NISHANT RAJENDRABHAI PARIKH,MUMBAI vs. DCIT CIRCLE 42(2)(1), KAUTILYA BHAWAN, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 3477/Mum/2026 (Assessment Year: 2018-19) Nishant Rajendrabhai DCIT Circle 42(2)(1) Parikh Kautilya Bhavan, 503, Kosturi Vs. Bandra Kurla Apartment, Opp. Complex, Bandra Utkarush Mandal East, Mumbai-400 051 Bapubhai Vashi Road, Vile Parle West, Mumbai-400 056 PAN/GIR No. AKNPP9149A (Applicant) (Respondent) Assessee by Shri Neelkanth Khandelwal (virtually appeared), Ld. AR Revenue by Shree Kumar C., Ld. DR Date of Hearing 17.06.2026 Date of Pronouncement 29.06.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: The present appeal has been filed by the assessee against the order dated 11.03.2026 passed by the learned Joint Commissioner of Income Tax (Appeals), National Faceless Appeal

2 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh Centre, Delhi [hereinafter referred to as "CIT(A)"]under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"] for Assessment Year 2018-19, arising out of the assessment order dated 29.12.2023 passed by the Assessing Officer under section 147 read with section 144B of the Act. 2. Briefly stated, the facts of the case are that the assessee filed his return of income under section 139(1) of the Act on 28.08.2018 declaring total income at Rs.2,41,73,160/-. Subsequently, information was received from the Deputy Director of Income Tax (Investigation), New Delhi, pursuant to investigations conducted in respect of certain identified penny stock companies allegedly used for providing accommodation entries in the guise of exempt long-term capital gains and short- term capital gains. The information indicated that the assessee was one of the beneficiaries who had allegedly availed accommodation entries through transactions in the shares of Lactose (India) Ltd. According to the information available with the Department, the assessee had earned gains of Rs.50,10,945/- from sale of shares of the said company during the relevant previous year. 3. Based on the aforesaid information, proceedings under section 148A of the Act were initiated. A notice under section 148A(b) was issued calling upon the assessee to explain the transactions. In response, the assessee furnished, inter alia, capital gain statements, profit and loss statements relating to equity transactions and depository account records. Upon

3 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh consideration of the material so furnished, an order under section 148A(d) dated 25.04.2022 was passed holding that income chargeable to tax had escaped assessment. Consequently, notice under section 148 of the Act was issued and reassessment proceedings were initiated. 4. During the reassessment proceedings, the assessee filed a return of income in response to notice under section 148 declaring the same income as originally returned. The Assessing Officer noted that the assessee had disclosed exempt long-term capital gains and had undertaken transactions in the shares of Lactose (India) Ltd. The Assessing Officer issued notices under sections 143(2) and 142(1) of the Act and called for various details relating to the impugned transactions. 5. In response, the assessee submitted that the transactions in shares of Lactose (India) Ltd. were genuine investment transactions carried out through a SEBI-registered broker on a recognised stock exchange. The assessee furnished contract notes, demat account statements, broker ledger accounts, bank statements and other supporting documents. It was submitted that the shares had been acquired over a period of time through recognised stock exchange transactions and that the purchases and sales were duly recorded in the books and supported by documentary evidence. The assessee further contended that he had been investing in shares for several years and had undertaken investments after carrying out due research and analysis. It was also submitted that Lactose (India) Ltd. was a

4 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh listed company and that all transactions were executed through the recognised stock exchange mechanism. 6. The Assessing Officer, however, was not satisfied with the explanation furnished by the assessee. After examining the information received from the Investigation Wing, the financial position of Lactose (India) Ltd., the trading pattern of the scrip and the material available on record, the Assessing Officer observed that the impugned scrip formed part of a penny stock arrangement allegedly used for providing accommodation entries in the guise of exempt long-term capital gains. According to the Assessing Officer, the price behaviour of the scrip was not commensurate with the financial fundamentals of the company and reflected characteristics generally associated with manipulated penny stock transactions. The Assessing Officer further observed that the trading pattern displayed unusual spikes and movements indicative of artificial price rigging. 7. The Assessing Officer held that the long-term capital gain claimed by the assessee from transactions in the shares of Lactose (India) Ltd. did not represent a genuine capital gain arising from normal investment activity but constituted accommodation entries routed through a manipulated scrip. Accordingly, the Assessing Officer treated the gain of Rs.50,10,945/- as non-genuine and brought the same to tax while completing the assessment under section 147 read with section 144B of the Act at a total income of Rs.2,91,84,105/-.

5 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh 8. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged both the validity of the reassessment proceedings as well as the addition made on merits. It was contended that the notice under section 148 had not been issued in accordance with the Faceless Assessment Scheme and the relevant CBDT notifications. The assessee further submitted that the reopening was based solely upon information received from the Investigation Wing without any independent enquiry by the Assessing Officer and that the statutory conditions prescribed under sections 148 and 148A of the Act had not been satisfied. 9. On merits, the assessee reiterated that the transactions in shares of Lactose (India) Ltd. were genuine transactions executed through recognised stock exchanges and supported by contract notes, demat statements, broker ledger accounts and bank statements. It was submitted that the gain had already been disclosed in the return of income and that the addition resulted in taxation of the same income twice. The assessee also disputed the treatment of the amount under the head "Income from Other Sources". 10. The learned CIT(A), after examining the assessment records, observed that the reassessment proceedings had been initiated on the basis of specific information received from the Investigation Wing indicating that the assessee had entered into transactions in the scrip of Lactose (India) Ltd., which had allegedly been used for providing accommodation entries. The

6 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh learned CIT(A) noted that a notice under section 148A(b) had been issued, the assessee's reply had been considered and an order under section 148A(d) had been passed before issuance of notice under section 148. The learned CIT(A), therefore, rejected the jurisdictional challenge raised by the assessee and upheld the validity of the reassessment proceedings. 11. While adjudicating the addition on merits, the learned CIT(A) recorded that the Assessing Officer had relied upon specific information received from the Investigation Wing identifying the assessee as a beneficiary of alleged accommodation entries through the impugned scrip. The learned CIT(A) observed that although the assessee had produced contract notes, demat statements, broker ledger accounts and bank statements, the documentary trail by itself was not sufficient to establish genuineness if the surrounding circumstances and investigative material indicated otherwise. Referring to the principles laid down in the decisions of the Hon'ble Supreme Court in the cases of Durga Prasad More and Sumati Dayal, the learned CIT(A) held that the surrounding circumstances and the test of human probabilities were relevant in determining the true nature of a transaction. 12. The learned CIT(A) further observed that the assessee had not brought on record persuasive material demonstrating the commercial rationale for selecting the impugned scrip or explaining the extraordinary appreciation in its value. According to the learned CIT(A), the addition had not been made merely on

7 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh suspicion but on the basis of specific information and surrounding circumstances indicating that the impugned scrip was used for providing accommodation entries. Accordingly, the learned CIT(A) upheld the addition of Rs.50,10,945/- and dismissed the appeal of the assessee. 13. Being aggrieved, the assessee is in further appeal before the Tribunal and has raised the following ground of appeal: "On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Appeal (NFAC) erred in confirming the addition of INR 50,10,945/- on account of transaction in alleged penny stock (Lactose India Ltd)." 14. During the course of hearing before us, the learned Authorised Representative ("AR") for the assessee reiterated the factual matrix of the case and took us through the material placed in the paper book. The learned AR submitted that the impugned transaction in the shares of Lactose (India) Ltd. was not an isolated transaction and that the assessee had been consistently engaged in investment activities over a number of years. Referring to the statement of investments and share transactions placed on record, it was contended that the assessee had regularly undertaken purchase and sale of shares in several listed companies and, therefore, the impugned transaction could not be viewed in isolation. 15. The learned AR further submitted that the shares of Lactose (India) Ltd. were not acquired in a single transaction but were purchased over a period of time in several tranches. Likewise, the

8 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh shares were sold through recognised stock exchange mechanisms in the ordinary course of investment activity. Drawing our attention to the contract notes, demat account statements and broker records placed in the paper book, the learned AR submitted that the purchases and sales were duly recorded in the demat account, the consideration moved through normal banking channels and the entire trail of transactions stood substantiated by contemporaneous documentary evidence. 16. The learned AR submitted that the Revenue authorities had proceeded merely on the basis of general information received from the Investigation Wing without bringing any material on record to establish that the assessee was either connected with any operator or beneficiary involved in alleged price manipulation. It was argued that neither the assessment order nor the appellate order identifies any material demonstrating the assessee's participation in any scheme for generating artificial capital gains. According to the learned AR, the addition had been sustained solely on suspicion and on the basis of generalised allegations relating to the scrip. 17. The learned AR further placed reliance upon the decision of the Co-ordinate Bench in the case of Santosh Bhansali HUF v. ITO in ITA No. 716/JPR/2024, order dated 21.02.2025, wherein transactions in the very same scrip, namely Lactose (India) Ltd., were examined by the bench. Inviting our attention to paragraphs 5 and 6 of the said order, the learned AR submitted that the Coordinate Bench, after considering the price movement

9 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh and trading pattern of the shares of Lactose (India) Ltd., specifically observed that "from any angle it can't be said to be a penny stock" and further found that there was no material demonstrating manipulation by the assessee or any illegitimate gain arising from a larger conspiracy against the Revenue. The Coordinate Bench ultimately held that the proceedings initiated by the Revenue were founded on conjectures and surmises and accordingly allowed the appeal of the assessee. 18. The learned AR also placed reliance upon the decision of the Coordinate Bench in ITA No. 8006/Mum/2025 and particularly invited our attention to paragraph 32 onwards thereof. It was submitted that the Coordinate Bench, after considering similar allegations relating to penny stock transactions, held that where the assessee had discharged the primary onus by producing contract notes, demat statements, bank statements and other supporting evidence, the addition could not be sustained merely on the basis of investigation reports or generalized allegations in the absence of any material directly linking the assessee with the alleged accommodation entry providers. The learned AR submitted that the ratio of the said decision squarely applied to the facts of the present case. 19. Per contra, the learned Departmental Representative ("DR") strongly relied upon the orders of the Assessing Officer and the learned CIT(A).

10 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh 20. We have carefully considered the rival submissions and perused the material available on record. We have also gone through the assessment order, the order passed by the learned CIT(A), the documentary evidences placed in the paper book and the judicial precedents relied upon by the parties. 21. The sole issue arising for our consideration is whether the long-term capital gain of Rs.50,10,945/- arising to the assessee from sale of shares of Lactose (India) Ltd. can be disregarded as a non-genuine transaction and treated as an accommodation entry merely on the basis of investigation reports and surrounding circumstances. 22. Before proceeding further, it would be appropriate to note certain undisputed facts emerging from the record. The shares were purchased through a recognised stock broker. The purchases were made over a period of time in several tranches and not in a single transaction. The consideration for acquisition of shares moved through normal banking channels. The shares were credited to the demat account of the assessee. The sale transactions were executed through the recognised stock exchange mechanism and the sale consideration was received through banking channels. The contract notes, demat statements and bank statements evidencing these transactions are available on record. The Revenue has not disputed the authenticity of any of these documents.

11 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh 23. The principal basis on which the addition has been sustained is that Lactose (India) Ltd. was allegedly one of the scrips used for providing accommodation entries and that the price movement of the scrip was not supported by the financial fundamentals of the company. The Assessing Officer has also relied upon general investigation findings relating to alleged manipulation in the scrip.

"We have considered the price movement in the shares of the company M/s. Lactose (India) Ltd. and from any angel it can't be said to be a penny stock." (Para 5) 25. The Coordinate Bench further observed:

"We have thoroughly examined the order of the AO and the Ld. CIT(A), but there is no whisper of any manipulation by the assessee found in terms of any illegitimate gain availed by the assessee or is a part of any larger conspiracy against the Revenue. Rather, the whole case is made out on sheer conjectures, surmises and guess work." (Para 6) 26. The aforesaid decision certainly possesses persuasive value, particularly because it concerns the very same scrip. More importantly, the Revenue has not brought to our notice any contrary decision dealing with Lactose (India) Ltd. wherein a finding has been recorded that the said scrip was conclusively established to be a penny stock used for accommodation entries.

12 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh We further find substantial force in the reliance placed by the learned AR on the decision of the Coordinate Bench in Dharmendra Valji Karia v. ACIT (ITA No.8006/Mum/2025). Though that case related to a different scrip, the legal principles governing alleged penny stock transactions have been discussed elaborately therein.

"At the outset, we note that certain foundational facts are not in dispute. The shares were acquired through preferential allotment, payment was made through banking channels, the shares were credited to the demat account, the sale transactions were carried out through a recognised stock exchange with payment of STT, and the sale proceeds were received through banking channels. These facts are borne out from documentary evidences placed on record and have not been disproved by the Revenue. Thus, the primary evidences relied upon by the assessee remain intact and uncontroverted." (Para 32) 28. The Coordinate Bench further held:

"No independent inquiry has been carried out by the Assessing Officer to establish that the assessee had any direct or indirect nexus with such operators. There is no material on record to demonstrate that the assessee had made any cash payment, or that there existed any prior arrangement for accommodation entries, or that the assessee was a party to any price manipulation." (Para 33) 29. The aforesaid observations assume considerable significance in the facts of the present case. Neither the assessment order nor the order of the learned CIT(A) identifies any material demonstrating that the assessee had any relationship with any alleged operator, entry provider, exit provider or any person involved in the alleged manipulation of the scrip. There is no

13 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh statement implicating the assessee. There is no evidence of cash movement. There is no evidence of any commission payment. There is no evidence of any pre-arranged transaction.

(i) investigation reports relating to the scrip;

(ii) abnormal appreciation in the price of the shares; and

(iii) suspicion that the transaction represented an accommodation entry.

"The Revenue has not demonstrated that the assessee was involved in such price manipulation. On the contrary, the material placed on record, including SEBI findings, indicates that no direct or indirect connection was established between preferential allottees and entities involved in price rigging." (Para 34) 33. Equally important are the observations made by the Coordinate Bench while discussing the doctrine of human probabilities:

14 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh "The test of human probabilities cannot be applied in disregard of direct documentary evidence unless such evidence is shown to be false or fabricated." (Para 35) and further: "The Assessing Officer has neither established any cash trail nor demonstrated any nexus between the assessee and the alleged entry operators, exit providers or price rigging mechanism." (Para 36) 34. In the present case also, we find that the Revenue has not demonstrated any cash trail whatsoever. No material has been brought on record to show that any unaccounted money belonging to the assessee was routed through any intermediary and returned in the guise of capital gains. In the absence of such foundational evidence, the allegation of accommodation entry remains unsubstantiated.

15 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh These circumstances dilute the allegation that the entire transaction was conceived solely for obtaining an accommodation entry. 37. The Revenue has also not established that the purchase transactions were fictitious. Once the acquisition of shares, their holding in the demat account and their subsequent sale through recognised stock exchange stand accepted, a heavy burden lies upon the Revenue to demonstrate that the apparent is not the real. That burden, in our considered opinion, has not been discharged. 38. Having regard to the entirety of facts, the documentary evidences placed on record, the absence of any material establishing nexus between the assessee and any alleged operator, the absence of any evidence of cash trail or commission payment, the persuasive value of the decision of the Jaipur Bench in Santosh Bhansali HUF dealing with the very same scrip and the legal principles laid down by the Coordinate Bench in Dharmendra Valji Karia, we are unable to sustain the addition merely on the basis of generalized investigation reports and suspicion arising from price movement of the shares. 39. We, therefore, hold that the Revenue authorities were not justified in treating the long-term capital gain arising from sale of shares of Lactose (India) Ltd. as an accommodation entry. Accordingly, the addition of Rs.50,10,945/- sustained by the learned CIT(A) is directed to be deleted.

16 ITA No. 3477/Mum/2026 Nishant Rajendrabhai Parikh 40. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 29.06.2026.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 29/06/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. संबंधधत आयकर आयुक्त / The CIT(A) 3. आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai