ITO 19.3.1, MUMBAI, MUMBAI vs. REKHA PINESH SHAH, MUMBAI

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ITA 787/MUM/2026Status: DisposedITAT Mumbai27 July 2026AY 2016-177 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s order, finding that the assessee had discharged the onus by providing sufficient documentary evidence. The Revenue failed to present specific material demonstrating the assessee's involvement in price manipulation or collusion.

What were the facts?

The Revenue appealed against the deletion of an addition made by the AO treating the assessee's profit from trading in penny stocks as an unexplained cash credit. The assessee had provided documentary evidence for the share transactions, including purchase and sale details through banking channels.

What were the issues?

Whether the profit from penny stock transactions, supported by documentary evidence and banking channels, can be added as an unexplained cash credit when the Revenue lacks specific material against the assessee.

Which sections of the Income-tax Act were involved?

Section 68,Section 10(38),Section 147,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: HON’BLE NARENDER KUMAR CHOUDHRY & HON’BLE MAKARAND VASANT MAHADEOKAR

Pronounced: 27.07.2026

आदेश / ORDER

PER: NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER: This appeal has been preferred by the Revenue against the order dated 17.11.2025, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2016-17.

2.

In the instant case, the assessment was reopened u/s. 147 of the Act by issuance of a notice dated 28.07.2022 u/s. 148 of the Act, inter alia, on information that the shares of M/s. Toyam Industries Ltd., a company listed on the BSE, constituted a penny stock and were allegedly used to facilitate the introduction of unaccounted income in the books of beneficiaries in the form of exempt long-term capital gains or short-term capital losses. The Assessee was also identified as one of the beneficiaries, who had traded in the said shares and earned a profit of Rs.27,96,375/- during the year under consideration.

3.

Accordingly, the Assessee was issued a show-cause notice, in response to which the Assessee filed its reply along with the relevant submissions and supporting documents.

4.

The Assessing Officer (in short, “the AO”), relying upon the observations contained in the investigation report and drawing an adverse inference against the Assessee, ultimately treated the transaction amount of Rs.27,89,602/- as unexplained cash credit u/s. 68 of the Act and added the same to the income of the Assessee.

5.

Thus, the Assessee being aggrieved preferred the first appeal before the Ld. Commissioner. The Ld. Commissioner, considering the peculiar facts and circumstances of the case, observed that the Assessee had produced complete documentary evidence in support of the purchase and sale of shares of M/s. Toyam Industries Ltd., including the following:

(i) purchase debit note; (ii) bank statement showing payment through account-payee cheque;

(iii) DeMat account evidencing the receipt and subsequent debit of shares; (iv) contract notes relating to the sale of shares; (v) bank statement evidencing the receipt of sale proceeds; (vi) broker’s ledger; and (vii) holding statement. 6. The Ld. Commissioner further observes that the AO neither disputes the genuineness of any of the aforesaid documents nor demonstrates that:

(i) the entries in the DeMat account are fabricated; (ii) the contract notes are bogus; (iii) the funds received represent recycled cash; (iv) the Assessee is connected with any operator or beneficiary; or (v) the broker is an accommodation-entry provider. 7. The Ld. Commissioner also relies upon the judgments of the Hon’ble Jurisdictional High Court in CIT v. Mukesh Ratilal Marolia, ITA No.456 of 2007, decided on 13.06.2016, against which the Special Leave Petition filed by the Revenue was dismissed by the Hon’ble Supreme Court, and CIT v. Smt. Jamnadevi Agrawal & Ors. [(2010) 328 ITR 656 (Bom.)]. Thus, considering the aforesaid findings, the Ld. Commissioner deleted the addition of Rs.27,89,602/- made by the AO u/s. 68 of the Act in respect of the alleged bogus long-term capital gain.

8.

Thus, the Revenue being aggrieved has preferred the instant appeal.

9.

We have heard the parties, perused the material available on record and considered the rival submissions. It appears from the record that the Assessee has discharged the prima facie onus cast upon it u/s. 68 of the Act by producing the relevant bank statements, DeMat statements, purchase and sale contract notes and other supporting documents etc.. It is also an admitted fact that the Assessee held the shares for more than one year.

10.

We further observe that the identical scrip has been considered by various Co-ordinate Benches of the Tribunal, including in the case of ACIT v. Mr. Simon Poulose Puthanangady, ITA No.5521/Mum/2024, decided on 27.05.2025. The Hon’ble Co-ordinate Bench, on identical facts and circumstances, affirmed the decision of the then Ld. Commissioner, in deleting the addition made on a similar basis by observing and holding as under:

“2. The Assessee during the financial year 2013-14 had purchased 40,000 shares of M/s. Ojas Asset Reconstruction Company Limited @ Rs.10/- per share. Subsequently, the said shares were dematerialised and out of 40,000 shares, the Assessee sold 20,800 shares on a total consideration of Rs.1,39,98,220/- and consequently earned the long term capital gain of Rs.1,35,28,220/- and claimed the same as exempt u/s 10(38) of the Act. Though the Assessee, during the assessment proceedings, has claimed that the purchase and sale transactions have been carried out through banking channel and the Assessee sold the shares through online platform and duly paid the STT. The Assessee also submitted copies of balance sheet, computation of total income, all bank statements held by the Assessee, copy of debit note issued from Kamalkshimi Finance Corporation Limited, allotment letter of shares in respect of shares purchased, copy of ledger account of the Assessee maintained by the stock brokers, copies of all contract notes and summary bills qua shares sold through Inventure Growth, ledger confirmation by Inventure Growth, global report etc., however, still the Assessing Officer (AO) while relying on the investigation carried out by the Investigation Wing/Directorate, Kolkata and the modus operandi for obtaining the long term capital gain and finding of the SEBI, ultimately disallowed the said deduction claimed by the Assessee u/s 68 of the Act and consequently made the addition of Rs.1,35,28,220/- and added the same in the income of the Assessee. 3. The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, who by considering material evidences put forward by the Assessee and the judgment of the Hon’ble Apex Court in the case of PCIT vs. Kuntala Mahendra (2024) 160 taxmann.com 608 (SC) wherein the Hon’ble Apex Court dismissed the SLP filed against the order of the High Court, “wherein the shares were purchased via account payee cheques, held in D-Mat account over 12 months and sold through a recognised stock exchange after payment of security transaction taxed and therefore the Hon’ble High Court has affirmed the view of the authorities below that the Assessee was eligible to claim exemption u/s 10(38) of the Act for long term capital gains”, and the fact that the AO has not brought any material evidence on record to prove that the impugned transaction is found to be bogus and in the investigation report, nowhere the name of the Assessee is mentioned indicating that the Assessee has collided with his brokers’ companies, his promoters, exit providers to arrange bogus long term capital gain, ultimately allowed the claim of the Assessee and deleted the addition made by the AO.

3.1 The Ld. Commissioner while allowing the claim of the Assessee had, also taken into consideration the judgment of the Hon’ble Jurisdictional High Court in the case of PCIT v. Indravadan Jain, HUF (2023) 156 taxmann.com 605 (Bom.) which is a celebrated judgment on the issue of penny stock and wherein it was held as under: “The Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gains and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. The Assessing Officer held that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. The Assessing Officer made addition under section 68 of the Act . On appeal the CIT(A) deleted the addition . On appeal by the Revenue, the Tribunal Affirmed the order of the CIT(A). Tribunal followed the order of Jurisdictional High Court in CIT v. Shyam R. Pawar (2015) 54 Taxmann.com 108/ 229 Taxman 256 ( Bom)(HC). On appeal by the Revenue, dismissing the appeal the Court held that The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. Order of Tribunal is affirmed.” 3.3 Thus, considering the aforesaid facts and circumstances of the case, as the Ld. Commissioner not only examined the relevant documents filed by the Assessee before the AO as well as before the CIT(A) but also analysed the peculiar facts and circumstances in totality in context of the case in hand and the relevant judgments as applicable to the instant case and then only came to the clear cut finding for allowing the claim of the Assessee u/s 10(38) of the Act and consequently deleted the addition under consideration. Thus, we are of the considered view that the order passed by the Ld. Commissioner need no interference, as the same is neither suffers from any perversity, impropriety nor illegality. Thus, the same is upheld. 4. in the result, the appeal filed by the Revenue Department stands dismissed.”

12.

However, the Ld. DR draws our attention to the findings recorded by the AO at page No.10 of the assessment order. The said findings, however, contain only general allegations concerning the scrip under consideration. There is no specific material demonstrating that the Assessee was ever involved in price rigging, manipulation or any other unlawful activity relating to the scrip under consideration.

13.

The Ld. DR further relies upon the judgment of the Hon’ble Calcutta High Court in PCIT v. Swati Bajaj & Ors. [(2022) 139 taxmann.com 352 (Cal.)/288 Taxman 403 (Cal.)/446 ITR 56 (Cal.)], decided on 14.06.2022, wherein certain penny-stock transactions were found to be manipulated and the orders deleting the additions, were reversed.

14.

However, the Hon’ble Jurisdictional High Court, in various cases including PCIT v. Indravadan Jain (HUF) [(2022) 138 taxmann.com 399 (Bom.)] and PCIT v. Ziauddin A. Siddique, Income Tax Appeal No.2012 of 2017, decided on 04.03.2022, has considered the identical transactions carried out through the online mechanism, where the shares were held for a substantial period and the consideration was received through banking channels. The Hon’ble Jurisdictional High Court holds that, in the absence of any specific material against the Assessee, the addition based merely upon general allegations or an investigation report is not sustainable.

15.

In the instant case, the Revenue fails to bring on record any specific material demonstrating the Assessee’s involvement or collusion with any operator, broker, promoter or exit provider for obtaining an accommodation entry. The documentary evidence produced by the Assessee remains undisputed and no defect or falsity therein is demonstrated by the AO. Thus, the judgment in Swati Bajaj & Ors. is distinguishable on facts and does not advance the Revenue’s case.

16.

Thus, considering the peculiar facts and circumstances of the case in totality, we do not find any reason or material to interfere with the impugned order. Consequently, the impugned order is upheld and the grounds raised by the Revenue are dismissed.

17.

In the result, Revenue’s appeal is dismissed.

Order pronounced in the open court on 27.07.2026.

Sd/- Sd/- MAKARAND VASANT MAHADEOKAR NARENDER KUMAR CHOUDHRY ACCOUNTANT MEMBER JUDICIAL MEMBER (Tarun Kushwaha) Sr. Private Secretary

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.

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