SACCHANAND HIRALAL LALWANI,YAVATMAL vs. ACIT(OSD), WARDHA

PER PAWAN SINGH, JUDICIAL MEMBER:

11.10.2023 for Assessment Year (A.Y.) 2015–16. The assessee has raised

following grounds of appeal:

“1. The learned Commissioner (Appeals) erred in sustaining the addition made by the Assessing Officer of Rs. 3,27,70,750/- u/s 68 in relation to sale of equity shares of Greencrest Financial Services Limited.

A.Y. 2015-16 on 31.10.2015 declaring income of Rs. 1.24 crore. The case was

selected for scrutiny. During assessment, the assessing officer (AO) noted that

assessee has shown exempt capital gain under section 10(38) of Rs. 3.57 crore.

On seeking details, the assessee furnished the working of long-term capital gain,

which is recorded in para 3 of assessment order. The assessee explained that he

earned long term capital gain on sale of shares of Greencrest Financial Services

Limited. The assessing officer recorded that he was having information in his ITD

system that Greencrest Financial Services Limited is a penny stock company as

per report of Investigation Wing, Kolkata. The AO issued show cause notice as to

why claim under section 10(38) should not be disallowed. The assessee filed his

reply, contents of which is recorded in para 5 at page 3 of assessment order. The

assessee in its reply submitted that he was allotted 2,00,000 equity shares of

Marigold Glass Industries Ltd. for Rs. 24,00,000/- on 25.03.2013. The assessee

received preferential allotment share. The assessee was allotted 2,00,000 shares

on face value of Rs. 10/- each at a premium Rs. 2.00/- per share. Copy of share

application, allotment of share certificate, bank statement was furnished. The

shares were allotted as per the guidelines of SEBI with the condition of lock in 2 period of one year from the date of allotment. In the month of March, 2014

shares were split from this face value of Rs. 10.00/- to Rs. 1.00/-, owing to this

split, the assessee held share of 20,00,000. The share was transferred to Demat

account reflecting the splitting of share.The name of Marigold Glass Industries

Ltd was changed toGreencrest Financial Services Limited. During relevant

financial year, the assessee sold only 5,87,000 shares of Greencrest Financial

Services Limited through registered share broker of Bombay Stock Exchange.

The shares were sold through well-known share broker namely Edelweiss

Securities Ltd. Copy of contract note and statement issued by Edelweiss

Securities Ltd. was also furnished. The period of holding of shares were more

than one year, therefore, capital gain earned was subject to Securities

Transaction Tax (STT), hence the assessee claimed exemption. The AO by

referring the investigation report and history of penny stock company and by

referring certain case law treated the gain of assessee on transaction of sale of

share as artificial long term capital gain and added the same under section 68 in

the assessment dated 29.12.2017.

before ld. CIT(A). Before ld. CIT(A), the assessee filed similar submissions as

made before AO. In addition to, the assessee submitted that Greencrest Financial

Services Limited was a listed company in Bombay Stock Exchange. The assessee

entered into genuine transaction. The assessee furnished details of broker, DPID,

client ID, contract number with trade date, order number, trade number, scrip name, quantity of shares sold, rate at which sold, brokerage, STT paid, service

tax levied, bank statement, Demat statement was also furnished. The assessee

also relied on various case laws to substantiate his submission. The assessee

objected that AO relied upon information of Investigation Wing, Kolkata without

providing copy of such report, no opportunity to cross-examination of the person,

on whose confession / statement the AO relied. The assessee also relied on

certain case law.

his order noted that allotment was not through broker any recognised broker or

by Stock Exchange rather the preferential shares were allotted on direct

application for allotment of shares. The Investigation Wing, Kolkata carried out

investigation in a number of companies who are involved in giving entries of

long-term capital gain, short term capital gain or losses. Greencrest Financial

Services Limited is one of such company. Greencrest Financial Services Limited is

one of the companies, who are found in manipulation of price. The assessee is

not a frequent investor in shares. The ld. CIT(A) by referring the decision

ofSumatiDayal vs CIT 80 Taxman 89 and in CIT vs Durga Prasad More 82 ITR

540 held that matter has to be considered in the light of human probabilities and

upheld the action of assessing officer. Further aggrieved, the assessee has filed

present appeal before Tribunal.

the assessee and the learned Commissioner of Income Tax – Departmental Representative (ld. CIT – DR) for the Revenue. The ld. AR of the assessee

submits that assessee has purchased 2,00,000 shares of Marigold Glass

Industries Ltd. which was later on converted to Greencrest Financial Services

Limited. The assessee purchased share of face value of Rs. 10/- at the premium

of Rs. 2.00/-. Thus, the assessee invested Rs. 24,00,000/- for acquisition of

2,00,000 shares. Subsequently, shares were splited into ratio of 1:10. Thus, total

share credited to the Demat account of assessee of Rs. 24,00,000 shares. During

the year under consideration, the assessee sold 5.87 lac shares which is almost

1/4th total shareholding. The shares were sold on a total consideration of Rs.

3,64,40,750/-. The purchase cost of shares were Rs. 7,04,400/-. Thus, the

assessee earned long term capital gain of Rs. 3.57 Crore. The remaining share is

still with the assessee. The assessee has not sold such shares as the value has

come down substantially. The assessee sold such share through well-known

share broker of Bombay Stock Exchange that is Edelweiss Securities Ltd. The

assessee paid security transaction tax. The shares were sold through Bombay

Stock Exchange. The sale transaction was received in the bank account of

assessee. SEBI has taken some action against certain parties and debarred from

certain period. However, neither the name of assessee nor the name of broker of

assessee in the order of SEBI. There is no allegation against either of assessee or

against the broker of assessee. The ld. AR of the assessee submits that on

similar set of fact, the Mumbai Tribunal in case of Yogesh P. Thakkar vs DCIT in

ITA No. 1605 & 1612/Mum/2021 and in case of Harsha Nitin Thakkar vs DCIT in ITA No. 1606 & 1608/Mum/2021 and in case of NishaYogesh Thakkar vs DCIT in

ITA No. 1607/Mum/2021 dated 03.02.2023 while considering the similar scrips

allow relief to the assessee. Further, Nagpur Bench of Tribunal on similar set of

facts in ACIT vs SudhirRamswaroopSarda in ITA No. 103/Nag/2019 dtd.

21.03.2025 allowed relief to the assessee, wherein additions were made on the

basis similar allegation based on Investigation Wing, Kolkata in respect of

Luminary Technology Ltd.

Representative (ld. CIT–DR) for the Revenue submits that that assessee is

beneficiary of capital gain earned on sale of share of penny scrip company are

exists only on papers only. The said company had no substantial assets or

operational revenue. The price of such scrips is inflated in circular transaction

with connivance of broker. The assessee purchased the share at a negligible price

and sold at artificially inflated price. The assessee was required to establish that

transaction was not prearranged or collusive in nature. The identity of buyer is

not provided. The assessee has not demonstrated adequate knowledge of the

market and the scrip traded, ruling out any element of blind investment. The

failure to substantiate of those elements conclusive indicates that transactions

were sham and carried out solely to evade tax by loundering unaccounted

income. The action of SEBI is immaterial for the purpose taxation as the Income

Tax Department is empowered to assess the genuineness of transaction

independently. The misuse of section 10(38) constitutes off course abuse of tax provision and the assessee must be held liable for evade tax. The transaction

through banking channel and with share broker is not adequate evidence to

prove genuineness, creditworthiness and identity of penny stock company. The

Direct evidences are not necessary and test of preponderances of probabilities to

be applied in such cases. The AO has brought necessary fact and material made

available by Investigation Wing to establish penny stock transaction. The ld. CIT-

DR prayed for dismissal of appeal.

through the orders of lower authorities carefully. We have also deliberated on

various case laws relied by the lower authorities and ld AR of the assessee,

before us. We find that to substantiate the transaction of long-term capital gain

the assessee submitted that Greencrest Financial Services Limited was a listed

company in Bombay Stock Exchange. The assessee furnisheddetails of broker,

DPID, client ID, contract number with trade date, order number, trade number,

scrip name, quantity of shares sold, rate at which sold, the details of brokerage,

and amount of STT paid, service tax. The assessee also furnished bank

statement, Demat statement. We find that no finding on such evidences was

given by AO. The AO relied upon information of Investigation Wing, Kolkata

without providing copy of such report. No opportunity to cross-examination of

the person, on whose confession / statement he relied, was provided to the

assessee. We find that the assessee discharged his primary onus in providing the

necessary details to substantiate the transaction of sale of scrips which were held for more than one year.Once, the assessee discharged his onus, the onus shifts

on the AO to investigate the matter further and to bring adverse evidence on

record to disprove the evidence filed by the assessee.

taxmann.com 425 (Guj) held that where assessee duly proved genuineness of

sale transaction by bringing on record contract notes of sale and purchase, bank

statement of broker and demat account showing transfer in and out of shares,

Assessing Officer was not justified in bringing to tax capital gain arising from sale

of shares as unexplained cash credit. Gujarat High Court in the case of Parasben

Kasturchand Kocher (2021) 130 taxmann.com 176 (Guj), also held that when

assessee discharged his onus by establishing that transactions were fair and

transparent and all relevant details with regard to transfer furnished to Income

Tax Authority and the Tribunal have also took the notice of fact that the shares

remained in the account of assessee, the assessee also furnished demat account

and details of bank transaction about the sale and purchase of shares, the

addition was deleted. Further, we find of Hon'ble Jurisdictional High Court in the

case of PCIT Vs. Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018

dated 12.07.2023 also held that when AO nowhere alleged that transactions

made by assessee with a particular broker or share broker was bogus, merely

because investigation was done by SEBI against the broker or its activities, the

assessee cannot be said to have entered into ingenuine transaction. In PCIT Vs

Mamta Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that where the assessee had sold the shares and earned LTCG and the AOalleged

that transaction was penny stock deal aim at illegitimately claiming LTCG

exemption under section 10(38), since there was no allegation on record

suggesting the assessee or his broker involved in rigging up the price of scrips, the addition was rightly deleted by Tribunal.We find that assessee made sale of

shares through BSE and paid security transaction tax and there is no allegation

against the share broker through whom assessee has made sales that they were

indulging any price manipulation. Therefore, we do not find any justification in

treating the LTCG as unexplained cash credit in absence of any cogent evidence

against the assessee specific.

against the addition based on similar report of investigation wing, in ACIT Vs Shri

Sudhir Ramswaroop Mundra in ITA No. 103/Nag/2029 dated 21.03.2025 by

referring and relying on decision of Jurisdictional High Court in CIT Vs Shyam R.

Pawar (2015) taxmann.com 108 (Bom) allowed similar relief to the assessee. We

further find that Mumbai Bench of Tribunal in case of Yogesh P. Thakkar vs DCIT

in ITA No. 1605 & 1612/Mum/2021 and in case of Harsha Nitin Thakkar vs DCIT

in ITA No. 1606 & 1608/Mum/2021 and in case of Nisha Yogesh Thakkar vs DCIT

in ITA No. 1607/Mum/2021 dated 03.02.2023 while considering the similar scrips

of Greencrest Financial Services Limited, allowedexemption of capital gain to

that assessee. We find that there is no allegation either against the assessee or

his share broker in price manipulations of such shares. The assessee has sold through well-known share broker namely; Edelweiss Securities Ltd. Thus, in view

of the aforesaid factual and legal discussions, we do not find any justification in

making addition of Rs. 3.27 Crore under section 68 against the assessee. In the

result, the grounds of appeal raised by the assessee is allowed.

Order pronounced on 15/04/2026 as per Rule 34 of Income Tax (Appellate

Tribunal) Rules-1963.

Sd/- Sd/-

KHETTRA MOHAN ROY PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

Nagpur: Dated: 15/04/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; andBy order (5) Guard file.

Assistant Registrar ITAT, Nagpur