIT (1959 37 ITR 271). Therefore, we find that onus as casted upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The allegation of price rigging / manipulation has been levelled without establishing the vital link between the assessee and alleged entry operators. 14. Proceeding further, the perusal of respective assessment orders would show that Ld. AO has merely referred to the alleged modus operandi of penny stock operators and investigation reports prepared in other cases. Such reports may justify initiation of enquiry but cannot automatically establish that every person dealing in the concerned scrip has necessarily entered into accommodation transactions. The addition has to be founded upon evidence relating to the assessee only. Mere general observations regarding abnormal price rise or alleged manipulation cannot substitute proof connecting the assessee with such manipulation. No evidence has been brought demonstrating that the assessee was part of any syndicate, price rigging exercise or

accommodation entry operation. Further, Ld. AO has relied upon statements of third-party. However, the assessee has not been afforded an opportunity to cross-examine such persons. Where an addition is founded upon statements adverse to the assessee, denial of cross-examination strikes at the root of the proceedings. The statements of such persons, therefore, cannot be treated as substantive evidence against the assessee. In the present case, no incriminating material was found during search, the transactions are fully supported by documentary evidences, the statement of the assessee stood retracted and no corroboration exists for the assessee’s statement. The assessee was denied cross-examination and there is no direct evidence which links the assessee with any entry operator or price manipulation. No opportunity of cross- examination has ever been provided to the assessee which run contrary to the decision of Hon’ble Apex Court in the case of Andaman Timber Industries vs. CCE (281 CTR 0241). The denial of such an opportunity of cross-examination is in clear violation of principle laid down by Hon’ble Apex Court in the case of Andaman Timber Industries vs. CCE (supra) holding that not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amount to serious flaw which make impugned order nullity as it amounts to violation of principles of natural justice. In the present case, we find that such an opportunity of cross-examination has never been provided by Ld. AO to the assessee which would make the

impugned addition nullity. If the statement of deponent is ignored, nothing would be left with Ld. AO to support its allegation. Therefore, the impugned addition could not be sustained in the hands of the assessee. 15. Another point is that Ld. AO has invoked the provisions of Sec.68 to make impugned addition in the hands of the assessee. The provisions of Section 68 provides that where any sum is found credited in the books of an assessee and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not satisfactory in the opinion of the Assessing Officer, the amount so credited may be charged to income-tax as the income of the assessee. In the present case, the impugned addition as made by Ld. AO u/s 68 is legally unsustainable in view of the fact that the sale proceeds on shares transactions have arisen from transfer of shares as reflected in the assessee's demat account. The source of the credit is fully identifiable and supported by documentary evidence. The identity of the payer, mode of payment, banking trail and corresponding transfer of shares are not disputed. Once the transaction of purchase and sale stands evidenced by contemporaneous documents and the revenue has failed to disprove the same by cogent evidence, the provisions of Section 68 could not be invoked merely because the revenue entertains suspicion regarding appreciation in the market value of the shares. The revenue has also failed to establish any cash movement from the assessee

corresponding to the alleged accommodation entry. Accordingly, the ingredients necessary for invoking Section 68 are absent. 16. The Ld. AR has also demonstrated that similar addition as made by Ld. AO for trading in the scrip of M/s Luminaire Technologies Ltd. (this script has been traded by assessee in AYs 2014-15 & 2015-16) has been deleted by Mumbai Tribunal in the case of Shaily Prince Goyal (ITA No.4271/Mum/2023 dated 30.05.2024). The bench, inter- alia, referred to the decision of Hon’ble Bombay High Court in the case of Shyam R. Pawar (54 Taxmann.com 108), the decision in Jamnadevi Agrawal (328 ITR 656), the decision in Mukesh Ratilal Marolia(Bom) ITA No.456 of 2007 dated 07.09.2011 & the decision in Ziauddin A. Siddiquie (Bom) ITA No.2012 of 2017 dated 04.03.2012 to delete similar additions as made by Ld. AO. Similar view has been taken by Nagpur Tribunal in the case of Sudhir Ramswaropp Mundra (ITA No.103/Nag/2019 dated 21.03.2025) as well as the decision of Jaipur Tribunal in bunch of appeals titled as Pramod Jain (ITA No.368/JP/2017 & ors. dated 31.01.2018). The copies of the same has been placed on record and after going through the same, we find that identical issue stand adjudicated in assessee’s favour. 17. So far as the decisions relating to alleged penny stock entities are concerned, we find that Hon’ble Supreme Court in the recent case of Sanjay Kumar Damjibhai Gangani (186 Taxmann.com 530; 08.05.2026) dismissed SLP of the department against the decision of Hon’ble Gujarat High Court holding that where assessee-company

claimed LTCG u/s 10(38) arising out of sale of shares and furnished complete evidence including contract note of shares, demat details, detail of bonus shares and no adverse evidence was brought against said evidences, AO was not justified in making addition u/s 68 merely on allegation that assessee was a beneficiary of penny stock scrip. Similar SLP filed by the department against the decision of Hon’ble Orissa High Court in the case of Kishore Kumar Mohapatra (162 Taxmann.com 5; 05.04.2024) was dismissed by Hon’ble Court. The Hon’ble High Court had held that where AO denied exemption claimed by assessee u/s 10(38) on long-term capital gain on sale of shares on basis of statement of entry operators recorded on various dates in some other proceedings not connected with assessee and no opportunity to cross-examine so-called entry providers was given to assessee thereby violating principles of natural justice, Tribunal was justified in deleting addition made by AO. Similar SLP has been dismissed against the decision of same court in the case of Kuntala Mohapatra (160 Taxmann.com 608) which had similar factual matrix. Similar SLP has been dismissed against the decision of Hon’ble Allahabad High court in the case of Renu Aggarwal (153 Taxmann.com 579). The Hon’ble Court had deleted similar addition on the ground that where AO had disallowed exemption claimed by assessee u/s 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accommodation of LTCG, since there was lack of adverse comments from stock exchange and officials of company involved in these

transactions and no material relating to assessee was found in investigation wing report, additions made by AO had rightly been deleted by Tribunal. Similar SLP has been dismissed against the decision of Hon’ble Bombay High Court in the case of Krutika Land Pvt. Ltd. (103 Taxmann.com 9). Again, similar SLP stood dismissed against the decision of Hon’ble Gujarat High Court in the case of Parasben Kasturchand Kochar (130 Taxmann.com 177). The Hon’ble Court confirmed deletion of similar addition on the ground that where assessee-individual was engaged in trading of shares and the assessee had discharged his onus of establishing long term capital gains arising out of sale of different shares as fair and transparent by submitting records of purchase bills, sale bills, demat statement etc. The Hon’ble Gujarat High Court in the case of Divyaben Prafulchandra Parmar (169 Taxmann.com 473) held that the similar claim as made by the assessee could not be held to be bogus in the absence of any contrary evidence brought on record by revenue. In this decision, the revenue quoted the decision of Hon’ble Calcutta High Court in the case of Pr. CIT vs. Swati Bajaj (139 Taxmann.com 352). However, it was confirmed by Hon’ble Court that the said decision would not be applicable to assessee falling outside the territorial jurisdiction. All these decisions duly support the case of the assessee. Similar analogy would apply to the decision of Hon’ble Delhi High Court in the case of Suman Poddar (112 Taxmann.com 329) as quoted by Ld. CIT(A). The decision in Udit Kalra (supra) is also distinguishable on facts since in that case, the shares were

purchased in cash in off-market transactions without following SEBI guidelines and without any banking trail. The Tribunal as well as Hon’ble Delhi High Court sustained the addition specifically because the assessee failed to furnish proof of source for the purchase transactions, the acquisition being through unverifiable cash payments with no banking record. The Delhi HC additionally noted concurrent adverse findings at all three levels and that the company had been directed for delisting. In the present case, every payment for acquisition of shares was made through RTGS and banking channels and is fully reflected in the disclosed bank accounts. In the case of Sanjay Bimalchand Jain (supra), no addition was made u/s 68. The Ld. AO had taxed the gains as business income and Hon’ble High Court upheld such characterization. Therefore, this case law does not have direct application to the facts of present case. 18. Having regard to the totality of facts and circumstances, we are of the considered opinion that the impugned additions and consequential addition of commission income, for all the years, on merits, could not be sustained. Additionally, the addition for AYs 2010-11 & 2012-13 could also not be sustained on the legal ground that no such addition could be made in respect of a concluded assessment without any incriminating material discovered during search. The impugned additions rests substantially upon a retracted statement which is unsupported by independent corroboration. The documentary evidence produced by the assessee has not been disproved. Reliance upon generalized investigation reports relating to

penny stock transactions could not substitute evidence against the assessee. The denial of cross-examination renders the third-party statements incapable of being relied upon and finally, the provisions of Sec.68 are not attracted on the facts of the present case. Accordingly, we delete the impugned additions as made by Ld. AO u/s 68 and consequential addition of alleged commission payment on legal grounds as well as on merits. We summarize our conclusions as follows: - a) The assessment for AYs 2010-11 & 2012-13 had attained finality on the date of search and no incriminating material relating to the impugned capital gains was discovered during the course of search. In view of the law declared by the Hon'ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd.(supra), Ld. AO lacked jurisdiction to disturb the completed assessment in proceedings under section 153A. The assessment for these two years is liable to be quashed on this score only. b) The statement recorded u/s 132(4), having been promptly retracted and remaining unsupported by independent corroboration, could not by itself constitute the sole basis of the addition. The action of Ld. AO in treating the same as primary evidence, for all the years, could not be upheld. c) The reliance placed by Ld. AO upon third-party statements without affording an effective opportunity of cross-examination is contrary to the principles of natural justice and materially affects the

validity of the assessment. The assessments are liable to be nullified on this score also. d) The assessee has established the genuineness of the purchase and sale of shares by producing contemporaneous documentary evidences including contract notes, demat statements, broker's ledger accounts, banking records and plethora of other documents. The Revenue has failed to rebut the documentary evidence by any cogent material. Mere reliance upon investigation reports concerning penny stock companies or abnormal appreciation in the value of the shares cannot justify an addition in the absence of evidence connecting the assessee with the alleged manipulation. e) The provisions of Section 68 are not attracted in the facts of the present case since the source and nature of the credit stand satisfactorily explained and remains uncontroverted by legally admissible evidence. 19. In view of the foregoing discussion, we hold that the impugned addition cannot be sustained on legal ground as well as on merits. The impugned orders, for all the years are set-aside and Ld. AO is directed to delete the impugned additions as made u/s 68 as well as addition of consequential commission income for all the years. The assessee’s, returns of income, for all the years, stand accepted. 20. All the appeals stand allowed. Order pronounced u/r 34(4) of ITAT Rules, 1963. Sd/- Sd/- (PAWAN SINGH) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER

ANKIT, PS Dated: 18.08.2026 आदेश की प्रनिनलनप अग्रेनर्ि /Copy of the Order forwarded to : 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3. आयकरआयुक्त/CIT 4. ववभागीयप्रवतवनवि/DR 5. गार्डफाईल/GF

ASSISTANT REGISTRAR

ITAT MUMBAI