AJAY SHANKARLAL MITTAL,MUMBAI vs. DY CIT -CC-6(4), MUMBAI

Q: Which sections of the Income-tax Act were involved?

Section 68, Section 69C, Section 14A, Section 271(1)(c), Section 274

ITA 702/MUM/2021Status: DisposedITAT Mumbai20 July 2026AY 2013-1479 pages

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal, following its own previous decisions in the assessee's own case, set aside the AO's order and directed the deletion of additions related to bogus LTCG. Regarding penalty proceedings, the Tribunal quashed the penalty as the notice issued under Section 271(1)(c) was found to be vague and invalid.

What were the facts?

The appeals concerned additions made by the Assessing Officer (AO) on account of bogus Long Term Capital Gains (LTCG) on penny stocks and disallowance under Section 14A. The Commissioner of Income Tax (Appeals) had deleted these additions. The revenue appealed against the deletion of additions, while the assessee appealed against upholding of certain additions and penalty proceedings.

What were the issues?

Whether additions on account of bogus LTCG on penny stocks are valid, and whether penalty proceedings initiated for furnishing inaccurate particulars of income are sustainable when the notice is vague.

Which sections of the Income-tax Act were involved?

Section 68,Section 69C,Section 14A,Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

Before: SHRI ANIKESH BANERJEE & SHRI BIJAYANANDA PRUSETH

For Appellant: Shri Piyush Chhajed (A/W) Ayush chhajed

For Respondent: Shri Manoj Kumar (CIT-DR)

Hearing: 20.07.2026Pronounced: 09.09.2026

Heard together (3 matters)

ITA Nos.1084/MUM/2021

ITA No.703/MUM/2021

ITA No. 1677/MUM/2021

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “A” BENCH, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA Nos.701 & 702/MUM/2021 (AY: 2012-13 & 2013-14) Ajay Shankarlal Mittal vs. DCIT Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Room No. 1925, 19th Floor, Air India Peddar Road, Mumbai-400 026. Building, Nariman Point, Mumbai- 400021. PAN/GIR No: AAGPM6550R (Appellant) (Respondent)

ITA Nos.1084/MUM/2021 (AY: 2013-14) Ajay Shankarlal Mittal vs. DCIT Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Bandra Kurla Complex-400051. Peddar Road, Mumbai-400 026. PAN/GIR No: AAGPM6550R (Appellant) (Respondent)

ITA Nos. 1680 & 1681/MUM/2021 (AY: 2012-13 & 2013-14) Jt. Commissioner of Income Tax vs. Ajay Shankarlal Mittal (OSD), Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Dr. Room No. 1925, 19th Floor, Air India Gopalrao Deshmnukh Road, Peddar Building, Nariman Point, Mumbai- Road, Mumbai-400 026. 400021. PAN/GIR No: AAGPM6550R (Appellant) (Respondent)

ITA No.703/MUM/2021 (AY: 2013-14) Ananya Ajay Mittal vs. DCIT Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Room No. 1925, 19th Floor, Air India Peddar Road, Mumbai-400 026. Building, Nariman Point, Mumbai- 400021. PAN/GIR No: AZTPM4759N 1

ITA No. 1677/MUM/2021 (AY: 2013-14) Jt. Commissioner of Income Tax vs. Ananya Ajay Mittal (OSD), Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Dr. Room No. 1925, 19th Floor, Air India Gopalrao Deshmnukh Road, Peddar Building, Nariman Point, Mumbai- Road, Mumbai-400 026. 400021. PAN/GIR No: AZTPM4759N (Appellant) (Respondent)

ITA Nos.817, 818 & 1085/MUM/2021 (AY: 2012-13 & 2013-14) Archana Ajay Mittal vs. DCIT Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Room No. 1925, 19th Floor, Air India Peddar Road, Mumbai-400 026. Building, Nariman Point, Mumbai- 400021. PAN/GIR No: AAGPM6545C (Appellant) (Respondent)

ITA No. 1678 & 1679/MUM/2021 (AY: 2012-13 & 2013-14) Jt. Commissioner of Income Tax vs. Archana Ajay Mittal (OSD), Central Circle- 6(4) 62-A, 3rd Floor, Mittal Bhavan-2, Dr. Room No. 1925, 19th Floor, Air India Gopalrao Deshmnukh Road, Peddar Building, Nariman Point, Mumbai- Road, Mumbai-400 026. 400021. PAN/GIR No: AAGPM6545C (Appellant) (Respondent)

Assessee by Shri Piyush Chhajed (A/W) Ayush chhajed Revenue by Shri Manoj Kumar (CIT-DR) Date of Hearing 20.07.2026 Date of Pronouncement 09.09.2026

These cross appeals filed by assessee and revenue emanate from the orders passed u/s250 of the Act, 1961 (in short, ‘Act’) by the Commissioner of Income Tax, Appeal-54, Mumbai [in short, ‘CIT(A)’], all dated 25.03.2021 for the assessment years (AY) 2012-13 and 2013-14. Since the facts and grounds are similar, with the consent of both parties, the appeals were clubbed and heard together and a common order is being passed for the sake of convenience and brevity. ITA No.1681/Mum/2021 (AY: 2013-14) is taken as the “lead case.” The additional grounds in other appeals would be separately considered in their respective appeals. 2. The grounds of appeal raised by the revenue- Ajay Shankarlal Mittal, in

ITA No.1681/Mum/2021 (AY 2013-14) are as under:

“1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition u/s.68 on account of bogus LTCG on sale of penny scrips.

3) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the binding decision of the Hon'ble Supreme Court in the case of SEBI Vs. Rakhi Traders (P) Ltd.

4) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciate the findings of the A.O. that the financials 3

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 of the penny scrips did not support a high exponential rise of their share prices and that several key persons in their Statements on oath have admitted the bogus nature of the LTCG.

5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s 69C on account of expenditure in the form of commission for arranging the bogus LTCG.

6) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s 14A read with Rule 8D, thereby holding that only those investments which yielded dividend income are to be considered for computation of disallowance u/s. 14A of the Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

7) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s 14A to the extent of exempt income ignoring the Circular No.5/2014 dated 11.02.2014 which clarifies that even if exempt income has not been earned during the year, Section 14A r.w. Rule 8D provides for disallowance of expenditure on the investments capable of earning exempt income.”

The grounds of appeal raised by the assessee- Ajay Shankarlal Mittal, in ITA

No. 702/Mum/2021 (AY 2013-14) are as under:

“1. The Learned Commissioner of Income Tax-Appeals-54 has 1. erred in law and in fact in upholding the addition made by learned AO u/s 68 of Loan Received of Rs.2,45,00,000.

On the facts and in the circumstances of the case, the learned Commissioner of Income Tax-Appeals-54 has erred in law and in facts, for making addition u/s 14A of Income Tax Act, 1961 ('the IT Act') to the extend to exempt income as not expenditure has been claimed against exempt

The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact in not providing opportunity of cross examination to confront all these people who have given the statement on penny stock of shares of M/s Blue Circle Ltd. and M/s Rander Corporation Ltd.

The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact by rejecting the additional ground that no incriminating 4

On the facts and the circumstances of the case, the learned AO erred in initiating the penalty proceeding u/s 271(1)(c) of the Act made by learned AO shall be dropped.

The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.”

The grounds of appeal raised by the revenue- Ajay Shankarlal Mittal, in

ITA No.1680/Mum/2021 (AY 2012-13) are as under:

“1) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s 68 on account of bogus LTCG on sale of penny scrips.

2) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the findings of the search as briefed in the assessment order as to how cash was generated by Arshiya Group by booking huge bogus purchases which was then channelized in the books of the assessee and other Mittal family members under the guise of bogus LTCG. 3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not considering the binding decision of the Hon'ble Supreme Court in the case of SEBI Vs. Rakhi Traders (P) Ltd. 4) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciate the findings of the A.O. that the financials of the penny scrips did not support a high exponential rise of their share prices and that several key persons in their Statements on oath have admitted the bogus nature of the LTCG. 5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s.69C on account of expenditure in the form of commission for arranging the bogus LTCG. 6) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s 14A read with Rule SD, thereby holding that only those investments which yielded dividend income are to be considered for computation of disallowance u/s 14A of the Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 5

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

7) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s. 14A to the extent of exempt income ignoring the Circular No. 5/2014 dated 11.02.2014 which clarifies that even if exempt income has not been earned during the year, Section 14A row. Rule 8D provides for disallowance of expenditure on the investments capable of earning exempt income.”

The grounds of appeal raised by the assessee- Ajay Shankarlal Mittal, in ITA

No. 701/Mum/2021 (AY 2012-13) are as under:

“1. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax-Appeals-54 has erred in law and in facts, for making addition u/s 14A of Income Tax Act, 1961 ('the IT Act') to the extend to exempt income as not expenditure has been claimed against exempt

The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact in not providing opportunity of cross examination to confront all these person who have given the statement on penny stock of shares of M/s Blue Circle Ltd. and M/s Rander Corporation Ltd.

The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact by rejecting the additional ground that no incriminating materials was found during the search proceedings in respect to Bogus Long Term Capital Gain.

On the facts and the circumstances of the case, the learned AO erred in initiating the penalty proceeding u/s 271(1)(c) of the Act made by learned AO shall be dropped.

The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.

The grounds of appeal raised by the revenue-Archana Ajay Mittal, in ITA

No.1678/Mum/2021 (AY 2013-14) are as under:

“1) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s 68 on account of bogus LTCG

3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not considering the binding decision of the Hon'ble Supreme Court in the case of SEBI Vs. Rakhi Traders (P) Ltd

4) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciate the findings of the A.O. that the financials of the penny scrips did not support a high exponential rise of their share prices and that several key persons in their Statements on oath have admitted the bogus nature of the LTCG.

5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s 69C on account of expenditure in the form of commission for arranging the bogus LTCG

6) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s.14A read with Rule 8D, thereby holding that only those investments which yielded dividend income are to be considered for computation of disallowance u/s.14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

7) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s.14A to the extent of exempt income ignoring the Circular No.5/2014 dated 11.02.2014 which clarifies that even if exempt income has not been earned during the year, Section 14A r.w. Rule 8D provides for disallowance of expenditure on the investments capable of earning exempt income.”

The grounds of appeal raised by the assessee-Archana Ajay Mittal, in ITA

No. 818/Mum/2021 (AY 2013-14) are as under:

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 “1. The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact in upholding the addition made by learned AO u/s 68 of Loan Received of Rs.50,00,000.

On the facts and in the circumstances of the case, the learned Commissioner of Income Tax-Appeals-54 has erred in law and in facts, for making addition under section 14A of Income Tax Act, 1961 ('the IT Act') to the extend to exempt income as not expenditure has been claimed against exempt

On the facts and the circumstances of the case, the learned Assessing Officer erred in initiating the penalty proceeding under section 271(1)(c) of the Act made by learned AO shall be dropped.

The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.”

The grounds of appeal raised by the revenue-Archana Ajay Mittal, in ITA

No.1679/Mum/2021 (AY 2012-13) are as under:

“1) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition w/s.68 on account of bogus LTCG on sale of penny scrips viz. Blue Circle Services Limited and Rander Corporation Limited.

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not considering the binding decision of the Hon'ble Supreme Court in the case of SEBI Vs. Rakhi Traders (P) Ltd.

5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s.69C on account of expenditure in the form of commission for arranging the bogus LTCG

6) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance u/s.14A read with Rule 8D, thereby holding that only those investments which yielded dividend income are to be considered for computation of disallowance u/s. 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

The grounds of appeal raised by the assessee--Archana Ajay Mittal, in ITA

No. 817/Mum/2021 (AY 2012-13) are as under:

“1. On the facts and in the circumstances of the case, the learned 1. Commissioner of Income Tax-Appeals-54 has erred in law and in facts, for making addition under section 14A of Income Tax Act, 1961 ('the IT Act') to the extend to exempt income as not expenditure has been claimed against exempt

The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact in not providing opportunity of cross examination to confront

On the facts and the circumstances of the case, the learned Assessing Officer erred in initiating the penalty proceeding under section 271(1)(c) of the Act made by learned AO shall be dropped.

5.The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.”

10.

The grounds of appeal raised by the revenue-Ananya Ajay Mittal, in ITA

No.1677/Mum/2021 (AY 2013-14) are as under:

“1) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s.68 on account of bogus LTCG on sale of penny scrips viz. Blue Circle Services Limited and Rander Corporation Limited.

3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not considering the binding decision of the Hon'ble Supreme Court in the case of SEBI Vs. Rakhi Traders (P) Ltd.

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition u/s.69C on account of expenditure in the form of commission for arranging the bogus LTCG.”

11.

The grounds of appeal raised by the assessee-Ananya Ajay Mittal, in ITA

No. 703/Mum/2021 (AY 2013-14) are as under:

“1 The Learned Commissioner of Income Tax-Appeals-54 has erred in law and in fact in upholding the addition made by learned AO of credit balance in foreign bank account of Rs. 5,66,274/-

On the facts and the circumstances of the case, the learned AO erred in initiating the penalty proceeding u/s 271(1)(c) of the Act made by learned AO shall be dropped.

The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.”

12.

The grounds of appeal raised by the assessee-Ajay Shankarlal Mittal

(penalty order), in ITA No.1084/Mum/2021 (AY 2013-14) are as under:

“1. On the facts and in the circumstances of the case, The Learned Commissioner of Income Tax-Appeals-54 has erred in law and facts by confirming the penalty levied u/s. 271(1)(c) of the Income Tax Act of Rs.75,70,208/- i.e. 100% tax on the addition made by AO us 68 of the Act amounting to Rs.2,45,00,000/-. Your appellant prays that addition of penalty of Rs. 75,70,208/- made shall be deleted.

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 2. The Ld. CIT(A) erred in not holding that the notice issued the notice issued by the Ld. AO u/s 274 read with section 271(1)(c) dated 26th December, 2016 was bad in law as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated i.e. whether for concealment of particulars of Income or furnishing of inaccurate particulars of Income.”

13.

The grounds of appeal raised by the assessee-Archana Ajay Mittal (penalty

order), in ITA No.1085/Mum/2021 (AY 2013-14) are as under:

“1. "On the facts and in the circumstances of the case, The Learned Commissioner of Income Tax-Appeals-54 has erred in law and facts by confirming the penalty levied u/s. 271(1)(c) of the Income Tax Act of Rs. 15,45,000/- i.e. 100% tax on the addition made by AO us 68 of the Act amounting to Rs.50,00,000/-. Your appellant prays that addition of penalty of Rs. 15,45,000/- made shall be deleted.

The Ld. CIT(A) erred in not holding that the notice issued the notice issued by the Ld. AO u/s 274 read with section 271(1)(c) dated 26th December, 2016 was bad in law as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated i.e. whether for concealment of particulars of Income or furnishing of inaccurate particulars of Income.”

ITA No.1681 & 702/MUM/2021 (AY: 2013-14)

14.

Facts of the case, in brief, are that the assessee filed return of income for

the AY 2013-14 on 31.03.2014 declaring total income at Rs.9,97,170/-. There was

a search and seizure operation u/s 132(1) of the Act on 13.06.2014 in case of M/s

Ashriya Ltd. and its group companies including its promotors and directors. The

Ashriya group is owned, controlled and managed by the Mittal family, mainly

consisting of Shri Ajay S. Mittal, his wife - Smt. Archana Mittal and his son-Shri

Ananya Mittal. The search resulted in seizure of cash of Rs.1 Cr. and 12

various persons were recorded during the search. The flagship company of the

group M/s Ashriya International Ltd. is primarily engaged in supply chain

management, warehousing, end-to-end freight forwarding, rail transportation and

software development. A simultaneous search was conducted in case of Shri R.K

Kedia and his group, which were admittedly providing accommodation entries. The

cases were centralized after the search action with the DCIT, Central Circle 6(4),

Mumbai. Consequently, notice u/s 153A of the Act was issued on 27.10.2015 and

served upon the assessee. In response thereto, the assessee filed his return of

income on 21.03.2016 declaring same total income at Rs.9,97,170/-. The

assessment in the case of Shri Ajay Shankarlal Mittal for AY 2013-14 was completed

u/s 153A r.w.s. 143(3) of the Act vide order dated 26.12.2016. The AO has noted

that the search and post-search enquiries revealed that the Arshiya group had

allegedly generated unaccounted funds through accommodation entries and

bogus purchases, which were thereafter utilised for making investments and

claiming exempt long-term capital gains (LTCG). The AO also referred to the

simultaneous search conducted at the premises of Shri R.K. Kedia and the

statements and documents found therefrom, which, according to him, indicated

that accommodation entries of bogus LTCG were being provided to beneficiaries

including members of the Mittal family. 13

transactions in the shares of Rander Corporation Ltd. and Blue Circle Services Ltd.

He noted that the assessee and his family members had acquired shares of these

companies at comparatively low prices and subsequently sold them at

substantially inflated prices. According to the AO, the abnormal increase in the

share prices was not supported by the financial performance or fundamentals of

the companies. He referred to the trading pattern, unusual rise in prices and

volumes, preferential allotment of shares, subsequent price manipulation and the

involvement of various entities allegedly acting as exit providers. The AO

accordingly treated the transactions as part of a pre-arranged mechanism for

providing accommodation entries in the form of bogus LTCG.

14.2 The AO placed reliance upon the statements recorded during the search

and post-search proceedings of Shri R.K. Kedia, Shri Manish Arora, Shri

Amarchand Rander, Shri Jagdish Purohit and other persons connected with the

concerned companies and alleged accommodation-entry operations. He also

relied upon documents seized from the premises of Shri R.K. Kedia, particularly

the ledger described as “Sandesh”, which, according to the AO, contained details

of transactions and beneficiaries relating to bogus LTCG. The AO observed that

the seized material contained names of members of the Mittal family and details

therefore, established a direct nexus between the assessee and the

accommodation-entry arrangement.

14.3 The AO further referred to the statements of directors/promoters and

persons associated with the alleged exit-provider companies. He observed that

these persons explained the modus operandi whereby shares were initially

allotted or purchased at low prices, their prices were artificially increased through

controlled trading, and the shares were thereafter sold to beneficiaries at inflated

prices so as to enable them to claim exempt LTCG. The AO also relied upon SEBI

material and investigation findings concerning manipulation in the trading of the

relevant scrips and the involvement of various entities in providing profitable exits

to preferential allottees.

14.4 The AO also examined the alleged source of funds used for making

investments in the shares. He referred to the findings relating to bogus purchases

and non-genuine loans in the Arshiya group and concluded that unaccounted

funds generated through such transactions were ultimately utilised for providing

accommodation entries. According to him, the documentary trail and bank

transactions of entities such as Duari Marketing Pvt. Ltd. and Dreamlight Exim Pvt.

Ltd. demonstrated the circulation of funds and their ultimate use in arranging 15

that the transactions represented genuine investment activity.

14.5 After considering the seized material, statements, investigation findings,

trading pattern of the scrips and the surrounding circumstances, the AO

concluded that the LTCG claimed by the assessee on sale of shares of Rander

Corporation Ltd. and Blue Circle Services Ltd. was not genuine. He accordingly

denied the exemption claimed u/s 10(38) and treated the amount of

Rs.27,14,85,887/- as unexplained income u/s 68 of the Act. The AO further made

an addition of Rs.1,90,04,012/- u/s 69C, being 7% of the sale consideration, on

the ground that commission had been paid for obtaining the alleged

accommodation entries. He has referred to the relevant seized document in

coming to the above findings.

14.6 The AO also made an addition of Rs.2.45 crore u/s 68 of the Act on account

of an alleged unexplained receipt reflected in a seized loose paper bearing the

narration “KEDIA 2.45”. The assessee’s explanation was considered but was not

accepted by the AO, who held that the assessee had failed to satisfactorily explain

the nature and source of the receipt.

disallowance of Rs.1,02,94,849/-, observing that the assessee had earned exempt

dividend income and had incurred expenditure attributable to such exempt

income. The assessment was accordingly completed by adding the aforesaid

amounts to the returned income.

14.8 In the result, the case of the AO was that the assessee’s LTCG transactions

were part of a pre-arranged accommodation-entry mechanism, supported by

third-party statements, seized “Sandesh” records, trading patterns,

SEBI/investigation material and the alleged circulation of funds; consequently, the

LTCG exemption was denied and additions u/ss 68 and 69C of the Act were made,

along with the separate addition u/s 68 of the Act to the tune of Rs.2.45 crore and

disallowance of Rs.1,02,94,849/- u/s 14A of the Act.

15.

Aggrieved by the order of AO, the assessee filed appeal before the CIT(A).

The CIT(A), while disposing of the appeal, considered the additions made by the

AO u/ss 68, 69C and 14A of the Act. In respect of the disallowance u/s 14A of the

Act, the AO had made a disallowance of Rs.1,02,94,849/- by applying Rule 8D. The

CIT(A), after considering the submissions of the assessee and the judicial position

that the disallowance u/s 14A of the Act cannot exceed the exempt income,

directed the AO accordingly. The ground was, therefore, partly allowed.

15.1 As regards the addition u/s 68 of the Act relating to the long-term capital

gains claimed as exempt u/s 10(38) of the Act, the CIT(A) considered the AO’s

findings that the shares of Rander Corporation Ltd. and Blue Circle Services Ltd.

had witnessed an abnormal rise in prices, which was allegedly not commensurate

with the financial position of the companies. The AO had also relied upon

statements of persons associated with the alleged accommodation-entry

operations, material seized from the premises of Shri R.K. Kedia, investigation

reports and SEBI-related material, and concluded that the assessee had obtained

accommodation entries in the guise of LTCG. The assessee, on the other hand,

furnished documentary evidence relating to purchase and sale of the shares,

including contract notes, bank statements and Demat records, and contended

that the transactions were genuine and carried out through recognised stock

exchanges.

15.2 The CIT(A) examined the material relied upon by the AO as well as the

explanations and documentary evidence furnished by the assessee. He also

considered the assessee’s contention that no incriminating material relating to

the impugned transactions had been found from the assessee’s premises during 18

documents found during the search of third parties. The assessee further

contended that the material seized from Shri R.K. Kedia had no direct and specific

correlation with its transactions and that the statements relied upon by the AO

had been retracted. On consideration of the facts and material on record, the

CIT(A) accepted the assessee’s case and deleted the addition made u/s 68 in

respect of the alleged bogus LTCG.

15.3 Consequently, the addition made u/s 69C of the Act towards alleged

commission paid for obtaining the accommodation entries was also deleted,

being consequential to the addition u/s 68 of the Act. Thus, the CIT(A)

substantially allowed the assessee’s appeal by deleting the additions relating to

the bogus LTCG and consequential commission, while restricting the section 14A

of the Act disallowance to the extent of exempt income.

16.

Aggrieved by the order of CIT(A), both revenue and assessee have filed

appeal before the Tribunal. Grounds No. 1 to 4 of revenue’s appeal and grounds

No.3 and 4 of assessee’s appeal pertain to addition of Rs.27,14,85,887/- towards

bogus LTCG u/s 68 of the Act. The Ld. CIT-DR strongly supported the order of the

AO. He submitted that the AO has passed a speaking and well-reasoned order

after considering the seized and incriminating material including the statements 19

the assessee-group primarily concern the alleged bogus long-term capital gains

arising from transactions in the scrips of Blue Circle Services Ltd. and Render

Corporation Ltd. He contended that the additions were not based merely on a

general Investigation Wing report, but on specific seized material obtained during

the search in the case of Shri R.K. Kedia, including the private “Sandesh” records,

running accounts and transaction schedules. According to the Ld. CIT-DR, these

records specifically contained the names of the assessee-family members and

details of their quantities, sale values, costs, gains and charges. He argued that

the extraordinary appreciation in the aforesaid scrips, despite weak financial

fundamentals, coupled with the preferential allotment, stock split, timing of

purchase and sale and the material found during search, established that the

transactions represented accommodation entries rather than return on genuine

investments.

16.1 The Ld. CIT-DR further submitted that the formal contract notes, Demat

statements, payment of securities transaction tax and banking entries merely

established the apparent form of the transactions and did not explain the

presence of the assessee-specific details in the seized records of the entry

operator. Relying upon the principles of human probabilities and the cumulative

deleting the additions towards bogus LTCG deserved to be reversed.

16.2 He also submitted that the commission expenditure u/s 69C of the Act

raised in ground No.5 was consequential to the accommodation entries and was

supported by the separate “charges” column in the seized records. The CIT(A) was

not right in deleting the said addition made u/s 69C of the Act.

16.3 With regard to disallowance u/s 14A r.w.r. 8D, taken up in grounds 6 and

7, the Ld. CIT-DR submitted that exempt income had been earned and the AO had

recorded the requisite dissatisfaction; hence, complete deletion of the

disallowance was not warranted.

16.4 On the legal issues, the Ld. CIT-DR contended that the requirement of

incriminating material in respect of unabated assessments was not disputed, but

such material was available in the present case in the form of the R.K. Kedia-side

seized records, the decoded “Sandesh” documents and the statements of

persons connected with their maintenance. He also argued that third-party seized

material could constitute incriminating material where it had a direct and

transaction-specific nexus with the assessee and the additions made. The Ld. CIT-

DR also opposed the plea of denial of cross-examination, submitting that the

documentary and circumstantial evidence. Reliance was placed, inter alia, on the

decisions of Hon’ble Supreme Court and High Courts in cases of (i) CIT vs. Durga

Prasad More, 82 ITR 540 (SC), (ii) Sumati Dayal vs. CIT, 214 ITR 801 (SC), (iii)

Mcdowell and Co. Ltd. vs. CTO, 154 ITR 148 (SC), (iv) SEBI vs. Rakhi Trading Pvt.

Ltd., 90 taxmaan.com 147 (SC), (v) Sanjay Bimalchand Jain vs. PCIT, 89

taxmaan.com 196 (Bom.), (vi) PCIT vs. Swati Bajaj, 446 ITR 56 (Cal.) (vii) Udit

Kalara vs. ITO in ITA No.220/2019 dated 08.03.2019 (Del.).

16.5 In respect of the assessee-specific additions, the Ld. CIT-DR submitted that

the receipt of Rs.2.45 Cr. described as “KEDIA 2.45”, found from the premises of

Shri Ajay Mittal, remained unexplained and attracted the presumption u/s 292C

of the Act, as the explanations furnished by the assessee were inconsistent and

did not reconcile the exact amount. In the case of Smt. Archana Mittal, the Ld.

CIT-DR supported the addition of Rs.50,00,000/- received as loan from Esquire

Enclave Pvt. Ltd., contending that the assessee failed to establish the lender’s

creditworthiness and genuineness of the transaction. In the case of Shri Ananya

Mittal, the Department supported the addition of approximately Rs.5.66 lakh

representing foreign-bank credits, submitting that the source of the individual

credits was not established through primary evidence. Accordingly, the Ld. CIT-DR

the assessees be dismissed and the additions may be restored.

17.

On the other hand, the Ld. AR of the assessee has supported the order of

CIT(A) in respect of the relief granted by him. He has, however, contested the

additions, whole or part, sustained in the appellate order. The Ld. AR submitted

that the additions made u/s 68 on account of alleged bogus long-term capital

gains arising from sale of shares of Rander Corporation Ltd. and Blue Circle

Services Ltd. were rightly deleted by the CIT(A). He contended that the assessees

were regular investors in shares and securities and had furnished complete

documentary evidence in support of the transactions, including contract notes,

bank statements, Demat statements and other relevant records. The shares were

purchased through account-payee cheques and were subsequently sold through

the recognised stock exchange through registered brokers, with the sale

consideration received through banking channels. He argued that there was no

cash component, off-market transaction or other material demonstrating that the

transactions were accommodation entries.

17.1 The Ld. AR further submitted that the assessments were framed u/s 153A

of the Act, pursuant to the search conducted at the premises of the assessees on

13.06.2014, but no incriminating material relating to the impugned share

assessees, the additions were substantially based upon statements and

documents found during the search at the premises of Shri R.K. Kedia and other

third parties. It was argued that the said statements had been retracted and that

the documents relied upon by the AO either did not pertain to the assessees or

did not establish any cash movement or accommodation entry in respect of the

impugned transactions. He also contended that, if reliance was to be placed upon

material seized from the premises of another person, the revenue was required

to follow the procedure prescribed u/s 153C of the Act, which had admittedly not

been done.

17.2 The Ld. AR also submitted that the so-called “Sandesh” ledger and other

documents seized from Shri R.K. Kedia had no correlation with the impugned

share transactions, particularly as certain entries pertained to a different financial

year. He therefore contended that the additions were based on surmises and

conjectures and could not be sustained in proceedings u/s 153A of the Act in the

absence of incriminating material found during the search on the assessees.

Reliance was placed on various judicial precedents, including the decisions in the

case of Brij Bhushan Singal vs. ACIT in ITA Nos.1415 to 1417/Del/2018 dated

07.12.2018 and Neeraj Singal vs. ACIT in ITA Nos.1412 to 1414/Del/2018 dated

scrips and material seized from Shri R.K. Kedia, wherein the additions were

deleted. The Ld. AR accordingly prayed for deletion of the additions u/s 68 of the

Act.

17.3 As regards the consequential additions u/s 69C of the Act towards alleged

commission on the share transactions, the Ld. AR submitted that once the

principal addition treating the long-term capital gains as accommodation entries

was deleted, the estimated commission addition, being based merely on an

assumed rate of 7% and unsupported by independent evidence, could not

survive.

17.4 The Ld. AR also challenged the disallowance u/s 14A of the Act, submitting

that no expenditure had been claimed in the returns in relation to the exempt

income and, therefore, there was no basis for making any disallowance. It was

further submitted that the assessments being u/s 153A of the Act, such

disallowance could not be made in the absence of incriminating material.

17.5 In the case of Shri Ajay Mittal, the learned AR also challenged the addition

of Rs.2.45 crore u/s 68 of the Act based on a loose paper containing the notation

“KEDIA 2.45”. It was submitted that the document was a “dumb document”, as it

or crores, nor whether it denoted a receipt, payment, debit or credit. It was

further argued that the document did not even bear the name of Ajay Mittal and

therefore could not form the basis of the addition.

17.6 In the cases of Smt. Archana Mittal and Ms. Ananya Mittal, the learned AR

adopted the submissions made in the case of Shri Ajay Mittal in respect of the

alleged penny-stock transactions, commission and section 14A of the Act

disallowance. In the case of Shri Ananya Mittal, the addition of Rs.5,66,274/-

relating to credits in the foreign bank account was also contested. He submitted

that the source of the amount had been duly explained as funds deposited by a

family friend, Dr. Prakash Sampath, and that confirmation in this regard had been

furnished. The assessee relied upon earlier Tribunal orders concerning the same

bank account and contended that the ingredients of identity, genuineness and

creditworthiness had been duly established.

17.7 With regard to the penalty levied u/s 271(1)(c) of the Act, the Ld. AR

submitted that the penalty notices issued u/s 274 r.w.s. 271 of the Act were

defective as the AO had not struck off the inapplicable limb, i.e. whether the

penalty was proposed for concealment of income or for furnishing inaccurate

particulars of income. Relying upon the decisions of the Hon’ble Bombay High

Broadcasting Ltd. [172 taxmann.com 786 (Bom.)], it was contended that such an

omnibus notice failed to clearly specify the charge and, therefore, the penalty

proceedings were liable to be quashed. Without prejudice, it was submitted that

since the underlying quantum additions themselves were unsustainable, the

penalty could not survive.

18.

We have heard the rival submissions and carefully perused the orders of

the authorities below as well as the material referred to in the assessment order.

We have also deliberated on the decisions relied upon by both sides. Since the

controversy relating to the alleged bogus long-term capital gain in the shares of

Blue Circle Services Ltd. and Render Corporation Ltd. is common in the connected

appeals, we consider it appropriate to deal with the issue comprehensively with

reference to the facts recorded in the assessment order for A.Y. 2013–14 in the

case of Shri Ajay Shankarlal Mittal, which has been treated as the lead case before

us. Grounds No.1 to 4 of revenue’s appeal and grounds No.3 and 4 of assessee’s

appeal pertain to addition of bogus LTCG u/s 68 of the Act. The corresponding

findings shall apply to the connected appeals subject, of course, to the respective

assessment year, quantity of shares and quantum involved.

18.1 The assessee had acquired 6,00,000 shares of Render Corporation Ltd. on

28.09.2010 by way of preferential allotment for a consideration of Rs.78.65 lakh 27

preferential allotment for Rs.90 lakh. Both companies subsequently effected a

split of shares in the ratio of 1:10. During the relevant previous year, the assessee

earned substantial gains on sale of the shares of these two companies. The

purchase through preferential allotment, credit of the shares in Demat account,

subsequent split and sale through the stock exchange are matters appearing from

the record. The real dispute is not whether the transactions were completed

through the recognised market mechanism in form, but whether the resulting

extraordinary gains represented genuine investment returns or constituted

accommodation entries arranged through a manipulated market mechanism. The

CIT(A) himself recorded these acquisition particulars and the extraordinary gains

arising from sale of the two scrips. It is also material that the transactions were

not confined to Shri Ajay Shankarlal Mittal alone. The connected appeals show

that other members of the same family, namely, Smt. Archana Ajay Mittal and Shri

Ananya Ajay Mittal, also had transactions in these same little-known scrips and

claimed substantial exempt long-term capital gains in the connected assessment

years. The recurrence of the same investment pattern within the promoter family

is, therefore, a circumstance which has to be considered along with the other

evidences on record. In order to appreciate the enormity and genuineness of the

transactions, the scrip-wise details of purchase and sale of shares and profits

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

earned in FYs 2011-12 and 2012-13 (AYs 2012-13 and 2013-14) are given below in

tabular form:

Ajay S Mittal Details of purchase and sale of Rander Corporation Limited & Blue Circle Services Limited Purchase Transactions

Rander Corporation Limited DATE Purchase of 6,05,000 shares at Rs. 13 /- per share under Preferential Allotment 04/09/2010 directly from Company Purchase Cost of Rs. 78,65,000 /- paid by an account payee cheque to Rander 06/10/2010 Corporation Limited

5,95,000 Shares credited to Demat account of the assessee held in lndsec Sec. & Fin. 27/12/2010 Ltd. [IN 3000621 DATE Blue Circle Services Limited Purchase of 6,00,000 shares at Rs. 15/- per share under Preferential Allotment 04/09/2010 directly from Company Purchase Cost of Rs. 90,00,000/- paid by an account payee cheque to Blue Circle 04/09/2010 Services Limited 6,00,000 shares credited to Demat account of the assessee held in lndsec Sec. & Fin. 27/12/2010 Ltd. [IN 300062]

Sales Transactions Financial Year: 2011-2012 (AY 2012-13) (Amt. in Rs.) Blue Circle Services Limited Date of sale Quantity sold Sale Consideration Rate per share Date of delivery as per Demat Statement

NIL Rander Corporation Limited 01-Mar-12 50,000 70,60,354 141.21 01-Mar-12

Blue Circle Services Limited - Date of Rate per delivery as per Sale Consideration Date of sale Quantity sold share Demat Statement

12-Sep-12 . 3,20,546 2,55,64,041 79.75 10-Sep-12

13-Sep-12 2,25,000 1,79,13,250 79.61 11-Scp-12 18-Sep-12 2,81,325 2,24,16,020 79.68 .14-Sep-12

1,00,000 79,62,194 79.62 17-Sep-12 20-Sep-12

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

21-Sep-12 67,481 53,66,994 79.53 18-Sep-12 24-Sep-12 1,50,000 1,19,29,182 79.53 20-Sep-12 26-Sep-12 1,80,000 1,41,79,672 78.78 24-Sep-12

27-Sep-12 2,29,791 1,78,78,453 77.8 25-Sep-12 28-Sep-12 2,81,601 2,16,36,282 76.83 26-Sep-12 03-Oct-12 1,62,170 1,21,21,462 74.75 28-Sep-12 04-Oct-12 1,80,000 1,34,23,082 74.75 01-Oct-12 29-Nov-12 2,50,000 1,62,74,560 65.1 29-Nov-12 04-Dec-12 5,00,000 3,15,15,260 63.03 04-Dec-12 17-Dec-12 2,50,000 1,55,00,773 62 17-Dec-12

TOTAL 31,77,914 23,36,81,225

Financial Year: 2012-2013 (AY 2013-14)

Rander Corporation Limited 01-Jan-13 2,00,000 1,45,25,028 72.63 01-Jan-13 Transfer to Archana Mittal 10,295 - 02-Jan-13 1,75,000 1,28,88,166 73.65 02-Jan-13 03-Jan-13 1,40,000 1,03,91,468 74.22 03-jan-13 5,25,295 3,78,04,662

Archana Ajay Mittal Details of purchase and sale of Rander Corporation Limited & Blue Circle Services Limited Purchase Transactions

Rander Corporation Limited Date

Purchase of 5,95,000 shares at Rs. 13/- per share under Preferential 28/09/2010 Allotment directly from Company Purchase Cost of Rs. 77,35,000/- paid by an account payee cheque to Rander 06/10/2010 Corporation Limited

5,95,000 Shares credited to Demat account of the assessee held in Indsec Sec. 27/12/2010 & Fin. Ltd. [IN 300062] Date Blue Circle Services Limited Purchase of 6,00,000 shares at Rs. 15/- per share under Preferential 24/08/2010 Allotment directly from Company

Purchase Cost of Rs. 90,00,000/- paid by an account payee cheque to Blue Circle 04/09/2010 Services Limited 6,00,000 shares credited to Demat account of the assessee held in Indsec Sec. 27/12/2010 & Fin. Ltd. [IN 300062]

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

Sales Transactions – FY 2011-12 (AY 2012-13)

Blue Circle Services Limited Date of delivery Sale Consideration Rate per Date of sale Quantity sold as per Demat share Statement 27-Mar-12 41,101 31,10,103 75.67 27-Mar-12

28-Mar-12 1,00,000 75,65,069 75.65 28-Mar-12 30-Mar-12 1,05,502 75,77,595 71.82 30-Mar-12

TOTAL 2,46,603 1,82,52,767 Rander Corporation Limited 1,41,40,758 148.85 22-Feb-12 95,000 22-Feb-12

24-Feb-12 73,795 1,06,07,088 143.74 24-Feb-12 28-Feb-12 1,00,000 1,42,87,446 142.87 28-Feb-12 29-Feb-12 96,500 1,36,55,455 141.51 29-Feb-12 TOTAL 3,65,295 5,26,90,747

Financial Year: 2012-2013 (AY 2013-14) (Amt. in Rs.) Blue Circle Services Limited Date of delivery as per Sale Consideration Rate per share Date of sale Quantity sold Demat Statement 13-Jul-12 62,665 48,45,610 77.33 13-Jul-12

13-Aug-12 2,00,000 1,59,43,865 79.72 09-Aug-12 14-Aug-12 1,00,000 79,64,441 79.64 10-Aug-12 16-Aug-12 1,72,555 1,37,44,902 79.66 13-Aug-12 21-Aug-12 1,75,000 1,39,45,513 79.69 16-Aug-12 98,07,441 22-Aug-12 1,23,055 79.7 17-Aug-12 24-Aug-12 1,35,618 1,08,27,590 79.84 22-Aug-12 27-Aug-12 1,00,000 79,64,441 79.64 23-Aug-12 27-Aug-12 2,50,000 1,99,00,221 79.6 24-Aug-12 11-Sep-12 3,50,000 2,78,60,562 79.6 07-Sep-12 12-Sep-12 2,50,000 1,99,13,601 79.65 08-Sep-12 01-Nov-12 3,62,000 2,70,87,510 74.83 01-Nov-12 35,54,445 03-Nov-12 50,000 71.09 03-Nov-12 05-Dec-12 2,50,000 1,57,06,946 62.83 05-Dec-12 06-Dec-12 4,61,000 2,96,76,656 64.37 06-Dec-12 11-Dec-12 2,83,000 1,84,40,118 65.16 11-Dec-12

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

11-Dec-12 1,20,000 77,52,473 64.6 11-Dec-12 12-Dec-12 1,36,500 91,44,709 66.99 12-Dec-12 19-Dec-12 2,50,000 1,49,35,000 59.74 19-Dec-12 3,50,000 2,06,84,492 59.1 21-Dec-12 21-Dec-12 41,81,393 29,97,00,536 4.25 By ILFS 4 17 10-Jul-17 Rander Corporation Limited 31-Dec-12 2,40,000 1,75,14,513 73 41,275 2,40,000 1,75,14,513

Ananya Ajay Mittal

Details of Purchase and sale of Rander Corporation Limited & Blue Circle Services Limited Purchase Transactions

Date Nature of Activity in relation to Blue Circle Services Limited

24/08/2010 Purchase of 6;00,000 shares at Rs, 15/- per share under Preferential Allotment directly from Company 04/09/2010 Purchase Cost of Rs, 90,00,000/- paid by an account payee cheque to Blue Circle Services Limited 27/12/2010 6,00,000 shares credited to De mat account of the assessee held in Indsec Sec. & Fin. Ltd. [IN 300062] 25/10/2011 Copy of Demat Account held with Indsec Sec. & Fin. Ltd. evidencing credit of 60,00,000 shares of BCSL after splitting of shares in F.Y. 2011-2012

Date Nature of Activity in relation to Rander Corporation Limited Purchase of 6,00,000 shares at Rs. 13 /- per share under Preferential Allotment 28/09/2009 directly from Company Purchase Cost of Rs. 78,00,000/- paid by an account payee cheque to Blue Circle 06/10/2010 Services Limited 6,00,000 Shares credited to Dem at account of the assessee held in Indsec Sec. & Fin. Ltd. [IN 27/12/2010 300062]

Sales Transactions

Financial Year: 2012-2013 (AY 2013-14) (Amt. in Rs.)

Blue Circle Services Limited Date of delivery as per Demat Statement Sale Rate per share Date of sale Quantity sold Consideration 08-Oct-12 2,00,000 1,48,09,780 74.05 04-Oct-12

11-Oct-12 2,98,405 2,23,63,153 74.94 09-Oct-12

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021

16-Oct-12 1,68,048 1,25,01,715 74.39 12-Oct-12 29-Oct-12 1,00,000 74,89,731 74.9 23-Oct-12 30-Nov-12 4,05,000 2,76,26,597 68.21 30-Nov-12 03-Dec-12 5,00,000 3,11,09,404 62.22 03-Dec-12 2,50,000 1,56,94,473 62.78 04-Dec-12 05-Dec-12 2,50,000 1,54,56,443 61.83 18-Dec-12 18-Dec-12 14,70,51,296 Total 21,71,453

Rander Corporation Limited 02-Jan-13 1,50,000 1,10,51,118 73.67 . 02-Jan-13 03-Jan-13 1,75,000 1,29,89,096 74.22 03-jan-13 08-Jan-13 1,80,730 1,36,92,147 75.76 08-Jan-13 5,05,730 3,77,32,361

* It may be stated that the shares were split at the ratio of 1:10 and the sale considerations

received are for the split shares.

18.2 The first significant circumstance is the extraordinary movement in the

prices of the two nondescript companies when compared with their financial

position. In the appellate order, while summarizing the investigation, it is

recorded that Blue Circle Services Ltd. had turnover ranging from Rs.Nil to about

Rs.36.65 Cr. and profits ranging from about Rs.9,480/- to Rs.2.15 Cr. during the

relevant period, whereas its share price increased from approximately Rs.4/- per

share in January 2011 to approximately Rs.564/- per share by October 2011, i.e.

about 140 times within nine months. Render Corporation Ltd., whose turnover

was stated to range from approximately Rs.0.59 Cr. to Rs.6.86 Cr. and profits from

approximately Rs.5.5 lakh to Rs.2.01 Cr., witnessed an increase in price from

Rs.49.60 per share to Rs.406.25 per share within 262 trading days; after a 1:10 33

net worth of the two companies was negligible and that the appreciation was not

in consonance with normal market factors. We also find that the core financial

statements such as income statement (profit & loss), balance sheet and cash-flow

statement as well as essential financial ratios, i.e., debt to equity (D/E) ratio,

price-to earning (P/E) ratio, return on equity (ROE) and earning per share (EPS)

were not at all attractive and commensurate with the fantastic appreciation of

the share price.

18.3 What assumes greater significance, however, is that the assessment is not

founded merely on the abnormal appreciation in the prices of two little-known

companies. A search was simultaneously conducted in the case of Shri R.K. Kedia,

whom the AO has found to be an accommodation-entry provider. In fact, Shri R.K.

Kedia himself admitted that he is providing accommodation entries. During the

course of the said search, private records and transaction ledgers were found and

seized. The AO confronted the assessee with documents found from Shri Kedia’s

premises which contained references to the transactions of the Mittal family. The

seized material included records maintained under the name “Sandesh”. The

employee maintaining Shri Kedia’s accounts explained the manner in which the

records were maintained and identified “Sandesh” with Shri Sandesh Chonkar,

who was the CFO at Arshiya group, owned, managed and controlled by the 34

Kedia explaining the manner in which accommodation entries in the form of

bogus LTCG were arranged.

18.4 The importance of the seized “Sandesh” material lies in the fact that it is

not merely a general report concerning penny-stock operations. The records

contain person-wise and scrip-wise particulars relating to the entire-family (i.e.

assessee, wife and son) and their transactions in Blue Circle Services Ltd. and

Render Corporation Ltd. The assessment order records that the seized documents

contained details of investment and sale of shares which were matched by the

AO with the share-trading data of the assessee and other family members. Thus,

the material emanating from the premises of the alleged entry operator had a

direct nexus with the very transactions which gave rise to the impugned exempt

capital gains.

18.5 The AO further examined the trading pattern and the counterparties

providing profitable exit to the preferential allottees. The assessment order refers

to the analysis of BSE data and identifies several entities which had purchased the

shares of Blue Circle Services Ltd. and Render Corporation Ltd. from the assessee

and other members of his family. The assessee was also confronted with bulk-

deal particulars in the case of Render Corporation Ltd. and with the identity of

entities appearing as buyers. The case of the revenue, therefore, was not 35

proceeded to examine the actual exit side of the transaction.

18.6 In this context, the analysis contained in para 19.4 of the assessment

order is material. The AO examined the bank accounts of purchaser entities, inter

alia, Duari Marketing Pvt. Ltd. and Dreamlight Exim Pvt. Ltd. According to the bank

analysis reproduced in the assessment order, there were regular back-to-back

credits and debits, often of the same or substantially the same amounts and

within very short intervals. The AO traced the funding backwards through

different layers of concerns and recorded cash deposits at the lower layers

followed by onward transfers through successive bank accounts before the funds

reached the entities which purchased the shares. The detailed bank tables

reproduced in the assessment order demonstrate the movement of the funds

through such layers.

18.7 We consider it necessary to clarify the evidentiary significance of the

aforesaid bank trail. The material in para 19.4 is relevant and significant because

it demonstrates the nature of funding of the purchaser entities. The AO has

shown cash being introduced at the lower layers, its rapid movement through a

series of accounts, and the eventual funding of concerns used for purchasing the

shares. When this is read together with the statements of persons connected

with the entry-provider network and the private records of Shri Kedia, the buyer- 36

corroborative of the accommodation-entry mechanism claimed by the revenue.

The Ld. AR has not controverted the findings with any proper, acceptable and

satisfactory explanation supported with tangible and corroborative evidences.

18.8 The assessment order also records statements of persons connected with

the purchaser and entry-provider entities explaining that companies without

substantial business activity were being used for providing accommodation

entries and for routing funds. The modus operandi described in such statements

broadly consisted of acquisition of shares by intended beneficiaries at low or

preferential prices, artificial increase in the quoted price through controlled

trading, receipt and layering of cash through paper concerns, provision of a

dummy purchaser at the exit stage and receipt of sale consideration by the

beneficiary through the regular stock-exchange and banking mechanism. The

statements, in our view, are not to be viewed in isolation but as explanatory and

corroborative material capable of being tested against the seized ledgers, trading

data and bank-account analysis.

18.9 Another circumstance which cannot also be ignored is the investment

conduct of the assessee. The AO has noted in the assessment order that the

assessee, who is an experienced businessman, claimed to have made the

investment in these little-known companies on the advice of an employee. His 37

preferential allotment and earned huge exempt LTCG. However, surprisingly, the

said employee had not himself made any investment in the scrips. The assessee

was unable to identify several persons or entities appearing as counterparties in

bulk trading and stated that the transactions were handled through the broker.

The replies of the assessee all through have been evasive. The AO considered the

absence of any contemporaneous commercial analysis or other convincing

explanation for selecting these companies as a relevant circumstance. In isolation

this circumstance may not decide the issue; nevertheless, it assumes relevance

when considered with the extraordinary appreciation and the operator-side

material found during search. It also assumes relevance because other family

members also made similar transactions and the family as a whole earned exempt

LTCG of about Rs.85 Cr. in AY 2012-13 and 2013-14, as is evident from the table

given in para 9.1 above.

18.10 We have also carefully considered the reasoning adopted by the CIT(A).

The CIT(A) placed considerable emphasis upon the fact that the purchase

consideration was paid through account-payee cheques, the shares were

reflected in the Demat account, the sales were executed through the recognised

stock exchange, STT was paid and the sale proceeds were received through

banking channels. The CIT(A) also observed that there was no direct evidence of 38

no material directly showing that the assessee himself had manipulated the price.

18.11 We are unable, however, to agree that the existence of the aforesaid

documents, by themselves, conclude the enquiry. Contract notes, Demat entries,

payment of STT and receipt through banking channels establish that the

transaction travelled through the recognised market mechanism. The very case

of the AO, however, is that the recognised market mechanism was used as the

final layer for giving apparent legitimacy to an accommodation entry. The

question, therefore, has to be answered after considering the formal

documentation together with the seized operator records, statements, trading

pattern, financial fundamentals and purchaser-bank trail. To examine only the

visible market leg and to insist upon a direct recovery of the assessee’s cash from

the ultimate purchaser would amount to examining the various circumstances in

compartments rather than as one composite transaction.

18.12 In fact, certain findings recorded by the CIT(A) himself are of considerable

significance. At paras 7.5.4 and 7.5.5, the CIT(A) recorded that investigations had

established the role of brokers and entry operators, that Shri R.K. Kedia had

admitted arranging accommodation entries through Render Corporation Ltd. and

Blue Circle Services Ltd., that the net worth of the two companies was negligible,

that the price rise was approximately 80 times the cost price and was not in 39

establish that the unusual rise and fall in price was natural or based on market

forces. The CIT(A) further recorded that the two companies were not having

substantial profits at the time of acquisition and that operators had explained the

modus operandi of providing bogus LTCG through exit providers. These findings,

in our considered view, could not thereafter be neutralised merely on the ground

that the ultimate sale was reflected in the demat account and the consideration

was received through bank.

19.

Having discussed at length the factual background of the case, let us

discuss the legal approach to such transactions as decided by the Hon’ble

Supreme Court and High Courts. Penny stock cases turn, at their core, on the

weighing of evidence against the legal principles laid down by the Hon'ble

Superior Courts. The starting point of this analysis is the landmark judgment of

the Hon'ble Supreme Court in CIT vs. Durga Prasad More, 82 ITR 540 (SC), where

the Hon’ble Court invoked the principle - echoing section 106 of the Evidence Act,

that facts especially within a party's own knowledge must be proved by that party.

The apparent must be treated as real until there is reason to believe otherwise,

but the burden of showing what is real, where the facts are peculiarly within the

assessee's knowledge, rests squarely on the assessee. The Hon’ble Court

observed as follows in para 8: 40

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 "8. Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." And further, in para 9:

"9. Now coming to the question of onus, the law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. In some cases, the onus may be heavy whereas in others, it may be nominal. There is nothing rigid about it. Herein the assessee was receiving some income. He says that it is not his income but his wife's income. His wife is supposed to have had two lakhs of rupees neither deposited in banks nor advanced to others but safely kept in father's safe. Assessee is unable to say from what source she built up that amount. Two lakhs before the year 1940 was undoubtedly a big sum. It was said that the said amount was just left in the hands of the father-in-law of the assessee. The Tribunal disbelieved the story, which is prima facie a fantastic story. It is a story that does not accord with human probabilities. It is strange that the High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable, as the Tribunal has found, and in our opinion rightly, then the position remains that the consideration for the sale proceeded from the assessee and therefore it must be assumed to be his money."

19.1 The import of the above is unambiguous: while the assessee bears the

initial onus, the department, in examining that onus, is entitled to rely on

In other words, the overall circumstances and not merely the documents

tendered are what the AO must weigh, and circumstantial evidence is central to

that exercise. Further, the standard of proof is preponderance of probabilities:

whether the 'story' relied upon is probable on the scale of human experience. The

Apex Court is categorical that even while examining documents furnished by the

assessee, the surrounding circumstances remain decisive.

19.2 This principle was reinforced in Sumati Dayal vs. CIT, 214 ITR 801 (SC),

where the Apex Court held as under:

"4. It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee- Parimisetti Seetharamamma (supra)* at p. 536]. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature." * Parimisetti Seetharamamma vs. CIT, 57 ITR 352 (SC) 19.3 The Hon’ble Supreme Court's observation confirms that u/s 68 of the Act,

the burden of proof lies on the assessee to satisfactorily explain credit entries in

the books of account. Circumstantial evidence becomes decisive precisely 42

contradictions or improbabilities in the surrounding facts - and the requirement

of reasonableness applies with equal force to the assessee's own submissions.

This is particularly important in penny stock cases, wherein the evidence to

demonstrate actual exchange of cash are difficult to come by.

19.4 In Sumati Dayal (supra) itself, while examining the assessee's claim of

having won a series of horse-racing jackpots, the Hon’ble Supreme Court noted

the following finding of fact recorded by the lower authorities [clause (ii), para 9]:

"(ii)..A Jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a Jackpot occasionally but the claim of the appellant to have won a number of Jackpots in three or four seasons not merely of one place but at three different centers, namely, Madras, Bangalore and Hyderabad appears, prima facie, to be wild and contrary to the statistical theories and experience of the frequencies and probabilities." And clause (v) of the same paragraph:

"(v) In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income tax from April 1, 1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources."

holding the majority view of the Settlement Commission to be correct and

reversing the dissent that had demanded direct proof of fraud.

"12. This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasised that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that "fraudulent sale of winning ticket is not an usual practice but is very much of an unusual practice" ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act of 1972 whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc. was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her own statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence."

was committed or actual cash changed hands, nor establish a meeting of minds

between the assessee and the entry provider. The Apex Court has expressly

recognised that such arrangements are struck in secret, so that direct evidence is

rarely, if ever, available. What is relevant, and what the AO must marshal, is the

conduct of the assessee and the surrounding circumstances, tested against the

standard of human probabilities.

20.

The circumstantial evidence of the price movement of the scrip completely

out of tune with the fundamentals has consistently been held to be sufficient

ground for disallowance by Courts. The proposition that an implausible,

disproportionate rise in the price of an obscure, thinly-traded scrip is itself

sufficient to sustain an addition finds direct support in Udit Kalra vs. ITO, Ward-

50(1) (Delhi High Court, ITA No. 220/2019, order dated 8-3-2019). The assessee

had claimed exempt long-term capital gain on shares of M/s Kappac Pharma Ltd,

held for roughly nineteen months, purchased at Rs. 12 per share and sold at Rs.

720 per share. The AO, CIT(A) and ITAT had found the transaction to be bogus,

relying on the fact that the company had meagre resources and reported

consistent losses even as its share price rose by nearly 6000 per cent. The Court

held that this concurrence of fact-finding combined with the company's financial

that the addition could not stand because he had not been afforded an

opportunity to cross-examine the individuals whose statements triggered the

enquiry. The judgment is significant on two counts; first, it confirms that a

company's demonstrable lack of financial substance, set against an unexplainable

multiplication of its share price, is by itself enough to displace the presumption of

genuineness that would otherwise attach to banking-channel and stock-exchange

documentation; and second, it reinforces that formal cross-examination is not an

indispensable safeguard once the investigation wing's findings are corroborated

by the company's own financial results, which are a matter of public record and

require no witness to prove.

20.1 In this respect, it is important to point out that the reliance of the AO on a

statement recorded under oath as primary evidences, in cases where the burden

of proof is on department to demonstrate the taxability or non-genuineness of a

transaction is very different from penny stock cases where the burden of proof to

demonstrate the genuineness on three parameters of identity, creditworthiness

and genuineness is on the assessee. While a formal cross examination would be

needed in first case but not in later case, as has been held by Hon'ble Delhi High

Court (supra).

Calcutta High Court, in case of Pr. CIT vs. Swati Bajaj, 446 ITR 56 (Cal.), held that

where the investigation wing's enquiries have uncovered the entire modus

operandi of accommodation entries, formal cross-examination is not a

prerequisite to sustaining the addition. On the standard of proof applicable to

such circumstantial evidence, the Court observed in para 69:

"69.Thus, the legal principle which can be called out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income Tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. ……….. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the 47

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 surrounding circumstances which had been elaborated upon in Kishore R. Ajmera (supra). 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with insignificant business had a steep rise in the share prices within the period of little over a year. The Income-tax department was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings paragraphs. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine 48

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with,, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time......... 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of "working backward" leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessees."

of an actual meeting of minds among them, is accordingly not an essential

requirement of law; the case must be judged on the totality of the surrounding

circumstances. Taken together, the findings of the investigation wing, a share-

price trajectory divorced from the company's fundamentals, purchase at the

trough and sale near the peak of an artificially inflated price and the assessee's

failure to rebut these findings, furnish the department with a sufficiently strong

case for addition.

20.4 Where the financials of the scrip cannot account for the rise in its price,

and that rise is wholly disproportionate to the company's fundamentals, the

Hon'ble Courts have consistently held that the department cannot be faulted for

treating gains substantially attributable to such a scrip as contrived or bogus. In

this regard, reliance is placed on the following judgments in this regard

i. Sanjay Bimalchand Jain vs. PCIT [(2018) 89 Taxmann.com 196 (Bom.)] ii. Suman Poddar vs. ITO [(2019) 112 Taxmann.com 329 (Del.)], affirmed by the Hon'ble Supreme Court in (2019) 112 Taxmann.com 330. iii. Sanjay Kaul vs. PCIT, ITA No. 203/2020 (Del.), dated 29-07-2020. iv. Pr. CIT vs. Swati Bajaj, 446 ITR 56 (Cal.) v. Udit Kalra vs. ITO, ITA No. 220/2019 (Del.), dated 8-3-2019. vi. SEBI vs. Rakhi Trading Pvt. Ltd., (2018) 90 taxmaan.com 147 (SC).

statements of entry providers are corroborated by the fact that companies of no

genuine financial worth generated wholly disproportionate capital gains, the

department has an adequate case on the standard of preponderance of

probabilities. There is no reason as to why the ratio of above decisions shall not

apply to the present case and the addition made by the AO be not upheld.

21.

At this juncture, it is also useful to discuss the principles laid down by the

Hon'ble Supreme Court in the case of McDowell & Co. Ltd. vs. Commercial Tax

Officer, (1985) 154 ITR 148 (SC), that tax planning is legitimate only so long as it

remains within the four corners of the law, and that a colourable device dressed

up as a genuine transaction cannot be permitted to defeat the taxing statute. This

principle supplies the doctrinal foundation for the entire penny-stock

jurisprudence discussed above: the exemption u/s 10(38) of the Act, and the

presumption of genuineness that attaches to banking-channel and Demat-

account documentation, are available only to transactions that are what they

purport to be. Where the totality of circumstances shows that a purported sale of

shares is, in substance, a device to launder unaccounted money as exempt long-

term capital gain, the form of the transaction cannot be permitted to override its

substance, and the addition u/s 68 is sustainable notwithstanding the existence

instant appeal.

21.1 The revenue has also relied on the decision in case of Rakhi Trading (P) Ltd.

(supra) and has in fact taken ground in all quantum appeals. The conclusion by

the Hon’ble Supreme Court is reproduced below for ready reference:

“46..Considering the reversal transactions, quantity, price and time and sale, parties being persistent in number of such trade transactions with huge price variations, it will be too naïve to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals as per the board's circular. The impugned transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. If the findings of SAT are to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable to be set aside. On the above additional reasonings also, I agree with the conclusion allowing the appeal preferred by SEBI against the traders…..” (Emphasis supplied). 22. Let us now consider the decision of the Delhi Bench of the Tribunal in Brij

Bhushan Singal and connected matters (ITA Nos. 1412 to 1414/Del/2018 and

connected appeals vide dated 31.10.2018), on which reliance has been placed by

the Ld. AR. We find that, though the said decision arose out of the investigation

involving Shri R.K. Kedia and also referred to transactions in a scrip described in

that order as Rander Corporation Ltd., the ultimate decision therein turned on

materially different factual findings. The Tribunal was dealing with unabated

assessment years u/s 153A of the Act and recorded that no incriminating material

premises of the assessees. More particularly, while recording its conclusion in

para 121, the Tribunal found that no live nexus had been established between the

third-party material and any incriminating material found in the search of the

assessees; that the pen-drive material relied upon merely corroborated share

transactions already recorded in the regular books and did not contain anything

incriminating against the assessees; and that the AO had failed to establish any

link or nexus of the alleged cash trail. The Tribunal also took into account the

retraction of statements and the fact that effective cross-examination of the

persons whose statements were relied upon had not been afforded. The decision,

therefore, has to be understood in the setting of these specific factual findings

and cannot be read as laying down that transactions connected with Shri R.K.

Kedia, or transactions in the concerned scrip, are necessarily genuine irrespective

of the evidence available in another case.

22.1 The factual position before us stands on a materially different footing. The

material relied upon by the AO is not confined to a general modus operandi or to

a third-party record merely reproducing transactions already disclosed by the

assessee. The private records seized from the premises of Shri R.K. Kedia include

the account which, as recorded by the AO, was identified by the person

promoter-family-wise particulars relating to the very Blue Circle Services Ltd. and

Render Corporation Ltd. transactions under consideration. The records contain

person-wise and scrip-wise transaction particulars and were compared by the AO

with the trading data of the assessee and other family members. Further, the AO

did not stop at the operator-side material. In para 19.4, he analysed the bank

accounts of purchaser entities and traced the funding backwards through

successive layers of accounts, recording cash deposits at the feeder level followed

by rapid onward transfers before the funds reached the entities which provided

the exit. We have already clarified that this buyer-side trail cannot, without more,

be described as direct tracing of the very cash belonging to the assessee; its

significance lies in corroborating the allegation that the purchasers were funded

through an accommodation-entry network. Thus, unlike the factual finding in Brij

Bhushan Singal (supra) that there was no live nexus and no established nexus of

the alleged cash trail, the present case contains assessee/group-specific operator-

side material coupled with purchaser-side banking evidence of layered funding.

The said decision is, therefore, distinguishable on its factual foundation.

22.2 Be that as it may, with due respect, it may be mentioned that the decision

relied upon by the Ld.AR is not from the jurisdictional Mumbai Tribunal and has,

Hon’ble Jurisdictional High Court in case of CIT vs. Thana Electricity Supply Ltd.,

206 ITR 727 (Bom.). We have also distinguished the facts of the relied upon case

from the facts of the present appeal. As held by the Hon’ble Supreme Court in

case of Padmasundara Rao vs. State of Tamil Nadu, 255 ITR 147 (SC) circumstantial

flexibility, one additional or different fact may make a world of difference between

conclusions in two cases.

23.

Thus, the case relied upon by the Ld. AR are distinguishable and not

binding. We have already discussed the factual and legal position and have found

that the legal approach to such transactions is well settled. In CIT v. Durga Prasad

More, 82 ITR 540 (SC) and Sumati Dayal v. CIT, 214 ITR 801 (SC), the Hon’ble

Supreme Court has held that the taxing authorities are entitled to examine the

surrounding circumstances and apply the test of human probabilities instead of

being compelled to accept the apparent form of a transaction. In Sanjay

Bimalchand Jain v. PCIT, 89 taxmann.com 196 (Bom.), the Hon’ble jurisdictional

High Court upheld the rejection of the claim arising from a penny-stock

transaction where the assessee was unable to furnish a cogent explanation for

the extraordinary appreciation in a little-known company and the fantastic sale

price had no economic or financial basis.

Court in case of Swati Bajaj (supra) to be relevant. The Court has held that in

transactions involving alleged price manipulation and accommodation entries,

direct evidence of a prior meeting of minds would ordinarily be difficult to obtain

and the conclusion may legitimately be drawn from the totality of the attending

circumstances on the test of preponderance of probabilities. The Court further

observed that where shares of little-known companies with insignificant business

witness an unreasonable rise in price over a short period, the genuineness of such

rise requires explanation and the assessee cannot insist that the claim be

examined only with reference to bank statements, contract notes and Demat

records.

23.2 Applying the aforesaid principles to the present facts, we find that there

are foundational facts substantially beyond mere suspicion. The lead assessee

Shri Ajay S. Mittal and other members of the same promoter family repeatedly

acquired and dealt in the same little-known scrips and claimed substantial exempt

long-term capital gains u/s 10(38) of the Act, with the acquisitions originating

through preferential allotments; both scrips thereafter witnessed an

extraordinary rise in price unsupported by corresponding financial performance;

both underwent a 1:10 split; private records found during a connected search on

transactions; persons maintaining or connected with those records explained the

accommodation-entry mechanism; the AO identified entities providing profitable

exit; and the bank accounts of such purchaser entities were analysed to

demonstrate layered funding originating in cash deposits at lower levels. These

circumstances, when considered cumulatively, form a coherent evidentiary chain

which, in our view, could not be displaced merely by establishing that the final

sale transaction was carried out on the stock exchange.

23.3 We are conscious that an assessee cannot be subjected to tax merely

because a particular scrip was manipulated by some other persons or because its

price appreciated abnormally. There must be material connecting the assessee’s

transaction with the alleged arrangement. It is precisely on this aspect that the

present case stands on a different footing from cases resting only upon a generic

Investigation Wing report. Here, the AO has relied upon private seized records

pertaining to the alleged operator which contain assessee-family-specific

transaction details and the AO has further supported the allegation by trading

data and purchaser-side bank analysis.

23.4 Having regard to the totality of the material, we are of the considered view

that the explanation offered by the assessee does not satisfactorily explain the 57

documentary evidence produced by the assessee proves the form in which the

transactions were executed but, in the peculiar facts of the present case, does not

satisfactorily establish their underlying genuineness. The cumulative

circumstances brought on record by the AO, tested on the touchstone of human

probabilities and preponderance of probabilities, are sufficient to support the

conclusion that the impugned gains did not arise from an ordinary and genuine

investment transaction but formed part of an accommodation-entry

arrangement.

23.5 We accordingly hold that the CIT(A) was not justified in deleting the

addition merely for want of a direct one-to-one cash trail from the assessee to the

ultimate purchaser and by treating the formal stock-exchange documentation as

sufficient to discharge the assessee’s burden. The order of the CIT(A) on this issue

is, therefore, set aside and the finding of the AO treating the impugned receipts

arising from the transactions in Blue Circle Services Ltd. and Render Corporation

Ltd. as non-genuine is restored. Accordingly, grounds No.1 to 4 of revenue’s

appeal are allowed and the ground No.3 and 4 raised by assessee are dismissed.

24.

Ground No.5 pertains to deletion of the addition of Rs.1,90,04,012/- made

by the AO towards unexplained commission expenditure u/s 69C of the Act. The 58

page 66 of Annexure A-1 containing the transactions of the assessee and his

family members executed through R.K. Kedia for obtaining bogus LTCG. Shri Kedia

admitted in his statement on oath that he used to charge commission @5 to 6%

for the services of providing bogus LTCG. However, on scrutiny of the said seized

paper, AO found that the assessee paid commission @7% to Shri R.K. Kedia.

Hence, 7% of bogus LTCG for Rs.27,14,85,887/- amounting to Rs.1,90,04,016/-

was added u/s 69C of the Act to the total income of the assessee.

24.1 Aggrieved by the order of AO, the assessee filed appeal before the CIT(A)

who has deleted the addition at para 8 of the appellate order by observing that

this ground is consequential to the addition u/s 68 of the Act in respect of exempt

LTCG claim. Since the addition of LTCG has been deleted, this ground was also

decided in favour of assessee.

24.2 Aggrieved by the order of CIT(A), the revenue has filed appeal before the

Tribunal. The Ld. CIT-DR submitted that once the LTCG is found to be an

accommodation entry, payment of consideration or commission for arranging the

entry is a natural consequence. The seized material contained distinct charges in

separate column, which independently supports the existence of commission. He

is upheld.

24.3 On the other hand, the Ld. AR of the assessee submitted that the ground

being consequential deserves to be deleted. The addition was purely based on

surmises and conjectures without any evidence thereon.

25.

We have heard both parties and perused the materials on record. We have

also gone through the seized material, being page 66 of Annexure A-1 containing

details of share sale of Rander Corporation Ltd. and Blue Circle Services Ltd. There

is clear description of “Commission on capital gain transaction @7%.” The table

is extracted at page 27 of the assessment order. Therefore, the disallowance of

unexplained commission expenditure @7% is duly supported by the seized

material found during the search operation u/s 132 of the Act. The contention of

the Ld. AR that the addition was based on surmises and conjectures without

evidence is, therefore, not found to be correct. The Ld. AR has not brought on

record any evidence to controvert the finding of the AO. We have also already

confirmed the addition of Rs.27,14,85,887/- made by the AO u/s 68 of the Act in

respect of the exempt LTCG. Accordingly, the addition made u/s 69C of the Act is

upheld and the order of CIT(A) on this ground is set aside. Accordingly, the ground

of revenue is allowed. 60

pertains to disallowance u/s 14A r.w.r. 8D of the Act. This is discussed at para 24

of the assessment order. The assessee had earned exempt dividend of

Rs.5,89,326/-. The AO asked as to why provisions of 14A r.w.r. 8D be not applied

to the case of the assessee; and after considering the reply of assessee, and the

Board Circular and other decisions on the subject issue, he calculated

disallowance at Rs.1,02,94,849/- (i.e. indirect interest expenses Rs.86,54,536/-

and ½% of average value of investment-Rs.16,40,312/-). He added the same to

the total income and also held that the amount is to be added to the book profit

as per clause (f) to Explanation-I to section 115JB(2) of the Act.

26.1 Aggrieved by the order AO, the assessee filed appeal before the CIT(A). The

assessee submitted that no expenses or interest were claimed in the return in

respect to the exempt income. Further, the disallowance cannot exceed the

amount of interest and expenses claimed in the ITR. After considering various

decisions such as (i) PCIT vs. Envestor Ventures Ltd. (2021) 123 taxmann.com 378

(Madras); (ii) Pragathi Krishna Gramin Bank. vs. JCIT (2018) 256 Taxman 349 (Karn)

(HC); (iii) Welspun India Ltd. vs. Dy. CIT (2019) 69 ITR 617 (Mum) (Trib.) and (iv)

Future Corporate Resources Ltd. vs. DCIT (2017) 167 ITD 33 (Mum)(Trib.), the

CIT(A) restricted the disallowance to Rs.5,89,326/- being the amount of exempt

Rs.53,469/- based on decision of Hon’ble Bombay High Court in case of Jubiliant

Enterprises, 110 Taxmann.com 257 (Bom.).

26.2 Aggrieved by the order of CIT(A), the revenue has filed appeal before the

Tribunal. The Ld. AR submitted that applicability of section 14A was accepted by

the CIT(A); the dispute is mainly about the extent of computation. The AO

recorded that exempt income had been earned and that expenditure, including

administrative expenditure, was attributable to the investment activity. The

assessee's plea for complete deletion deserves rejection where the AO recorded

the requisite dissatisfaction and exempt income was actually earned.

26.3 On the other hand, the Ld. AR submitted the CIT(A) in Para ‘6.2’ on Page

‘10’ restricted the said addition to Rs.5,89,326/-, equivalent to exempt dividend

income. The said addition of Rs.5,89,326/- was further rectified by the CIT(A) by

issuing the corrigendum, directing that a working under rule 14A be computed on

net interest paid, in accordance with decision of Hon’ble High Court of Bombay in

case of Jubiliant Enterprises, 110 Taxman.com 257. Accordingly, the said working

was done, and the addition was ultimately restricted to Rs.53,469/- for AY 2013-

14.

He submitted that the question of making any addition u/s 14A does not arise,

since assessee has not claimed any expenses in its return of income. The 62

appellant there is no claim of any expenditure in the return of income. In fact,

appellant has claimed no such expenditure against any of its interest income or

dividend income or long-term capital gains and therefore the question of any

disallowance does not arise. He also submitted that the said addition could not

have been made in proceedings u/s 153A of the act.

27.

We have heard both sides and perused the materials on record. Sub-

section (1) of section 14A of the Act requires that for the purpose of computing

the total income, no deduction shall be allow in respect of expenditure incurred

by the assessee in relation to income which does not form part of the total income

under the Act. It is clear that in order to disallow any expenditure, there should

be an expenditure in the accounts of the assessee against the exempt income.

The Ld. AR submitted that no expenditure was incurred against any of his dividend

income, LTCG or interest income. This claim of the assessee has been accepted by

the CIT(A), who has restricted the addition to Rs.5,89,326/- being the dividend

income from shares. However, we find that the exempt LTCG of

Rs.26,27,14,85,887/- u/s 10(38) of the Act has not at all been discussed or

considered by any of the lower authorities. The exemption claimed u/s 10(38) of

the Act towards income arising from transfer of a long term capital asset, being

“Income which do not form part of total income.” Therefore, the issue will come

under the ambit and scope of section 14A of the Act. This issue has not been

examined by the lower authorities while computing the disallowance of

expenditure incurred in relation to income not includable in total income u/s 14A

of the Act. Therefore, we deem it proper to set aside the issue to the file of the

AO to consider the matter afresh in accordance with law after granting adequate

and reasonable opportunity of being heard to the assessee. The assessee is

directed to file necessary details and supporting evidences in support of his

contention. The ground is allowed for statistical purpose.

27.1 Since we have remanded back the matter to the file of AO, the other

contention that the addition could not be made in the proceedings u/s 153A of

the Act is academic in nature and does not require adjudication. The assessee is

at liberty to raise the issue before the AO who would consider it as per law.

28.

Ground No.1 of the appeal by assessee pertains to addition of

Rs.2,45,00,000/- u/s 68 of the Act. This issue has been discussed by the AO at para

23 at pages 92 to 96 of the assessment order. During the search proceedings at

the residence of the assessee, some loose papers were found which has been

seized as per Annexure A-2. The said Annexure contains description of funds, 64

2.45.” The assessee explained during assessment proceedings that the amount

was received by Smt. Archana Mittal from M/s Action Financial Services India Ltd.

on sale of shares of Bhushan Steel Ltd. Since the amount against Bhushan Steels

Ltd. was Rs.3,47,24,000/-, it did not match with the narration in the seized paper.

When the discrepancy was pointed out by the AO, the assessee stated that it was

repayment of unsecured loans to Shri R.K. Kedia by Smt. Archana Mittal. This

explanation was not accepted and the AO observed that the onus was on the

assessee to explain the transaction with proper supporting evidences, which he

failed to give. The AO held that the same was unaccounted income received from

Shri R.K. Kedia and accordingly added the same u/s 68 of the Act.

28.1 Aggrieved by the order of AO, the assessee filed appeal before the CIT(A).

The CIT(A) confirmed the addition by stating as under:

“During the appellate proceedings the appellant has not made any specific submission. Therefore, the issue is decided on the basis of the material available on record.

It is a fact that during the cour the course of search proceedings pages 2, 3 and 4 of Annexure A-2 were seized from the residence of Shri Ajay Mittal These documents contained description of funds, receipts and utilization of funds by entities related to the Arshiya Group. These details were mentioned in coded form and inter alia contained an entry with narration 'KEDIA 2.45' as receipts. During the course of post search proceedings, the appellant had stated that the said amount was received by Smt. Archana Mittal from M/s. Action Financial Services India Ltd. on sale of shares of Bhushan Steel Limited. However, during the assessmet proceedings, the appellant 65

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 explained that the said amount was paid by Smt. Archana Mittal to Shri R. K. Kedia as the unsecured loan and it was included in Rs 6:85 crores paid to Shri R. K. Kedia during the month of January, 2013. During the appellate proceedings, the appellant has not demonstrated with the evidence either of two. Under these circumstances, the addition of Rs. 2,45,00,000/- made by the AO u/s 68 of the IT Act is upheld.”

28.2 Further aggrieved, the assessee filed appeal before the Tribunal. The Ld.

AR submitted that the said addition has been made based on certain loose paper

found with a narration “Kedia 2.45”. The copy of the loose paper was placed

before the Bench during the hearing. The Ld. AR submitted that the perusal of the

said loose paper would reveal that it is a dumb document and does not speak

anything. The said document does not mention whether “2.45” represents the

figures in Lakhs or crores. The said noting neither contains any date nor it signifies

credit or debit or receipt and payment, and therefore the addition made on such

noting is without any basis and is inconclusive. The CIT(A) confirmed the said

additions in Para ‘9’ only because the appellant could not give satisfactory reply

during assessment or appellate proceedings. According to the Ld. AR, perusal of

the said documents it would suggest that there could have been no additions

made in this regard. Since the said document does not contain any date and it has

nothing to do with the transactions of the sales of shares also. The whole page in

fact has a header mentioning name of Archana or Ananya and Arshiya

International. Nowhere the said page has any mention of appellant i.e. Ajay Mittal

and, therefore, the said addition is bad in law. 66

from the assessee's own premises and records a receipt described as 'KEDIA 2.45'.

The statutory presumption u/s 292C of the Act applies, subject to rebuttal. The

assessee first sought to link the entry with Bhushan Steel sale proceeds through

Action Financial Services and later described it as part of a loan or payment of

Rs.6.85 Cr. to Kedia. The explanations are mutually inconsistent: the seized

document records a receipt, whereas the later explanation concerns a payment.

Neither explanation reconciles the exact figure of Rs.2.45 Cr. Hence, the addition

made by AO was rightly confirmed by the CIT(A).

29.

We have heard both sides and perused the materials on record. We have

also gone through the copy of the impugned seized material. We find that the

assessee had given conflicting replies before the authorities; firstly, linking it to

transaction of Smt. Archana Mittal with sale of shares of Bhushan Steel Ltd.

Subsequently, it was submitted that the said amount was repaid by her towards

unsecured loans received from Shri R.K. Kedia. Therefore, the entry pertains to

Smt. Archana Mittal as per replies of assessee on different occasions. This is also

supported by the names appearing the impugned seized paper, which includes

the names of ‘Archana’ or ‘Ananya’ or ‘Ashriya’ International and “From small

companies”. The name of the assessee is not mentioned anywhere in the

Mittal. The order of CIT(A) is accordingly set aside and the AO is directed to delete

the addition.

29.1 However, the addition is liable to be made in the hands of Smt. Archana

Mittal in view of replies given by appellant during post search and assessment

proceedings, as discussed in preceding paras. The AO is directed accordingly.

30.

In combined result, the appeal of revenue is partly allowed and that of the

assessee is also partly allowed.

ITA Nos.1680 & 701/Mum/2021 (AY 2012-13)

31.

The Grounds No. 1 to 4 of the revenue’s appeal and Grounds No. 2 & 3 of

the assessee’s appeal pertains to addition of bogus long-term capital gains u/s 68

of the Act. We have already decided the said issue in the lead case of Shri Ajay

Shankarlal Mittal for AY 2013-14 in ITA No.1681 & 702/Mum/2021 (supra). The

findings therein shall apply mutatis mutandis for the appeal for AY 2012-13 in

respect of long-term capital gain amounting to Rs. 70,60,354/-, which is in respect

of sale of shares of M/s. Rander Corporation Limited only. Following the decision

of AY 2013-14 above, the order of CIT(A) is set aside and the addition made by the

AO is restored. Accordingly, the grounds of revenue are allowed. 68

ground which pertains to addition u/s 69C of the Act amounting to Rs.4,94,225/-

by adopting commission of 7% on the total sale value of the shares of M/s. Rander

Corporation Limited. The facts are similar to Ground No. 5 of the revenue’s appeal

for AY 2013-14 (supra); hence, following the findings in the said appeal, the

ground of revenue is allowed.

33.

Grounds No. 6 & 7 of the revenue’s appeals and Ground No. 1 of the

assessee’s appeal are in respect of disallowance u/s 14A of the Act, which is again

are similar to Grounds No. 6 & 7 of revenue’s appeal for AY 2013-14 (supra).

Following decision above in ITA No.1681/Mum/2021 (supra) for AY 2013-14, the

matter is remanded back to the file of AO for fresh adjudication as per law after

providing adequate opportunity of being heard to the assessee. The ground of

revenue is allowed for statistical purpose.

34.

In combined result, the appeal of revenue is partly allowed and that of the

assessee is also partly allowed.

ITA Nos.1678 & 818/Mum/2021 - Archana Mittal for AY 2013-14

35.

Grounds No. 1 to 4 of revenue’s appeal and grounds No. 3 & 4 of the

assessee’s appeal are in respect of long-term capital gains exemption denied by

the AO, which was deleted by the CIT(A). The facts and the scrips are similar to 69

for AY 2013-14 in ITA No.1681/Mum/2021 (supra) shall apply mutatis mutandis

and hence, following the above decision, the order of CIT(A) is set aside and the

addition made by the AO is upheld. The grounds of revenue are, accordingly,

allowed whereas the grounds of assessee are dismissed.

36.

Ground No. 5 of the revenue’s appeal is again a consequential ground in

respect of addition made u/s 69C on account of commission on the above long-

term capital gains and is similar to the ground No. 5 of the revenue’s appeal in

case of Ajay S. Mittal for AY 2013-14(supra). Following the decision in case of Ajay

Mittal (supra), the addition is confirmed and the ground of revenue is allowed.

37.

Ground No. 6 & 7 of revenue’s appeal and Ground No. 2 of the assessee’s

appeal are in respect of addition made u/s 14A of the income tax act. The facts

are similar to that of Ajay Mittal’s case for AY 2013-14 and our findings shall apply

mutatis mutandis to the facts of the impugned appeal. Following decision above

in ITA No.1681/Mum/2021 (supra) for AY 2013-14, the matter is remanded back

to the file of AO for fresh adjudication as per law after providing adequate

opportunity of being heard to the assessee. The ground of revenue is allowed for

statistical purpose.

38.

Ground No.1 of the assessee’s appeal in ITA No.8185/Mum/2021 (AY 2013-

14) pertains to addition of Rs.50,00,000/- u/s 68 of the Act. The assessee had 70

The said party was found to be an exit provider for shares sold by the appellant.

The SEBI also in the final order passed against Radford Global Ltd. and First

Financial Services Ltd. held that EEPL was involved in malpractices for rigging of

shares. The AO issued notice u/s 133(6) to EEPL which returned back unserved.

The assessee in her reply during assessment proceeding submitted that she was

not aware of the deals done by EEPL except to the extent that loan transactions

made by her were genuine. The AO was not satisfied with the reply of assessee

and relying upon the following decisions in cases of (i) DCIT vs. Smt. Phoolwati

Devi (2009) 314 ITR AT 1 (Delhi), (ii) M/s. Kachwala Gems vs. JCIT, ITA

No.134/JP/2002 dated 10.12.2003, (iii) CIT vs. Prashant (P) (1994) 121 CTR (Cal.)

20, (iv) Sumati Dayal vs. CIT (1995) 214 ITR 801, (v) CIT vs. Durga Prasad More 82

ITR 540 (SC), (vi) Indian Woolen Carpet Factory (2002) 178 CTR (Raj.) 420, (vii)

VISP(P) vs. CIT, Indore (2004) 186 CTR (MP) 218, (viii) Vodafone International

Holdings B.V. [2012] 17 taxmann.com 202 (SC), (ix) CIT v Nova Promoters &

Finlease (P) Ltd. (2012/ 18 taxmann.com 217 (Delhi), (x) Major Metals Ltd. vs. UOI,

Writ Petition No.397 of 2011 (Bom.) and (xi) CIT vs. Lovely Exports Pvt. Ltd.; 216

CTR 195 (SC), added the unsecured loan of Rs.50,00,000/- u/s 68 of the Act.

CIT(A), after considering the assessment order and written submission by the

assessee dismissed the ground by stating as under:

“9.3 The facts of the case are that the appellant had received loans from Esquire Enclave Pvt. Ltd. of Rs. 50,00,000/-. A notice u/s. 133(6) of the I. T. Act issued to M/s. Esquire Enclaves Pvt. Ltd. by the AO returned back un-served. During the assessmet proceedings, the appellant produced the bank statement of the lender highlighting entries of loans received by the appellant along with copy of the return of income with all annexures and schedule. Even though the payment was made by account payee cheque, it does not prove the genuineness of the transaction. Further, The SEBI in its final order passed against Radford Global Ltd. and First Financial Services Ltd, has observed that the company Esquire Enclave Pvt. Ltd. was also involved in the malpractice for the rigging of shares of the above said companies and that SEBI had debarred them for further accessing the securities market. Therfore, the appellant has not discharged the onus cast under section 68 of the Act. Therefore, the addition of Rs. 50,00,000/- made by the AO u/s 68 of the Act is upheld.”

38.2 Further aggrieved, the assesse filed appeal before the Tribunal. The

assessee has not filed any submission before the Tribunal. On the other hand, the

CIT-DR has submitted that production of incorporation and tax particulars may

establish formal identity, but section 68 of the Act requires identity,

creditworthiness and genuineness to be established cumulatively. The notice u/s

133(6) of the Act was returned unserved. The assessee did not satisfactorily

establish the lender's immediate source, bank trail or genuine commercial

capacity to advance Rs.50,00,000/-. The alleged connection of the lender with

accommodation-entry entities is a supporting circumstance; the primary failure is

these facts, the Ld. CIT-DR submitted that the finding of CIT(A) may be upheld.

39.

We have carefully gone through the orders of lower authorities and the

submissions made during the proceedings before us. We have also deliberated

upon the decision relied upon by the revenue. The appellant has not been able to

rebut the concurrent finding of facts by the lower authorities. The identity of the

party has been proved but creditworthiness of the lender and genuineness of the

transaction have not been satisfactorily explained by the assessee. The SEBI has

also observed that the lender was involved in malpractices for rigging of shares.

The lender also did not appear before the AO in response to the notice issued u/s

133(6) of the Act. Considering the facts discussed above and the decisions cited

supra, we do not find any infirmity in the order of CIT(A), which we confirm.

Accordingly, the ground is dismissed.

ITA Nos.1679 & 817/Mum/2021 - Archana Mittal for AY 2012-13

40.

Grounds No. 1 to 4 of the revenue’s appeal and Ground No. 2 & 3 of the

assessee’s appeal are in respect of long-term capital gains amounting to Rs.

31,72,17,049/-. The facts and grounds of the case are similar to those for AY 2013-

14 in cases of Ajay S. Mittal and Archana Ajay Mittal and hence, following the

decision in the lead case of Ajay S. Mittal in ITA No.1681/Mum/2021 (AY 2013-

14), the order of CIT(A) is set aside and the addition made by the AO is restored. 73

are dismissed.

41.

Ground No. 5 of the revenue’s appeal is in respect of estimated

commission expenses made on long-term capital gains added u/s 69C amounting

to Rs.2,22,05,053/-. The facts of the case are similar to the ground No. 5 for AY

2013-14 of revenue’s appeal in case of Ajay S. Mittal in ITA No.1681/Mum/2021

(supra). Following the above decision, the order of CIT(A) is set aside and ground

of revenue is allowed.

42.

Grounds No. 6 & 7 of revenue’s appeal and Ground No. 1 of the assessee’s

appeal pertain to disallowance of Rs. 12,13,47,684/- u/s 14A which was restricted

to exempt income amounting to Rs. 54,00,395/- by the Commissioner of Income

Tax (Appeal). The facts and grounds are similar to those in the case of Ajay S.

Mittal for AY 2013-14. Hence, following decision above in ITA No.1681/Mum/2021

(supra) for AY 2013-14, the matter is remanded back to the file of AO for fresh

adjudication as per law after providing adequate opportunity of being heard to

the assessee. The grounds are allowed for statistical purpose.

ITA Nos.1677 & 703/Mum/2021 - Ananya Mittal AY 2013-14

43.

Grounds No. 1 to 4 of revenue’s appeal and grounds No. 3 & 4 of the

assessee’s appeal are in respect of long-term capital gains exemption denied by

the AO. The facts and the scrips are similar to those in case of Ajay S. Mittal and 74

No.1681/Mum/2021 (supra) shall apply mutatis mutandis to the present appeal

and hence, following the above order, the finding of CIT(A) is set aside and the

addition made by the AO is confirmed. The grounds of revenue are, accordingly,

allowed whereas the grounds of assessee are dismissed.

44.

Ground No. 5 of the revenue’s appeal is again a consequential ground in

respect of addition made u/s 69C on account of commission on the above long-

term capital gains and is similar to the Ground No. 5 of the department’s appeal

in case of Ajay S. Mittal for AY 2013-14 in ITA No.1681/Mum/2021 (supra).

Following the decision in case of Ajay S. Mittal (supra), the addition is confirmed

and the ground of revenue is allowed.

45.

Ground No. 1 of the assessee’s appeal is in respect of credit balance in

foreign bank account amounting to Rs.5,66,274/-. During the hearing, the

assessee submitted that the source of said funds was from a family friend, Dr.

Prakash Sampath, who was the Chief of Neurosurgery at Boston University School

of Medicine. Shri Sampath vide letter dated 21.04.2008 confirmed that he, being

an old friend of Mittal family, has deposited the said amount to bear his expenses.

The appellant also submitted the decision of the Co-ordinate Bench for AY 2010-

11, 2011-12 and 2012-13 was on similar issue and the addition in respect of the

same bank account was deleted since during that period under appeal, the

appellant was non-resident. Though in case of AY 2013-14, he has become a 75

stay abroad before he came back to India. The above amounts were received

when he continued to be a non - resident and deposited during the year, the

source of which has been duly explained by way of confirmations submitted from

Dr. Prakash Sampath. Therefore, the Ld. AR submitted that appellant has duly

discharged his onus u/s 68 by proving the source of funds showing its identity,

genuineness and creditworthiness.

45.1 On the other hand, the Ld. CIT-DR supported the order of lower authorities.

45.2 We have heard both parties and perused the materials on record. We have

also gone through the decisions of the co-ordinate Bench in case of the assessee

for AYs 2010-11 to 2012-13 in ITA Nos. 6949,6950/Mum/2019 and ITA

No.576/Mum/2021 dated 29.12.2022. After considering the submission of both

sides, the issue was decided in favour of the assessee by the co-ordinate Bench in

appellant’s own case. The revenue has not been able to bring on record any

evidence to the contrary. Hence, following the reasons given in assessee’s own

case in the above order, the order of CIT(A) is set aside and the AO is directed to

deleted the addition. Accordingly, the ground is allowed.

ITA Nos.1084 /Mum/2025 - Ajay Mittal for AY 2013-14

46.

Consequent to the assessment order passed in the case of Ajay S. Mittal

for AY 13-14 as discussed above, penalty proceedings u/s 271(1)(c) of the Act were

hearing the assessee, the AO levied penalty @100% of the tax sought to be

evaded amounting to Rs.2,45,00,000/-. Accordingly, penalty of Rs.75,70,208/- u/s

271(1)(c) of the Act was levied upon the assessee. The CIT(A) has confirmed the

penalty order of the AO.

47.

Aggrieved by the order of CIT(A), the assessee has filed appeal before the

Tribunal. The Ld. AR drew attention to the fact that in para 24.15 of the quantum

assessment order, the AO has mentioned that “Penalty proceedings u/s.271(1)(c)

are separately initiated for furnishing inaccurate particulars of income.” He

thereafter, drew attention to para 7 of the penalty order dated 31.03.2023,

wherein the AO has stated that “I am of the opinion that the assessee has

deliberately furnished inaccurate particulars of income within the meaning of

section 271(1)(c) of the I T Act, 1961. Accordingly, I am satisfied that this is a fit

case for imposition of penalty u/s. 271(1)(c) of the I.T. Act, 1961. The Ld. AR

submitted that, however, the penalty notice u/s 274 r.w.s 271 of the Act issued on

26.12.2016 does not strike off the limb under which penalty is proposed to be

imposed i.e., “furnishing inaccurate particulars of income” or “concealment of

income”. In this regard, the Ld. AR relied on the following decisions, wherein it

has been held that mere issuing notices in pre-printed form without deleting or

striking off the inapplicable parts of the specific limb is a generic and omnibus

notice and deserved to be quashed. The relevant portion of the order is as under:

ITA Nos.701 & 702/MUM/2021, ITA Nos.1084/MUM/2021, ITA Nos. 1680 & 1681/MUM/2021 ITA No.703/MUM/2021, ITA No. 1677/MUM/2021, ITA Nos.817, 818 & 1085/MUM/2021 and ITA No. 1678 & 1679/MUM/2021 1. Mohd. Farhan A. Shaikh; 125 taxmann.com 253; Bombay High Court- “Whether where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice-not striking off irrelevant matter would vitiate penalty proceedings - Held, yes - Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice - Held, yes - Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give no room for ambiguity - Held, yes”

Times Global Broadcasting Ltd.; 172 taxmann.com 786; Bombay High Court “Whether since penalty notice issued u/s 271(1)(c) to assessee did not clarify whether penalty was proposed to be imposed on grounds of concealment or furnishing inaccurate particulars and necessary box containing two options was not ticked, assessee had no clear notice about case it was required to meet and thus, impugned notice was invalid.”

47.1 In view of the above, the Ld. AR requested that the penalty u/s 271(1)(c)

of the Act is liable to be deleted.

47.2 On the other hand, the Ld. CIT-DR supported the orders of lower

authorities.

48.

We have heard both sides and perused the materials on record. We have

also deliberated on the decisions relied upon by the Ld. AR. The Ld. CIT-DR has

not been able to distinguish the above decision either on fact or in law. Therefore,

respectfully following the binding decisions of the Hon’ble Bombay high Court,

the penalty notice issued u/s 274 r.w.s 271 without striking off the applicable limb

under which penalty was imposed is held to be bad in law and hence, the penalty

order passed u/s 271(1)(c) of the Act on 26.12.2016 is set aside and quashed.

ITA Nos.1085/Mum/2025 – Archana Ajay Mittal for AY 2013-14

50.

The facts and the grounds raised by the assessee against the penalty order

of AO, which was confirmed by the CIT(A), are similar to those in case of Ajay S.

Mittal decided above. Hence, following the reasons given above, the grounds of

appellant are allowed.

51.

In the result, the appeal of the assessee is allowed.

Order is pronounced on 09.09.2026.

Sd/- Sd/- (ANIKESH BANERJEE) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER

*Aniket Chand; Sr. PS MUMBAI Date: 09.09.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File

By Order

Assistant Registrar ITAT, MUMBAI 79

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