GHISULAL SESHMAL RATHOD,MUMBAI vs. ITO - 30(1)(4), KAUTILYA BHAVAN

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.2927/Mum/2026 (Assessment year: 2012-13)

Late Ghisulal Seshmal Rathod, vs ITO Ward 30(1)(4), Mumbai Legal Heir Shri Pankaj Rathod Kautilya Bhavan, BKC, Mumbai- 602, Param Ratan, Apartment, 400051 Jakaria Road, Malad West, Mumbai-400064 PAN: AAIPR8398G APPELLANT RESPONDENT Assessee by : Shri Gunjan Kakkad, Adv. Revenue by : ShriPasale Naganath Bhimrao (Sr.DR) Date of hearing : 20/05/2026 Date of pronouncement : 25/05/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the Ld. Commissioner of Income Tax (Appeals)-ADDL/JCIT-(A)-1, Gurugram [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2012-13, date of order 16.01.2026. The impugned order emanated from the order of the Ld. Income Tax Officer-30(1)(4),

2 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 147 of the Act date of order 14.12.2019. 2. The brief facts of the case is that the assessee filed the return by declaring total income Rs.6,05,706/-. The information was received from the Investigating Directorate, Mumbai that the assessee is a beneficiary of trading penny stock scrip M/s. Scan Steels Ltd. during F.Y. 2011-12 and sale value involved to Rs.3,92,915/-. Accordingly, the reasons were recorded and the notice u/sec. 148 was duly issued to assessee. The assessee had filed the objection and stated that the assessee had purchased 1500 shares of ‘Clarus’ (now Scan Steels Ltd.) on 16.09.2011 for amount to Rs.2,16,150/- and 2,300 shares were purchased on 20.09.2011 on amount of Rs.3,14,364/- on the BSE platform. And accordingly, the contract notes and purchase details are duly submitted before the Ld. AO. The assessee sold 1,500 shares on 19.09.2011 for an amount to Rs.2,13,975/- and 686 shares sold on 03.10.2011 for amount to Rs.58,790/- and 1614 share on 07.10.2011 amount to Rs.1,18,774/-. Related contract note of the sales and advice are duly submitted before the Ld. AO. All the shares were sold through the stock exchange by paying of STT. The assessee had duly declared the transactions in return of income as short term capital loss amounting to Rs.1,38,975/-. So, the assessee requested the Ld. AO to drop the reopening proceeding. But the Ld. AO finally had noted this observation in paragraph 8.2 which is reproduced as below: “8.2. On perusal of the information received, it is noticed that the above mentioned assessee has sold shares of penny stocks viz. M/s. Scan Steels Ltd., during the year under consideration and the trade value aggregated to Rs.3,92,915/-. From the income tax return for AY 2012-13 of the assessee, it is noticed that the assessee has claimed exemption for long term capital gain of Rs. 3,92,915/-. From the comparison of the above information, it appears that the assessee has taken accommodation entries of long term capital gain and that the long term capital gain

3 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod claimed exempt includes the artificial capital gain on transfer of the penny stock of Gemstone Investment Ltd. obtained by the assessee through accommodation entries.” 3. The Ld. AO added back the amount of Rs.3,92,915 as transaction of bogus shares scrip u/sec. 68 of the Act and the suo moto calculation of commission on this transaction at the rate of 3% on Rs.3,92,915/- which comes to Rs.11,787/- which was added back u/sec. 69C of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) rejected the assessee’s plea and uphold the impugned addition. Being aggrieved assessee filed an appeal before us. 4. The Ld. AR filed a paper book containing pages 1 to 37 which has been placed on record. The Ld. AR stated that the assessee had purchased the share of “Scan Steels Ltd” through BSE and sold through BSE. The relevant contract note and other documents are duly submitted before the revenue authorities. The assessee paid the STT and declared the transaction as short term capital loss in the return of income. The relevant computation along with return are enclosed in APB page 2 to 5. So, the entire addition made by the Ld. AO is only relying on the report of investigating authority and the assessee had never claimed any short term or long term capital gain considering the transactions of this scrip, “Scan Steels Ltd”. 5. The Ld. DR argued and stands in favor of the order of revenue authorities. The relevant paragraphs of the impugned appellate order in page no. 15 to 16 is reproduced as below: “5. Ground Nos. 1 & 2 of appeal:- Reopening of Assessment and Natural Justice. 5.1 The appellant contended that the reopening is solely based on information received from the Investigation Wing without independent application of mind by the AO. It was further submitted that the appellant had requested the material relied upon by the AO, including statements of third parties, which were never furnished, thereby violating principles of natural justice. It was

4 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod also argued that reopening beyond four years is invalid in the absence of any failure on the part of the appellant to disclose fully and truly all material facts.

5.1.1 On perusal of the reasons recorded for reopening, it is evident that the AO received specific information from the Investigation Wing indicating that the appellant was a beneficiary of accommodation entries through penny stock transactions in shares of M/s Scan Steels Ltd. The reasons recorded disclose a live link between the material available and the formation of belief that income chargeable to tax had escaped assessment.

5.1.2 Further, the return for the relevant assessment year was only processed under section 143(1) and no scrutiny assessment was carried out earlier. Hence, the concept of "change of opinion does not arise. The reopening has been done after obtaining due approval under section 151 of the Act.

5.1.3 As regards the contention of violation of natural justice, it is observed that the appellant was issued notices under sections 142(1) and 143(2) of the Act and was given adequate opportunity to submit explanations and documentary evidence. The assessment order demonstrates that the AO has considered the submissions of the appellant before making additions. In view of the above, the reopening under section 147 of the Act is held to be valid and in accordance with law. These grounds are dismissed.

5.2 Ground No. 3 of appeal:- Addition under Section 68 of the Act.

5.2.1 The appellant submitted that the purchase and sale of shares of M/s ScanSteels Ltd. were carried out through a recognized stock exchange, supported by contract notes, demat statements and bank statements. It was contended that the transactions resulted in short-term capital loss, not long-term capital gain, and therefore the allegation of bogus LTCG is factually incorrect.

5.2.2 The AO has treated the sale proceeds of Rs.3,92,915/- as unexplained cash credit on the ground that M/s Scan Steels Ltd. is a penny stock used for providing accommodation entries and that the transaction lacks commercial substance.

5.2.3 It is settled law that for the purpose of section 68, the onus is on the assessee to establish identity, creditworthiness and genuineness of the transaction. In the present case, although the appellant has produced contract notes and bank statements, the surrounding circumstances,

5 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod abnormal price movements, and findings of the Investigation Wing clearly indicate that the transactions were pre-arranged and not driven by normal market forces. 5.2.4 The Hon'ble Courts have consistently held that documentary evidences cannot be considered in isolation and the test of human probabilities must be applied. The AO has brought on record detailed investigation findings establishing manipulation in penny stock scrips, including Scan Steels Ltd., and the appellant has failed to rebut the same with any cogent evidence. Accordingly, the addition of Rs.3,92,915/- made under section 68 of the Act is confirmed viz a viz ground of appeal dismissed. 5.3 Ground No. 4 of appeal:- Addition under Section 69C of the Act. 5.3.1 The appellant denied having paid any commission and contended that the addition is purely notional and based on assumptions. 5.3.2 Once it is established that the appellant has entered into accommodation transactions, the payment of commission for obtaining such entries is a natural corollary. The AO has reasonably estimated the commission at 3% based on material gathered during investigation proceedings in similar cases. 5.3.2 The estimation made by the AO is found to be fair and reasonable. Hence, the addition of Rs. 11,787/- under section 69C of the Act is confirmed.”

6 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod the assessee had never claimed any exempt Long Term Capital Gain in the return of income. On the contrary, the assessee had disclosed the transaction as Short Term Capital Loss amounting to Rs.1,38,975/- in the return of income itself. On careful perusal of the assessment order, particularly paragraph 8.2 reproduced hereinabove, we find that the entire basis adopted by the Ld. AO is factually incorrect. The Ld. AO proceeded on the assumption that the assessee had claimed exempt Long Term Capital Gain (in short, LTCG) amounting to Rs.3,92,915/- through accommodation entries in penny stock transactions. However, from the records available before us, it is evident that no such exempt LTCG was ever claimed by the assessee in the return of income. Thus, the very foundation on which the impugned addition has been made is contrary to the factual matrix available on record. We further find that except for the generalized information received from the Investigation Wing regarding alleged manipulation in penny stock scrips, no independent enquiry was conducted by the Ld. AO to establish that the assessee was a beneficiary of any accommodation entry arrangement. No material has been brought on record to demonstrate that the contract notes, bank transactions or stock exchange transactions furnished by the assessee were false or fabricated. There is also no evidence showing that any cash was exchanged by the assessee for obtaining accommodation entries. Merely because the scrip in question was allegedly investigated by the Investigation Wing cannot ipso facto lead to the conclusion that every transaction in such scrip is non- genuine. It is a settled proposition of law that suspicion, however strong, cannot take the place of evidence. The additions under section 68 of the Act cannot be sustained merely on presumptions, conjectures and generalized reports without bringing any direct incriminating material against the assessee. In the present

7 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod case, the assessee had discharged the primary onus cast upon him by furnishing complete documentary evidences in support of the purchase and sale transactions. The revenue authorities failed to controvert the evidences furnished by the assessee through any cogent material. We also find merit in the contention of the Ld. AR that the assessee had incurred STCL and not claimed any exempt LTCG. Therefore, the allegation of obtaining bogus exempt LTCG through penny stock transactions is wholly misplaced and unsupported by the records. The findings recorded by the Ld. CIT(A) are also based upon generalized observations regarding penny stock transactions and application of theory of human probabilities without disproving the documentary evidences furnished by the assessee. Considering the entirety of the facts and circumstances of the case, we find that the additions made by the Ld. AO amounting to Rs.3,92,915/- under section 68 of the Act and consequential addition of Rs.11,787/- under section 69C of the Act are unsustainable in the eye of law. Accordingly, the same are hereby deleted. Thus, the grounds raised by the assessee stand allowed. 7. In the result, the appeal of the assessee bearing ITA No.2927/Mum/2026 is allowed. Order pronounced in the open court on 25th day of May 2026. Sd/- Sd/- (ARUN KHODPIA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 25/05/2026 SAUMYASr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant ,

8 ITA No.2927/Mum/2026 Late Ghisulal Seshma lRathod 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI