ACIT,CIRCLE-20(1),MUMBAI, PIRAMAL CHAMBERS, MUMBAI vs. MANJU PARAS PRWAL, MUMBAI

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ITA 5810/MUM/2025Status: DisposedITAT Mumbai15 June 2026AY 2012-1310 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found inconsistencies in the share transaction details provided by the assessee and noted that the Commissioner (Appeals) had not independently scrutinized the evidence. Therefore, the matter was restored to the AO for fresh adjudication after proper factual verification.

What were the facts?

The Revenue appealed an order deleting an addition made by the Assessing Officer (AO) concerning Long-Term Capital Gains (LTCG) claimed as exempt under Section 10(38). The AO had treated the LTCG from penny-stock transactions as bogus based on investigation reports, while the Commissioner (Appeals) deleted the addition, finding that the assessee had provided documentary evidence and the transactions were through the stock exchange.

What were the issues?

Whether the LTCG from penny-stock transactions were genuine and adequately substantiated by documentary evidence, and if the Commissioner (Appeals) had properly appreciated the evidence on record.

Which sections of the Income-tax Act were involved?

Section 10(38),Section 68,Section 147,Section 148,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: HON’BLE NARENDER KUMAR CHOUDHRY & HON’BLE PRABHASH SHANKAR

Pronounced: 15.06.2026

आदेश / ORDER

PER: NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER:

This appeal has been preferred by the Revenue against the order dated 31.07.2025 passed by the National Faceless Appeal Centre (NFAC)/Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as the “Ld. Commissioner”] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year (AY) 2012-13. 1

2. In the present case, the Assessee filed the original return of income on 07.03.2014 declaring a total income of ₹20,99,940/-, which was processed under Section 143(1) of the Act. Subsequently, the assessment was reopened under Section 147 of the Act by issuance of notice dated 01.12.2016 under Section 148 of the Act. In response thereto, the Assessee requested the Assessing Officer (hereinafter referred to as “the AO”) to treat the original return filed on 07.03.2014, as the return filed in response to the notice issued under Section 148 of the Act.

3.

Thereafter, various statutory notices were issued to the Assessee, which were duly complied with by furnishing replies and supporting documents. Upon examination of the records, including the computation of income filed by the Assessee, the AO observed that the Assessee had disclosed Long-Term Capital Gains (LTCG) arising from the sale of shares of M/s. Nouveau Multimedia Ltd. (NML) and M/s. Blue Circle Services Ltd. (BCSL), in respect of which exemption under Section 10(38) of the Act had been claimed. The details of the capital gains, as furnished by the Assessee, were as under:

4.

The AO, thus relying upon the findings of the Investigation Wing, Kolkata, which had conducted investigations into 84 penny-stock companies including NML and BCSL, noted that detailed findings had 2

been recorded regarding the generation of bogus LTCG and Short-Term Capital Loss (STCL) entries through a network of operators, intermediaries, and beneficiaries. The AO further observed that the Assessee was unaware of the financial position and business fundamentals of NML and BCSL and had not undertaken any fundamental analysis before investing in the shares of these companies through private placement. It was further observed that the turnover of both companies had been declining consistently and that neither company possessed substantial tangible or intangible assets or inventory. In essence, both companies were found to be carrying on negligible business activities. The AO further noted that the exemption claimed by the Assessee appeared suspicious in light of information gathered from the Investigation Wing Report, SEBI findings, stock market data, judicial precedents, and information available on public platforms. It was also observed that although the shares of these companies were listed on stock exchanges, they were closely held and allegedly controlled by promoters and operators, who facilitated accommodation entries in the guise of LTCG/STCL.

5.

The AO further analyzed the financial statements of NML and BCSL, as available on public platforms such as Moneycontrol.com and Sify Technologies, for the financial years 2008 to 2012.

6.

Based on the aforesaid analysis, the AO more or less concluded as under:

 “The financials of M/s. Nouveau Multimedia Ltd. & M/s. Blue Circle Services 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. 3

 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/STCL 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 discussed in the report, confirmed the fact that the shares of M/s. Nouveau Multimedia Ltd. & M/s. Blue Circle Services Ltd have been used for providing entry of bogus LTCG/STCG/loss.  Various Exit Providers have confirmed that they have purchased the shares of M/s. Nouveau Multimedia Ltd. & M/s. Blue Circle Services Ltd to provide entry of bogus LTCG.  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. Nouveau Multimedia Ltd. & M/s. Blue Circle Services Ltd were used to provide accommodation entry in terms of LTCG to the beneficiaries.” 7. Thus, the AO on the basis of the aforesaid findings and while relying upon statements of various exit providers, directors of penny- stock companies, market operators, and the financial analysis of the companies concerned held that the LTCG of ₹1,41,12,298/-, claimed as exempt under Section 10(38) of the Act in the return of income for AY 2012-13, formed part of a larger scheme of tax evasion involving bogus LTCG generated through penny-stock transactions

8.

Accordingly, the AO treated the amount of ₹1,41,12,298/-, claimed as exempt under Section 10(38) of the Act, as unexplained and non-genuine, and made an addition under Section 68 of the Act.

9.

The Ld. Commissioner, deleted the aforesaid addition after considering the assessment order, the submissions made by the Assessee, the documentary evidence placed on record, and the judicial

precedents relied upon, and by recording a categorical finding, which more or less read as under:

“The impugned share transactions were carried out through the online stock exchange mechanism, where the buyer and seller were unknown to each other, and the sale proceeds were received through proper banking and demat channels. The Assessee had furnished all relevant documentary evidence, including financial statements, bank records, contract notes, and transaction details. However, the AO ignored these evidences and made the addition under Section 68 solely on the basis of the Investigation Wing's report. No independent inquiry or material evidence was brought on record to establish that the transactions were bogus or that the Assessee was involved in any arrangement with brokers, promoters, or entry operators. Notably, the Assessee’s name did not figure in the investigation report.

10.

We have given our thoughtful consideration to the peculiar facts and circumstances of the case. It is observed that the Assessee had purchased 30,000 shares of NML for a consideration of ₹3,00,000/- on 07.09.2009 and 10,500 shares of BCSL for a consideration of ₹1,57,500/-. After holding the said shares for a period exceeding one year, the Assessee sold the shares of NML on 21.04.2011 and the shares of BCSL on 03.02.2012 and 06.02.2012 for an aggregate sale consideration of ₹1,45,19,798/- comprising ₹66,85,998/- and ₹78,33,800/- respectively, thereby claiming Long-Term Capital Gains of ₹1,41,12,298/-.

11.

The Assessee has contended that, in order to discharge the initial onus, cast upon it under Section 68 of the Act and in response to the show-cause notice, it had furnished before the AO, the following documentary evidence:

(i) Copy of the Balance Sheet; (ii) Profit and Loss Account; (iii) Bank Statements maintained by the Assessee; (iv) Copies of Contract Notes; and (v) Summary Bills in respect of the shares sold. 5

12.

However, from a perusal of the assessment order, it appears that the AO either failed to consider the aforesaid documents due to oversight or that the same were not available on record during the assessment proceedings. We further observe that although the Ld. Commissioner examined the matter from various perspectives, however there is nothing discernible from the impugned order to indicate that the aforesaid documents were independently scrutinized and appreciated in their proper perspective. Furthermore, when called upon by the Bench to substantiate the purchase and sale transactions and the resultant LTCG with supporting documentary evidence, the Assessee was unable to reconcile the relevant particulars and, alternatively, sought an opportunity to furnish and substantiate the same before the AO. We also note that although the AO reproduced the working of capital gains furnished by the Assessee in paragraph 4.1 of the assessment order, the figures, amounts, and dates relating to the purchase and sale of shares, but the same still require verification from the supporting documents placed on record.

13.

We further observe that while the Ld. Commissioner recorded a finding that the transactions of purchase and sale of shares were undertaken through the online trading platform, the details furnished by the Assessee regarding the acquisition of shares are as under: –

Sr. Date No. of Purchased Name of No. Shares through share Amount (Rs.) 1 14.12.2007 20,000 7,13,800/- Motilal Oswal Nouveau Multimedia Sec. P. ltd. Limited 27.12.2007 20,000 7,25,800/- Motilal Oswal Nouveau Multimedia Sec. P. ltd Limited 2 30.08.2010 2,00,000 1,57,500/- Preferential Blue Circle allotment Services Ltd.

14.

However, from the aforesaid details relating to the purchase of shares, it appears that 2,00,000 shares of BCSL were acquired through preferential allotment on 30.08.2010 for a consideration of ₹1,57,500/- and not through a recognized stock exchange. Further, the particulars of such acquisition require substantiation through supporting documentary evidence.

15.

The Assessee has also placed on record two separate charts depicting the details of purchase and sale transactions relating to the scrips under consideration. The same are reproduced below for ready reference: –

Sr. Date No. of Purchased Name of No. Shares through share Amount (Rs.) 1 14.12.200 20,000 7,13,800/- Motilal Nouveau 7 Oswal Sec. Multimedia P. ltd. Limited

27.12.200 20,000 7,25,800/- Motilal Nouveau 7 Oswal Sec. Multimedia P. ltd. Limited

2 30.08.201 2,00,0 1,57,500/- Preferential Blue Circle 0 00 allotment Services Ltd.

Sr. Date No.of Amount No. Shares (Rs.) 1 21.04.2011 300000 66,85,998/- Nouveau Multimedia Limited 2 03.02.20 12 30000 22,48,050/- Blue Circle Services Ltd.

3 06.02.2012 75000 56,35,750/- Blue Circle Services Ltd.

1,45,69,798/- 40,500

Sr. No. Date No. of Amount(Rs. Purchased through Shares ) 1 07.09.2009 30000 3,00,000/- Motilal Oswal Sec P ltd 2 30.08.2010 10500 1,57,500/- Preferential allotment 4,57,500/- 40,500

Sr. No. Date No. of Shares Amount (Rs.) 1 21. 04.2011 30000 66,85,998/- 2 03.02.2012 3000 22,48,050/- 3 06.02.2012 7500 56,35,750/- 40,500 1,45,69,798/-

16.

A perusal of the aforesaid charts reveals apparent inconsistencies and discrepancies in the number of shares purchased and sold, as well as in the corresponding figures reflected therein. Consequently, the factual correctness of the transactions remains subject to verification.

17.

From the documents presently available on record, the amounts reflected against the respective transactions, along with the corresponding number of shares allegedly purchased and sold, have not been conclusively established. Therefore, considering the peculiar facts and circumstances of the case in its entirety, and having regard to the specific prayer made by the Assessee seeking an opportunity to 8

substantiate its claim by producing relevant documentary evidence such as bank statements, demat account statements, share certificates, invoices, and other supporting records before the AO, as well as the prayer of the Ld. DR seeking reversal of the impugned order on the ground that the impugned order is not based on factual verification with the corresponding documents and in the context of the issue involved , we deem it appropriate, in the interest of justice and for just and proper decision of the case, to set aside the orders passed by the authorities below and restore the matter back to the file of the AO for factual verification and fresh adjudication, in accordance with law. The AO shall afford adequate and reasonable opportunity of being heard to the Assessee and shall decide the matter afresh on the basis of evidence and material placed on record.

18.

In the result, the appeal filed by the Revenue, is allowed for statistical purposes.

Order pronounced in the open court on 15.06.2026 Sd/- Sd/- PRABHASH SHANKAR NARENDER KUMAR CHOUDHRY ACCOUNTANT MEMBER JUDICIAL MEMBER (Tarun Kushwaha) Sr. Private Secretary Copy to: INCOME TAX OFFICER, ROOM NO. 609, MTNL BLDG., CUMBALLA HILLS, 1 PEDDER ROAD,, MUMBAI-400026, MAHARASHTRA

UNITED EDUCATION SOCIETY, OO, QURESHI COMPOUND BEHRAM BAUG, 2 JOGESHWARI (WEST), MUMBAI-400102, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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