INCOME TAX OFFICER-23.3.6, MUMBAI vs. SANJAY V JAIN HUF, MUMBAI

PER SHRI ANIKESH BANERJEE, (JM):

The instant appeal of the revenue filed against the order of Ld. Commissioner Of Income Tax, Appeal Addl/JCIT(A) Udaipur [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2014-15, date of order 24.09.2025. The impugned order emanated from the order of the Ld. Income Tax Officer 18(3)(2), Mumbai (for brevity ‘Ld. AO’) order passed under Section 143(3) of the Act, date of order 30.12.2016.

5.2. It is an undisputed fact that the appellant has been engaged in share trading activity for several years and consistently disclosed the income under the head "Profits and Gains from Business or Profession." The appellant has undergone tax audit u/s 44AB, and the books of accounts have been maintained and audited accordingly.

Importantly, a perusal of the Income Tax Return (specifically, Schedule CG and Schedule El) reveals that no LTCG or STCL has been reported or claimed during the year. There is no exemption claimed u/s 10(38) of the Act. The AO's conclusion that LTCG was claimed is factually incorrect and not supported by any material on record.

5.3. Moreover, the AO has cherry-picked three scrips from a total of more than 250 scrips traded during the year, and presumed these to be "penny stocks" without any substantive inquiry or corroborative evidence. All transactions were executed through recognized stock exchanges and settled through banking channels. There is no evidence to indicate that the appellant routed unaccounted money or received any accommodation entries. The addition appears to be based purely on suspicion and generalized assumptions without factual backing. In view of the above, the income from share trading is rightly offered to tax as business income, and the addition under section 68 is unsustainable.

5.4. It is pertinent to mention here that in the Appellant own case for the A.Y. 2013-14, the CIT(A) vide its order NFAC/2012-13/10277196 dated 13.05.2023 as well as Hon'ble ITAT vide its order ITA No 3617/Mum/2025 dated 31.07.2025 has decided the issue in favour of the appellant holding that-

"it is the duty of the AO to meticulously convert this preliminary information into substantive evidence for which the AO must gather corroborative evidence to verify the authenticity of the information and meticulously connect the dots to build a credible and coherent case. Merely relying on the isolated pieces of information without proper validation and correlation could lead to inaccuracies and unjust conclusions"

"that the assessee has not availed any benefit of exemption of long-term capital gain. The Id. CIT(A) finally concluded as under. -

"6.3.8 Upon a comprehensive examination of the appellant's case in its entirety, it is evident that the appellant submitted numerous: documents related to the financial transactions conducted and clarified his position through detailed submissions. However, the Assessing Officer (AO) failed to identify specific transactions among the total transactions undertaken by the appellant that were linked to Sh. Naresh Manikchand Jain. Simply mentioning amounts and labeling them as accommodation entries, without establishing live connections between the parties, identifying defects in the appellant's submissions, demonstrating the transfer of tangible benefits, and substantiating these claims with corroborative evidence, is insufficient to impose liabilities on the appellant.

As the present case of the appellant was selected for scrutiny on the same issue/information and after considering the decision of Hon'ble ITAT, the AO is directed to consider the profit amount of Rs.4,14,612/- as income business income offered by the appellant on the share trading activity and delete the addition made u/s 68 of the Act. Thus, this ground of appeal no. 1 is allowed.

5.5 Ground No. 2: Addition on account of unexplained expenditure u/s 69C of Rs.47,307/- on payment of brokerage expenses on share trading activities.

The AO had made addition of Rs.47,307/- u/s 69C on account of brokerage expenses incurred by the appellant, allegedly on the ground that such payments were made to obtain accommodation entries and facilitate fictitious LTCG transactions, However, as discussed in Ground No. 1, there is no LTCG claimed by the appellant, nor is there any evidence of such bogus transactions. So, question of payment of brokerage does not arise. Hence, in the absence of any incriminating material or adverse finding, the disallowance made by the AO is unjustified. Accordingly, AO is directed to delete the disallowance/addition of Rs.47,307/-. Thus, this ground of appeal no. 2 is allowed.”

We further find that the Ld. CIT(A) has examined the assessment records, the Income-tax Return, the Tax Audit Report, and the financial statements, and has recorded a categorical finding that the Ld. AO proceeded on an incorrect factual premise that the assessee had claimed exempt long-term capital gains. The revenue has not brought any material before us to controvert these findings. It is also pertinent to note that in the assessee's own case for A.Y. 2013-14 [ITA No. 3617/Mum/2025 & CO 150/Mum/2025 date of pronouncement 31/07/2025], the Coordinate Bench of the Tribunal had already held that mere reliance upon investigation reports or generalized information, without establishing a live nexus between the assessee and the alleged accommodation entry providers through independent corroborative evidence, cannot justify an addition. The revenue has not demonstrated any distinguishing feature in the facts of the present assessment year warranting a different view. The addition under Section 68 has been made purely on presumptions without establishing that the credits represented unexplained cash credits within the meaning of the Act. Likewise, the consequential addition under Section 69C, being merely an estimated commission allegedly paid for obtaining accommodation entries, has no independent basis and cannot survive once the principal addition itself fails. In these circumstances, we find no infirmity in the well-reasoned order of the Ld. CIT(A) deleting the additions made under Sections 68 and 69C of the Act. The revenue has failed to point out any error, either on facts or in law, warranting our interference. Accordingly, the order of the Ld. CIT(A) is upheld, the grounds raised by the revenue are dismissed, and the appeal filed by the revenue stands dismissed.