KU. ANISHA J. THAKKAR,,NASHIK vs. INCOME-TAX OFFICER, WARD - 2(4),, NASHIK

This is the second round of litigation before the Tribunal. These appeals were earlier dismissed by the Tribunal due to non-appearance vide order dated 10.04.2023. Subsequently, the Tribunal vide MA Nos.275 to 278/PUN/2023 order dated 09.10.2025 recalled its earlier order. Hence, these are recalled matters.

First we take up ITA No.809/PUN/2018 as the lead case. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 28.03.2015 declaring total income of Rs.92,93,270/-. The case was selected for scrutiny under CASS and accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Thereafter, notice u/s 142(1) along with a questionnaire was also issued and served on the assessee in response to which the assessee filed the requisite details from time to time. The Assessing Officer observed that a survey action u/s 133A was carried out by the Investigation Wing on 13.08.2015 in the case of M/s. Shilpa Constructions, M/s. Kumar Constructions, M/s. Shilpa Garden & Restaurant and M/s. Shilpa Estates wherein the assessee is a partner. During the course of survey action the assessee declared additional income of Rs.7,70,28,281/- on account of bogus long term capital gain exemption claimed for the year under consideration in respect of himself and his family members. Out of the said amount, the assessee declared Rs.3,29,28,933/- in respect of himself. However, the assessee vide his letter dated 04.09.2015 retracted from his statement and contended that the claim u/s 10(38) with regard to claim of long term capital gain was genuine and correct.

During the course of assessment proceedings on being confronted by the Assessing Officer the assessee filed various submissions according to which the assessee has applied for purchase of 1,50,000 equity shares of Rs.10 each fully paid up amounting to Rs.1,50,000/- of the listed company namely M/s. Rutron International Limited on 01.03.2012. The same were done through the preferential allotment. The assessee submitted the share application form, RTGS requisition slip for remittance and share allotment letter. Subsequently on 22.11.2013 the company offered a stock split in the ratio of 1:10 resulting in increase in his holding. The assessee thereafter sold all his shareholding on different dates for a consideration of Rs.341.29 lakhs which was claimed as exempt. It was submitted that all the sales and purchases of the shares were routed through the stock exchange and paid STT on the sales of the listed securities. It was accordingly submitted that the assessee is entitled to claim exemption u/s 10(38). It was further submitted that the sales have been effected through a registered stock broker, the basis of information in the print media, news media and market rumors. Relying on various decisions it was submitted that the assessee has rightly claimed the exemption u/s 10(38).

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that the company was incorporated on 07.03.1980 and listed in Bombay Stock Exchange on 08.06.2012. The AO discussed the financials of the company from March, 2012 to March 2016, operating profits, profits before tax, sales, assets and various other ratios like return on capital employed, net worth and observed that the financial strength of the company has been very precarious, even at the time of allotment of preferential shares. The AO tried to establish with the help of data downloaded from moneycontrol.com and Angle Broking as to how the price of the share, which was 0.70 (for face value of Rs. 1) was manipulated to Rs. 26 (face value of Rs. 1) and after that it fell to Rs. 1. 30. Therefore except for period of few months, when the purchase price was hijacked by circular trading. the price has always been below the face value.

He noted that there has been disproportionate increase in the volume of the share and the share prices during specific period immediately after the lock in period for allotment of preferential shares was over, which clearly established that the prices were manipulated by a group of persons with beneficiaries by misusing the stock platform, holding that the stock was a "Penny stock", which was used by the operators to extend pre-organized profits by mechanism of laundering. The AO gave a brief background of the Penny Stocks and the general. modus operandi followed in the case of penny stocks. He discussed the statements given during the course of survey at the premises of the assessee group on 13.08.2015 and the questionnaire issued on 25.11.2016, wherein it was stated by the assessee that a. He was just an investor and not aware about the management of the company. b Decision to invest was taken on the basis of market tips. No detailed investigation was done about the company, therefore the details of the business done by the company are not known. c. In the original statement it was stated by the assessee that Shares were purchased Dharmesh Vaidya, but later on it was admitted that these were purchased directly from the company. d. The investment was done to earn profits and he was not aware about the directors, technical information and performance of the company. e. He was not aware of about the head office of the company. f. No substantial investments are done through BSE and NSE. g He was not aware of any friend who has made investments in this company.

On the basis of these replies, the Assessing Officer concluded that the investments were made without knowing the financial, profitability, nature of business and other details about the company and no prudent person who otherwise does not deal in shares will invest his money in unknown company with poor financials.

The AO also discussed the investigations done by SEBI and Income Tax Department in hundreds of companies who have devised various methods for money laundering by evading taxes through penny stock. He noted that the Income Tax Department Kolkata, Delhi and Bombay has also conducted various operations and the shares of Rutron International Ltd. were used for providing accommodation entries by rigging the prices through circular trading. The value of shares traded in period of one year was Rs. 341.34 Crs and following brokers were indulged in trading of Rutron.

The Assessing Officer noted that the persons involved in these concerns have clearly mentioned the detailed modus operandi and have mentioned the name of Rutron. The AO provided copies of statement of Bikash Surekha and Sh. Prakash Agarwal with the portion of statement pertaining to Rutron, wherein it was stated that they have given accommodation entries to the persons who have invested in this company.

The AO referred to the decisions of Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More (1971) 82 ITR 540 and Sumati Dayal Vs. CIT (1995) 80 Taxman 89/241 ITR 801 (SC) which had discussed the surrounding circumstances and test of human probability. He noted that the present value of the scrip is Rs. 1.30 and no trading has taken place in the scrip since 26.08.2015 as per information available www.moneycontrol.com. He observed that during the survey proceedings, on 13.08.2015, Sh. Jayesh Thakkar had admitted an amount of Rs. 7,70,28,281/- on account of bogus Long Term Capital Gains for AY 2014-15, which included capital gains of Rs. 3,29,28,933/- pertaining to the assessee. However, the statement has been subsequently retracted.

In view of the above discussion and rejecting the various explanations given by the assessee, the Assessing Officer made addition of Rs.3,41,28,933/- to the total income of the assessee as income from unexplained source u/s 69 of the Act. The Assessing Officer further made addition of Rs.17,06,447/- being the commission paid @ 5% for obtaining such accommodation entries. He accordingly determined the total income of the assessee at Rs.4,51,28,650/-.

In appeal the Ld. CIT(A) sustained the addition by observing as under:

Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal by raising the following grounds:

The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) in confirming the addition made by the Assessing Officer. He submitted that a survey action u/s 133A of the Act was commenced at the business premises of the assessee by the ITO (Investigation), Nashik at 5:00 pm. The survey continued uninterruptedly through the entire night and was concluded at 4:30 am on 14.08.2015 i.e. continuous duration of approximately 11.5 hours. He submitted that although the assessee during the course of survey had offered additional income of Rs.7,70,28,281/- in his hands and in the hands of the other family members, however, on 14.08.2015 itself the assessee executed a detailed seven page notarized affidavit, copy of which is filed separately showing retraction from the survey statement. Referring to the said retraction the Ld. Counsel for the assessee submitted that although the books of account, documents and computer records were verified by the survey officers, however, no incriminating material was found by the survey team. All the four family members have duly filed their returns for assessment year 2014-15 disclosing long term capital gain in each return which is on account of sale of shares of M/s. Rutron International Ltd. on the Mumbai Stock Exchange. The assessee has fulfilled all the conditions prescribed in the provisions of section 10(38) i.e. holding the shares over a period all sale transactions were routed through the reputed broker M/s. Motilal Oswal Securities Ltd etc. It was also stated in the affidavit that Shri Jayesh Thakkar is not a financial expert but he invests like any other ordinary investor with the sole aim to earn a gain on the amount invested. His core business is real estate, investments made based on tips, news, and financial news channels such as CNBC Awaz and NDTV Profit. It was also stated in the affidavit that while the assessee has gained from sale of shares of Rutron International Ltd., however, the assessee has also lost money in Santowin Corporation shares demonstrating the profile of a genuine investor who suffers both profits and losses in different scrips. Further an ordinary shareholder and investor cannot be held responsible for acts of promoters, market intermediaries and others over whom the assessee has no control and who is not aware of day-to-day activities. Referring to the said sworn affidavit he stated that the ITO at 3:15 am to 3.40 am was adamant on calling female family members to the office, therefore, the statement was made to prevent this embarrassment and hardship and not as a voluntary admission.

He submitted that the notarized affidavit sworn before a Government of India Notary on 14.08.2015 itself at Nashik is the most contemporaneous, authentic and legally robust refraction possible. It does not merely deny the statement. On the other hand it explains paragraph by paragraph why the returns are correct, cites authoritative judicial precedent, invokes the CBDT circular and is sworn under oath before a Notary.

He submitted that the entire case of the Assessing Officer is predicated on the statement of Shri Anil Agarwal of M/s. Comfort Securities Ltd. and the alleged role of that entity. However, there is no allegation whatsoever anywhere in the order of the Assessing Officer that M/s. Motilal Oswal Securities Ltd was involved in any price manipulation or accommodation entry scheme. Referring to page 8 of the order of the Ld. CIT(A) he submitted that SEBI vide its Investigation Report dated 31.07.2017 in case of Rutron International Limited at point No.13 has stated that there was no role of the company in price manipulation of the shares. It was also stated that the name of the assessee company appears as one of the preferential share allottee in the report and there is no adverse finding against the assessee by the investigating agency.

He submitted that the addition made by the Assessing Officer in the instant case is basically on the basis of (a) information received from Directorate General of Income Tax (Investigation) (DGIT (Inv.), Kolkata that the shares of certain companies including Rutron International Limited were being used to provide bogus accommodation entries of long term capital gain, (b) statement of one Shri Anil Agarwal recorded u/s 132(4) of the Act wherein he had stated that M/s. Comfort Securities Ltd. had provided entries in respect of shares of various companies, (c) abnormal rise in the price of Rutron shares from below Re.1 in June 2012 to Rs.25-26 in March 2013 and (d) the alleged connection between Shri Anil Agarwal and Rutron International Limited.

Referring to the decision of Hon’ble Bombay High Court in the case of PCIT vs. Indravadan Jain, HUF reported in (2024) 463 ITR 711 (Bom), he submitted that the Hon’ble High Court in the said decision has held that where shares were purchased by the assessee on floor of stock exchange and not from broker, payment was made through banking channel, deliveries were taken in DEMAT account where the shares remained for more than one year, contract notes were issued and shares were also sold on stock exchange, there was no reason to add capital gains as unexplained cash credit under section 68. 19. Referring to the decision of Hon’ble Bombay High Court in the case of PCIT vs. Ziauddin A Siddique (supra), he drew the attention of the Bench to paras 2 and 3 of the decision which read as under:

Referring to the decision of Hon’ble Gujarat High Court in the case of PCIT vs. Sanjaykumar Damjibhai Gangani reported in (2025) 178 taxmann.com 276 (Guj), he submitted that the Hon’ble High Court in the said decision has held that where the assessee-company claimed LTCG under section 10(38) arising out of sale of shares of S and had furnished complete evidence including contract note of of penny stock scrip. He submitted that the SLP filed by the Revenue was dismissed by the Hon’ble Supreme Court as reported in (2026) 186 taxmann.com 530 (SC).

Referring to the decision of Hon’ble Bombay High Court in the case of CIT vs. Shyam R. Pawar reported in (2015) 229 Taxman 256 (Bom), he submitted that the Hon’ble High Court in the said decision has held that where DMAT account and contract note showed details of share transaction and the Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income under section 68. 22. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Sunita Motilal Sinha vs. ITO vide ITA No.3662/MUM/2023 order dated 29.04.2024 for assessment year 2014-15 he submitted that the Tribunal in the said decision has deleted the addition made by the Assessing Officer u/s 68 rejecting the claim of exemption u/s 10(38) to the tune of Rs.8.60 crores on account of sale of shares of M/s. Rutron International Ltd. which was identified by the department as one of the bogus stock companies by the Investigation Wing, Kolkata.

Referring to the following decisions, he submitted that in the following cases the addition made u/s 68 / 69 by rejecting the claim of exemption u/s 10(38) on account of sale of shares of M/s. Rutron International Ltd was deleted by the Tribunal: i) ITO vs. Ramprasad Agarwal vide ITA No.1228/M/2018 order dated 30.11.2018 for assessment year 2014-15 ii) M/s. Gateway Financial Services Ltd. vs. ACIT & Ors vide ITA No.982/KOL/2018 & Ors order dated 14.07.2023 for assessment year 2014-15 iii) Nalanda Builders Pvt. Ltd. vs. DCIT vide ITA No.763/Kol/2022 order dated 11.01.2024 for assessment year 2013-14 iv) Megapode Vyapaar Pvt. Ltd. vs. DCIT vide ITA Nos.99 & 100/KOL/2023 order dated 13.09.2024 for assessment years 2013-14 & 2014-15 v) Raj Shardakumar Agarawal vs. ITO vide ITA No.3290/Mum/2025 order dated 16.02.2026 for assessment year 2014-15 vi) Meghraj Singh Shakhawat vs. DCIT vide ITA Nos.443 & 444/JP/2017 order dated 07.03.2018 for assessment years 2013-14 & 2014-15

Referring to the following decisions of the Pune Bench of the Tribunal, he submitted that the Tribunal in all these decisions has deleted the addition made by the Assessing Officer rejecting the claim of exemption u/s 10(38): i) Dineshkumar Ramchandra Tulsyan (HUF) vs. ITO & Anr vide ITA Nos.813 & 814/PUN/2018 order dated 28.11.2025 for assessment year 2014-15 ii) Ashok Vijaykumar Kotecha vs. ACIT vide ITA No.1453/PUN/2023 order dated 24.02.2025 for assessment year 2011-12 iii) ITO vs. Ankit Naresh Tulsian vide ITA No.2233/PUN/2024 order dated 28.11.2025 for assessment year 2014-15

He accordingly submitted that the order of the Ld. CIT(A) be set aside the grounds raised by the assessee be allowed.

The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) and submitted that although the assessee has submitted share application, RTGS requisition slip for remittance, share allotment letter for purchase of preferential shares of M/s Rutron International Ltd. before the Assessing Officer, however, the Assessing Officer after extensively discussing the issue on the basis of evidence and material before him has given a finding regarding the genuineness of the transaction in question. He submitted that the finding given by the Assessing Officer has been confirmed by the Ld. CIT(A) on appreciation of evidences and there is ample justification for treating the sale of shares to be bogus transaction. He submitted that in the instant case it is uncontroverted fact that the assessee failed to prove the genuineness of the transaction. The various glaring facts brought on record by the Assessing Officer cannot be ignored which are clear indicative of the non genuine nature of the transaction. The assessee has not satisfactorily explained how the investment, in the absence of any evidence as to the financial growth and operations of the company, could earn profit of Rs.3,26,28,633/- over a short period of 12 months from the date of allotment of shares of M/s Rutron International Ltd against the purchase of 1,50,000 shares of Rs.10/- on 01.03.2012. He submitted that in spite of earning so much of profit, the assessee has never embarked upon any transaction for investment with the broker or in any other dealing of shares. He submitted that the modus operandi was unearthed on the basis of series of investigations which has been incorporated in the assessment order by the Assessing Officer. Further the Assessing Officer has incorporated financial statements including Balance sheet positions, profitability and level of operation in the assessment order. Referring to the assessment order and the order of the Ld. CIT(A), the Ld. DR submitted that the assessee has failed to prove that the share transactions are genuine by furnishing evidences regarding the sale of shares except the copies of the contract notes against the overwhelming evidences collected by the Assessing Officer regarding the operation of the entire affairs of the assessee. He submitted that the earnings of the assessee are beyond human probability and defies business logic of any business enterprise dealing with share transactions. He also relied on the following decisions:

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of exemption u/s 10(38) of the Act amounting to Rs.3,41,28,933/- on account of sale of shares of Rutron International Limited on the ground that the shares of Rutron International Limited were being used to provide bogus accommodation entries of long term capital gain. He has referred to the statement of Shri Anil Agarwal recorded u/s 132(4) of the Act wherein he had stated that M/s. Comfort Securities Ltd. had provided entries in respect of shares of various companies. Further, there was abnormal rise in the price of Rutron International Limited from below Re.1 in June 2012 to Rs.25-26 in March 2013 and the alleged connection between Shri Anil Agarwal and Rutron International Limited. Since he disallowed the claim of bogus long term capital gain of Rs.3,41,28,933/-, he made addition of Rs.17,06,447/- being the commission @ 5% for obtaining the accommodation entries by invoking the provisions of section 69C of the Act.

We find the Ld. CIT(A) upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. Further, the assessee during the course of survey had admitted bogus long term capital gain of Rs.7,70,28,281/- which includes the amount of Rs.3,29,28,933/- in respect of himself and the balance amount in the hands of the other family members and has offered to pay due taxes.

It is the submission of the Ld. Counsel for the assessee that though he had admitted the bogus long term capital gain on 14.08.2015 after the conclusion of the survey proceedings which started on 13.08.2015 and concluded at 4:30 am on 14.08.2015, however, on 14.08.2015 itself the assessee has made an affidavit retracting from the confession given before the survey team. It is also his submission that the shares so sold by the assessee are listed on Mumbai Stock Exchange and were sold through M/s. Motilal Oswal Securities Ltd., reputed purchase. Therefore, the assessee has fulfilled all the conditions prescribed u/s 10(38) of the Act. These investments were made in earlier years and were duly recorded in the books of account, complete documentary evidence was filed before the Assessing Officer such as allotment of shares, application form, DMAT account statement, contract notes, bank statements STT payment receipts etc. It is his submission that SEBI vide its Report dated 31.07.2017 in the case of Rutron International Limited at point No.13 has stated that there was no role of the company in price manipulation of the shares. Further, there is no adverse finding against the assessee by the investigating agency.

It is also his submission that under identical circumstances the various Benches of the Tribunal have allowed the claim of exemption u/s 10(38) of the Act on account of sale of shares of this very company i.e. M/s. Rutron International Limited.

We find some force in the above arguments of the Ld. Counsel for the assessee. We find the Jaipur Bench of the Tribunal in the case of Shri Meghraj Singh Shakhawat vs. DCIT (supra) while dealing with an identical issue on account of sale of shares of M/s. Rutron International Limited has allowed the claim of exemption u/s 10(38) of the Act by observing as under: