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Facts
The assessee purchased shares of Shreenath Commercial and Finance Limited (SCFL) in March 2011 and sold them in January-February 2013, claiming long-term capital gains (LTCG) exempt under Section 10(38). The Assessing Officer (AO) reopened the case based on investigation suggesting the shares were from a penny stock, the price was rigged, and the transactions were for accommodation entries to claim bogus LTCG. The AO added the entire sale value as unexplained income under Section 68 and a commission under Section 69C.
Held
The Tribunal held that the assessee had provided documentary evidence like contract notes, D-mat account details, and bank statements to substantiate the transactions. The Tribunal noted that similar additions in the cases of the assessee's relatives were deleted by coordinate benches. Relying on jurisdictional High Court judgments and the principle of following favorable precedents, the Tribunal deleted the addition.
Key Issues
Whether the long-term capital gains from the sale of shares of SCFL were genuine or bogus accommodation entries, and whether the addition made by the AO was sustainable given the documentary evidence and precedents.
Sections Cited
10(38), 143(1), 147, 148, 250, 68, 69C
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 09.08.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2013-14.
2. In the instant case, the Assessee, in the month of March 2011 on three dates, has purchased 485000 shares in total, on a total consideration of Rs.99,95,750/- of Shreenath Commercial and Finance Limited (in short “SCFL”) through online platform of stock exchange and registered broker RBK Share Broking Ltd. Subsequently, the said company on dated 22.03.2011 issued bonus shares in the ratio of 1:1, which resulted into holding the share to the tune of Rs.9,70,000/- on an average price of Rs.21/-.
3. The Assessee subsequently sold 9,70,000 in different parts on dated 31.01.2013, 01.02.2013 and 04.02.2013 @ average price of Rs.70 each and on a total consideration of Rs.6,81,32,018/- as detailed below:
Purchase Date Qty. Avg Purchase Value (No. of Shares) Rate 09.03.2011 5,000 21.12 1,05,600 10.03.2011 2,45,000 20.11 49,26,950 14.03.2011 2,35,000 21.12 49,63,200 22.03.2011 4,85,000 NA NA Bonus shares issued in the ratio of 1:1 9,70,000 (A) 99,95,750/- Sale Date Qty. Avg. Sale Value (No. of Shares) Rate 31.01.2013 1,78,083 71.89 1,28,02,387 01.02.2013 4,96,524 69.46 3,44,86,754 04.02.2013 2,95,393 70.56 2,08,42,938 9,70,000 (B) 6,81,32,078
Long Term Capital Gain (B-A) 5,81,36,328/-
4. The Assessee consequently earned the capital gain of Rs.5,81,36,328/- and claimed the same as exempt u/s 10(38) of the Act declaring total income of Rs.14,83,540/- by filing his return of income on dated 19.03.2015, which was processed u/s 143(1) of the Act.
5. Subsequently, on the basis of investigation carried out by the Directorate of Income Tax (Investigation), Kolkata the case of the Assessee was reopened by recording reasons u/s 147 of the Act and issuing notice dated 14.09.2016 u/s 148 of the Act.
6. Thereafter, the AO by considering the case of the Assessee issued various statutory notices, in response to which the Assessee filed the relevant documents, which were considered by the AO and held as under:
The financials of M/s. Shree Nath Commercial & Finance Ltd were very poor during the period when the shares were purchased by the beneficiaries. The business profile shows that the company was not engaged into any substantial activity. The business profile shows that the company was not having any future plans which could attract investors from all over India to invest in the company. The whole process of rigging value of the shares on the stock market was a prearranged and a managed process so as to for booking accommodation entry of bogus LTCG/STCG in the garb of sale proceeds on sale of shares. The shares were rigged on the stock exchange through manipulation of the stock market. Various share brokers whose statements have been recorded and as discussed have confirmed the fact that the shares of M/s. Shree Nath Commercial & Finance Ltd. have been used for providing entry of bogus LTCG/STCG/loss. SEBI has passed an order where various exit providers, was held to be indulged in the dubious activity of manipulating the stock price for giving entries to beneficiaries of LTCG/Trading Loss. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. Therefore, it is found that the shares of M/s. Shree Nath Commercial & Finance Ltd were used to provide accommodation entry in terms of LTCG to the beneficiaries.
The AO ultimately made the addition of Rs.6,82,32,499/-, the entire sale value of the shares of SCFL, which was claimed as tax exempt (long term capital gains) as unaccounted income u/s 68 of the Act representing undisclosed income.
The AO also made the addition of Rs.34,11,625/- being 5% of Rs.6,82,32,499/- as unexplained expenditure on account of commission charged for arranging artificial capital gains to various beneficiaries and added the same as unexplained expenditure u/s 69C of the Act.
The Assessee, being aggrieved, challenged the said additions before the Ld. Commissioner and during the appellate proceedings before the Ld. Commissioner tried to establish the genuineness of the transactions of the purchase and sale of shares, by filing relevant submission and documents as filed before the AO in order to substantiate it's claim. The Assessee also relied on various judgments before the Ld. Commissioner who by considering the submissions and documents and judgments, ultimately deleted the addition of Rs.34,11,625/- being 5% of the amount of Rs.6,82,32,499/- as made by the AO which is not in controversy before us, however affirmed the addition of Rs.6,82,32,499/- by observing and holding as under:
“I have considered the submission of the appellant and gone through the AO's observation & decision in assessment order and find that the appellant have claimed to have established the genuineness of transaction [purchase and Sales of shares of SHREE NATH COMMERCIAL & FINANCE LTD] undoubtedly. But I find from the assessment order that the AO has doubted genuineness of said transactions not only in assessment order but also he has established how the price of shares of of the penny stock companies are rigged and are raised through circular trading.
It is observed that the appellant is unable to file any satisfactory reply to justify the logic behind genuine purchase & sale of the above shares vis-a vis failed to justify the genuineness of sudden increase and decrease of the prices of the shares.
The appellant cannot escape from the burden cast upon him and unfortunately in this case the burden is heavy as the facts establish that the shares which were traded by the appellant had phenomenal and fanciful rise in price in a short span of time.
Despite availing adequate opportunity the appellant is unable to establish and prove that there was no manipulation in the other end and whatever gains the appellant has reaped was not tainted. I find during the course of assessment, the Assessing Officer (AO) has culled out proximate facts in each of the case, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the appellant by recording statement issuing summon, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion.
On this issue Hon'ble High Court of Calcutta has held: [2022] 139 taxmann.com 352 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax
V.
Swati Bajaj
T.S. SIVAGNANAM AND HIRANMAY BHATTACHARYYA, JJ. IA NO. GA/2/2022 AND OTHERS† ITAT/6/2022 & OTHRS. JUNE 14, 2022 Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credit (Share dealings) - Assessment year 2014-15-Whether if there is information and data available of unreasonable rise in price of shares of penny stock companies over a short period of time of little more than one year, genuinity of such steep rise in prices of shares needs to be established and onus is on assessee to do so as mandated in section 68 - Held, yes -Assessee made investments in shares of company, 'S' During relevant assessment year, assessee sold said shares and claimed exemption on long term capital gains Assessing Officer received information from Investigation Wing that prices of some shares of penny stock companies which included company, 'S' were artificially rigged to benefit shareholders through bogus claim of LTCG - Consequently, notices were issued by Assessing Officer for scrutiny and on analyzing documents submitted by assessee it was observed that assessee purchased shares of 'S' for Rs. 1 lakh and when investments in shares became eligible for LTCG it was sold for Rs. 29 lakhs during perlod when general market trend was recessive -He thus, opined that shares of of 'S' matched all features of companies which were providing bogus LTCG and made additions under section 68 by treating LTCG as unaccounted income-Whether since assessee failed to establish credit worthiness of companies and that rise of price of shares within a short period of time that too when market trend was recessive was genuine, genuineness could not be established merely on basis of documents like bank details, purchase/sell documents and detail of d-mat account - Held, yes - Whether thus, in absence of satisfactory explanation by assessee, Assessing Officer was bound to make additions under section 68-Held, yes For all the above reasons, I hold that the alleged transaction is obviously made for tax evasion, therefore, such transactions are not genuine but pre- conceived resulting in creation of bogus claim and, therefore, are sham transactions Accordingly I find no infirmity in the order of the AO and I am of opinion that AO's decision of invoking provision of section 68 of the I.T Act is justified in absence of satisfactory explanation on the part of the appellant. Accordingly I hold alleged LTCG for sale of share of M/s Shreenath Commercial & finance Ltd as bogus and not eligible to exemption u/s 10(38) of the I.T Act and the addition of Rs.6,82,32,499/-by invoking provision of section 68 of the I.T Act stand confirmed. The 2nd ground of the appellant is dismissed Appellant's Contentions and Submissions on other ground of appeal No. 3:”
8. The Assessee being aggrieved against the addition affirmed and impugned order affirming the addition, is in appeal before us. The Assessee has mainly claimed that he has carried out the transactions of purchase and sale through online platform of stock exchange and recognized share broker and banking channels and during the assessment proceedings as well as appellate proceedings before the Ld. Commissioner, he has duly filed the relevant documents, such as:
(i) Copy of contract notes for purchase and sale of shares of the company involved; (ii) Copy of D-mat account reflecting receipt and transfer of shares of the company involved; (iii) Extracts of ledger account of share broker in Assessee’s books of account; (iv) Bank statement reflecting payment of purchase and receipt of sale of shares, etc.
The Assessee therefore has contended that by producing the aforesaid documents, he has duly discharged its prima-facie onus cast u/s 68 of the Act. The Assessee further claimed that even otherwise, the authorities below have not doubted the documents submitted by the Assessee qua transactions involved. Further the Assessee has also submitted that the shares of SCFL were also purchased by the family members of the Assessee during the same period i.e. March 2011 and on average price of Rs.20 and subsequently sold the same through online platform @ approx. Rs.65 per share. The cases of the Assessee’s relative namely Mrs. Pallavi Pandey, Shri Rajendra Chaturvedi and Miss Veena Chaturvedi also resulted into making the identical additions by the then AO and affirmation thereof by the then Ld. CIT(A), however deletion of the additions by the Hon’ble Co-ordinate Benches of the Tribunal, vide orders dated 23.12.2020 and 18.09.2023 respectively passed in the cases titled as Mrs. Pallavi Pandey and Shri Rajendra Chaturvedi Vs. DCIT in & and Miss Veena Chaturvedi Vs. DCIT in ITA No.1702/M/2021 (Mumbai - Trib). Thus, in view of the judgments passed by the Co- ordinate Benches of the Tribunal, the addition sustained by the Ld. Commissioner is liable to be deleted.
The Assessee further claimed that even otherwise no allegation has ever been made against the Assessee with regard to any malpractice and / or manipulation of shares and Assessee’s name also nowhere appears in the information received from DGIT (Investigation), Kolkata, as relied upon by the AO. No adverse findings as well have been arrived at against the Assessee.
The case of the Assessee was reopened simply on the third party information and/or borrowed satisfaction without applying the mind independently to the information on the basis of credible independent enquiry. But in fact the reopening has been done in mechanical manner which is void ab-initio and consequently the notice u/s 148 along with assessment order passed in consequent thereof, is liable to be quashed. The Assessee in support of its case, also relied on various judgments, which we will deal later.
On the contrary, the Ld. DR refuted the claim of the Assessee by submitting “that Directorate of Investigation at Kolkata has carried out thorough investigation in the penny stock cases and /or in the scheme hatched by various players to obtain/provide accommodation entries or bogus LTCG through manipulation of stock market and therefore on the basis of investigation carried out by the Kolkata Wing, the AO correctly reopened the case of the Assessee and thereafter thoroughly analyzed the case in hand and ultimately considering the financials of SCFL being very poor during the period when the shares were purchased by the beneficiaries, business profile of such company, whole process of rigging value of the shares, statements of various share brokers and the fact that the transactions of shares were not governed by market factors prevalent at the relevant time in such trade and the SEBI has also passed an order, various exit providers were held to be indulged in the dubious activities of manipulating the stock price for giving entries to beneficiaries of LTC/trade loss and even otherwise. The Hon’ble Kolkata High Court in the case of PCIT Vs. Swati Bajaj of 2022 (2022) 139 taxmann.com 352 (Kolkata) has also held that onus of proving the genuineness of the transaction is upon the Assessee, however, in the instant case, the Assessee has failed to discharge its onus cast u/s 68 of the Act and thus the order passed by the Ld. Commissioner, is liable to be affirmed”.
Having heard the parties and perused the material available on record and given thoughtful consideration to the rival contentions of the parties. The Assessee has carried out the transactions of purchase and sale through online platform of stock exchange and paid and received the amounts of transactions through banking channels. It is a fact that the shares were also reflected in the demat account of the Assessee and the Assessee sold the shares only after two years of the purchasing the same. Admittedly, no allegation has ever been leveled or proved against Assessee and his family members. Admittedly, no connection in whatsoever nature, has been established qua Assessee or his family members with the promoters of SCFL. Further, the Assessee during the assessment proceedings as well as appellate proceedings, has duly filed the relevant documents such as contract notes qua purchase and sales of shares involved, D-mat statements reflecting receipt and transfer of shares of the scrips involved, extract of ledger account of share broker in Assessee’s books of account, bank statements reflecting payment made qua purchase of shares and amount received qua sale of shares. The Assessee before us as well has filed such documents, as mentioned above.
As observed above, the Co-ordinate Benches of the Tribunal in the cases of the Assessee’s relatives namely Mrs. Pallavi Pandey and Shri Rajendra Chaturvedi (supra), have also considered the identical scrip and/or making the identical addition and ultimately deleted the same, by observing and holding as under:
“11. The operative portion of the said judgement in the case of Mrs. Pallavi Pandey, Shri Rajendra Chaturvedi vs DCIT, CC-2(3) (supra) is as under:
"11 We have heard the rival submissions of both the parties and perused the material on record including the various case laws referred by the rival parties during the course of hearing. The undisputed facts are that the assessee has purchased 28 lakhs of shares of M/s Shrinath Commercial and Finance Ltd. between 04.03.2011 to 15.03.2011 M/s. Shrinath Commercial and Finance Ltd. thereafter issued bonus shares in the ratio of 1 1 on 22.03.2011 and thus the assessee came to hold 56 lakh shares in the said company. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly. the bonus shares were also credited in the said D-mat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs. 41,48,39,241/- and was received through banking channel thereby making a long-term capital gain of Rs. 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the D-mat account and the sale and purchase consideration reached through banking channels. The AO has also only relied on the investigation carried out by the Investigation wing. Kolkata and Mumbai that assessee is a beneficiary of these bogus long term capital gain entries. Nowhere the AO has brought on record any other evidence than relying on the report of investigation wing that the assessee is beneficiary of this huge racket of taking bogus entries of long-term capital gain. The AO has disbelieved these documents by observing that these are sham and bogus documents without pointing out any specific defect or infirmity as these were issued as per the system of the recognised stock exchange through registered brokers. Similarly, the Ld. CIT(A) has upheld the order of AO by holding that the assessee is beneficiary of a big racket whereby the prices of the shares were rigged and manipulated to yield bogus gain to various entities/individuals of which assessee was one. Thus, we find merit in the arguments of the Ld A.R. that assessee has furnished all the information, details, documentary evidences before the AO but the AO has not done any further verification to find out the truth or done anything to prove the money trail of the funds as has been alleged in the order. Under these circumstances, we are not in a position to sustain the order of Ld. CIT(A) upholding the order of AO wherein the long-term capital gain has been held to be non-genuine and bogus.”
We further observe that in the case of Miss Veena Chaturvedi (supra), the Co-ordinate Bench of the Tribunal has also dealt with the identical scrip and addition in detail and ultimately deleted the identical addition by considering the aforesaid judgement passed by the Co-ordinate Bench of the Tribunal in the case of Mrs. Pallavi Pandey and Shri Rajendra Chaturvedi (supra) by observing and concluding as under:
“18. We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. It is an undisputed fact that assessee has purchased 4,97,500 shares of Shreenath Commercial and Finance Limited from 10/03/2011 to 11/03/2011 in the open market on the Online Trading Portal of the Stock Exchange through registered Broker, RBK Share Broking Limited. One important fact to be noted here that in so far as RBK Share Broking Ltd. is concerned, nothing adverse has been found nor there is an enquiry that the said broker has provided any kind of accommodation entry or was involved in any such dubious transaction. On 22/03/2011 bonus shares were issued at the ratio of 1:1 and accordingly, assessee had held that 9,95,000 shares were sold after almost 2 years from 16/01/2013 to 21/01/2013 for sums aggregating to Rs. 8,29,88,876/-, on which assessee had earned a long-term capital gain of Rs. 7,29,88,736/- which claimed as exempt. Apart from that, all the documentary evidences in the form of contract note for purchase and sale of shares; copy of Demat Account reflecting receipt and transfer of shares; ledger account of Share Broker in assessee's books of accounts and bank statement reflecting payment on purchase and receipt of consideration on sale of shares were filed. We have already noted the various contentions raised by the Assessing Officer and his observations and the counter submissions made by the assessee before the authorities below as well as before us. From the perusal of the statement of Shri Rajendra Chaturvedi, husband of the assessee, it is noted that, he has stated that he had made investments in more than 50 scrips on behalf of himself and his family members and the investment in the shares of M/s. Shreenath Commercial & Finance Ltd. was made by him only on behalf his wife, the assessee. The average purchase rate of the shares was Rs.20/- per share and average sale rate was between Rs.79/- to Rs.86/- per share. He has also stated that the entire shares of purchases through stock exchange by online through registered broker and the shares were purchased when the financial condition of the said company was good and the profits were substantially increased including the turnover which was in several crores. He has also stated that the assessee nor any of the family member had any connection or business with the promoters of the company or any kind of alleged exit providers. Now in the case of her husband, Shri Rajendra Chaturvedi, the coordinate bench on exactly similar facts and reasoning of the AO and CIT (A) has deleted the said addition.
The AO has observed that the prices of the shares had reached upto 500/- per share to show assessee has gained multifold, however, assessee had sold the price changing price between Rs.79 to Rs.86/- per share which was quoted price in the Bombay Stock Exchange on which rate such shares were traded and had bought the shares at average price of Rs. 20/-per share. However, the main point which has been discussed at length by the Id. AO in his order that in the case of exit providers, there is the order of the SEBI dated 04/12/2014 in the case of Moryo Industries Ltd., who was one of the six exit providers of the impugned shares of Chaturvedi family. On this ground, the ld. AO has endeavored to depict nexus between the exit providers and Shreenath Commercial & Finance Ltd., and all the concerns have common promoter Shri Giriraj Kishore Agarwal. Therefore, there was whole nexus which was found by the SEBI and these exit providers were banned by the order of the SEBI on 04/12/2014. As per the Interim order of the SEBI dated 04/12/2014, wherein primary investigation was undertaken on the dealings in the scrip of Moryo Industries Limited on noticing huge rise in the traded volumes and price of the said scrip on the Bombay Stock Exchange from 15/01/2013 to 31/08/2014. In the said interim order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees and they were temporarily restrained from buying, selling or dealing in the securities market. The said SEBI order is only in respect of scrip of Moryo Industries Ltd. and nowhere there is any whisper or mention about the scrip of M/s. Shreenath Commercial & Finance Ltd.; nor in the said list of 91 persons/entities, contain the name of either Shreenath Commercial and Finance Limited or the assessee or family members. Thus, per se, the said interim SEBI order does not impinge upon the assessee or the transaction of the scrip of Shreenath Commercial and Finance Limited in the Bombay stock exchange. Moreover, one very important fact which was brought on record before the authorities below that SEBI vide final order dated 21/09/2017 had revoked the earlier interim order dated 04/12/2014 by categorically holding that there are no adverse findings against the said persons with respect to their role in the price manipulation in the scrip of Moryo Industries Limited.
Thus, the entire basis and premise of the Id. AO to draw his adverse inference on the basis of interim SEBI order dated 04/12/2014 has no legs to stand. One of the major contentions of the Id. AO was that in the case of exit providers, SEBI has given an adverse remark and all the observation on preliminary investigation by SEBI has been referred and relied upon the AO, therefore, the inference drawn by the ld. AO about the purchase of the scrips by these entities from the assessee, which has now been found by SEBI in its final order that there was no such manipulation by these entities. In any case, firstly, the said SEBI order has nothing to do with the scrip of M/s. Shreenath Commercial & Finance Ltd. and secondly, the revocation of this order by the SEBI in its final order dated 21/09/2017 itself demolishes the entire foundation of the AO's inference.
Apart from that, no enquiry either by the SEBI or any Government agencies has been done in the case of M/s. Shreenath Commercial & Finance Ltd. or the broker from whom assessee has purchased online or the assessee or the family member. In so far as one of his observations that one Shri. Giriraj Kishore Agarwal was the promoter, Director of various entities including M/s. Shreenath Commercial & Finance Ltd., he became the Director of this company on 10/11/2016. i.e., after more than 34 years, when the assessee had sold shares through Bombay Stock Exchange. In any case, the adverse inference of common link of Shri Giriraj Kishore Agarwal was discharged by the final SEBI order dated 29/11/2017. Therefore, tenuous connection made by the Id. AO to link M/s. Shreenath Commercial & Finance Ltd. with Moryo Industries Limited and other alleged exit providers through Shri Giriraj Kishore Agarwal does not hold any ground.
In so far as general observation in respect of share brokers on whom survey action was conducted by Directorate of Investigation Wing of Kolkata who had allegedly accepted the role in providing accommodation entry of bogus/ long term capital gain first of all such a reference is wholly out of context because assessee has not dealt with any of these brokers. Two statements of such brokers were also provided to the assessee by the Id. AO but no way they were connected to the assessee nor assessee has dealt with them nor is assessee's name figuring anywhere. The assessee had made transaction of purchase and sale of shares through RBK Share Broking Limited against which there is no such enquiry or information that this broking entity was involved in any kind of accommodation entry. Although these brokers have given the list of various scrips in which they have done the trading in shares for providing accommodation entry and one of the scrip mentioned was M/s. Shreenath Commercial & Finance Ltd. As per the statement of Shri Ritesh Jain, it was also alleged that M/s. Manu Stock Broking is a broking house for some of the exit providers related to sale of shares by Chaturvedi Family, however, in his statement there is no mention about the scrip and M/s. Shreenath Commercial & Finance Ltd. The said statement is part of the assessment order and nowhere in the said statement there is any whisper about the said credit or assessee or her family. When his statement was confronted to Mr. Rajendra Chaturvedi, then also in his statement he has not admitted that he had any connection with any of the four alleged share brokers nor there any mention in the statement of Shri Ritesh Jain. In so far as notices u/s. 133(6) issued by the ld. AO to the exit providers and only few of them had replied. The only conclusion which has been drawn by the ld. AO that they had offered a very meager income and do not have any substance. However, in none of the replies which AO has noted, that they have stated that they had any transaction with the assessee. Further, Id. AO has not provided and how these entities were connected with scrip of M/s. Shreenath Commercial & Finance Ltd. and how they were involved in the alleged modus operandi adopted by the accommodation entry provider for bogus capital gain including the assessee, at least there has to be some primafacie or some mention about the assessee or about the scrip from such enquiry so as to draw some kind of adverse inference.
In so far as various reports of the ld. AO and Id. CIT (A) by and large are same and Id. AO has stated that nothing new has been brought on record. Though there are decisions cited by both the parties and also assessee had cited various decisions of the Hon'ble Bombay High Court as mentioned above wherein the Hon'ble Bombay High Court had held that where the transactions have been made both purchase and sales through online and there is no adverse material or information except with some brokers have stated in their statement that they have provided accommodation entry in various scrips in one such scrip involved, that does not lead to drawing any adverse inference to treat the share transactions as bogus done through stock exchange.
Be that as may be, we find that on exactly similar set of facts and identical finding, this Tribunal in the case of the assessee's husband Shri Rajendra Chaturvedi and Mrs. Pallavi Pandey supra, the Co-ordinate Bench has deleted the said addition after observing as under: -
"We have heard the rival submissions of both the parties and perused the material on record including the various case laws referred by the rival parties during the course of hearing. The undisputed facts are that the assessee has purchased 28 lakhs of shares of M/s. Shrinath Commercial and Finance Ltd. between 04.03.2011 to 15.03.2011 M/s. Shrinath Commercial and Finance Ltd. thereafter Issued bonus shares in the ratio of 1:1 on 22.03.2011 and thus the assessee came to hold 56 lakh shares in the said company. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly, the bonus shares were also credited in the said D-mat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs 41,48,39,241/-and was received through banking channel thereby making a long-term capital gain of Rs 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the D-mat account and the sale and purchase consideration reached through banking channels. The AO has also only relied on the Investigation carried out by the Investigation wing, Kolkata and Mumbal that assessee is a beneficiary of these bogus long term capital gain entries. Nowhere the AO has brought on record any other evidence than relying on the report of investigation wing that the assessee is beneficiary of this huge racket of taking bogus entries of long-term capital gain. The 40 has disbelieved these documents by observing that these are sham and bogus documents without pointing out any specific defect or infirmity as these were issued as per the system of the recognised stock exchange through registered brokers. Similarly, the Ld. CIT(A) has upheld the order of AO by holding that the assessee is beneficiary of a big racket whereby the prices of the shares were rigged and manipulated to yield bogus gain to various entities/individuals of which assessee was one. Thus, we find merit in the arguments of the Ld AR that assessee has furnished all the information. details, documentary evidences before the AO but the AO has not done any further verification to find out the truth or done anything to prove the money trail of the funds as has been alleged in the order. Under these circumstances, we are not in a position to sustain the order of Ld. CIT(A) upholding the order of AO wherein the long-term capital gain has been held to be non-genuine and bogus."
Once on the same set of facts the Co-ordinate Bench have deleted the said addition, then in the case of the assessee, no different view can be taken. Respectfully following the same, addition made by the ld. AO is deleted including the addition of alleged commission made u/s.69C, which is deleted. Thus, on merits, appeal of the Assessee is allowed.”
{highlighted by us for clarity}
We observe that the Hon'ble Jurisdictional High Court in the case of PCIT Vs. Ziauddin Siddique in of 2017 (Bombay High Court) has also dealt with the issue qua alleged penny stock and ultimately affirmed the decision of the Tribunal, in deleting the addition made on the alleged penny scrip by the AO u/s 68 of the Act, by observing and holding as under:
“1. The following question of law is proposed:
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1.03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"
We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
Therefore we find nothing perverse in the order of the Tribunal.
4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.
In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
6. The appeal is devoid of merits and it is dismissed with no order as to costs.”
Further, the Hon'ble Jurisdictional High Court in the case of PCIT-31, Mumbai Vs. Indravadan Jain HUF in of 2018 has also dealt with the identical issue, wherein the investigation revealed the scrip involved as a penny stock and the capital gain declared was treated as accommodation entry and the SEBI has passed an order recording irregularities committed by broker and synchronized trades carried out. The purchase of share were made through banking cheque. Further the share were transferred into demat account of the Assessee, where it remained for more than one year and thereafter only, the shares were sold by the broker on various dates on the floor of the Kolkata stock exchange and pursuance to the sale of shares, the said broker had also issued contract-notes-cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. Further, on the sale of shares the Assessee effected delivery of shares by way of demat instruction’s slip and also received payment from Kolkata stock exchange. The cheque received was deposited in the Assessee’s bank account. Therefore, in view thereof, the Ld. CIT(Appeals) found that there was no reason to add the capital gains as unexplained cash credit u/s 68 of the Act. For brevity and ready reference, the concluding part of the aforesaid decision is reproduced herein below:
“3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was A.O.'s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent's case was re-opened under Section 148 of the Act.
The A.O. did not accept respondent's claim of long term capital gain and added the same in respondent's income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.
5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises.
Appeal dismissed.”
We observe that the Ld. Commissioner despite of having knowledge and/or availability of the aforesaid judgments of the jurisdictional High Court, sidelined the same and relied on the judgement passed by the non-jurisdictional High Court in the case of PCIT Vs. Swati Bajaj (2022) 139 taxmann.com 352 (Kolkata) in sustaining the addition made by the AO to the tune of Rs.6,82,32,499/-. It is settled law, as enunciated by the Hon'ble Apex Court in the case of Union of India Vs. Kamalakshi Finance Corporation Limited 55 ELT 43 (1991) that the decision of the Hon'ble Jurisdictional High Court would have higher precedence value than the decision of the Hon'ble non-jurisdictional High Court. Further, even otherwise the Hon'ble Apex Court in the case of Vegetable Products (88 ITR 192) (SC) has held that construction i.e. favorable to the Assessee, should be adopted. Thus, on the aforesaid analyzations we are bound to follow the judgments of the Hon'ble Jurisdictional High Court in the cases of Ziauddin Siddique and Indravadan Jain HUF (supra) and therefore respectfully following the same and considering the peculiar fact that the Assessee by producing the relevant documents, has discharged his prima-facie onus cast u/s 68 of the Act and even otherwise nothing has been proved against the Assessee qua involvement of rigging and/or manipulation of the transaction or share prices and admittedly the Hon'ble Co-ordinate Benches of the Tribunal in the Assessee’s relative cases have also dealt with the identical addition and ultimately deleted the same, we are of the considered view that in that eventuality the addition in any sense, is un-sustainable and thus, the same is deleted.
In the result, the Assessee's appeal is allowed.
Order pronounced in the open court on 12.09.2025.