KARN RAJESH RATERIA,MUMBAI vs. THE INCOME TAX OFFICER, WARD 23(2)(6), MUMBAI

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ITA 9444/MUM/2025Status: DisposedITAT Mumbai04 June 2026AY 2011-129 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO and CIT(A) failed to bring any adverse evidence against the assessee or their broker regarding price rigging. Since the assessee provided documentary evidence of genuine transactions, the additions were deleted.

What were the facts?

The assessee claimed long-term capital gains from the sale of shares in 'Tuni Textile', which the AO suspected to be a penny stock company. The AO treated the sale consideration as unexplained credit and added commission expenses.

What were the issues?

Whether the long-term capital gains from penny stock transactions are taxable as unexplained credit and expenditure without specific evidence against the assessee or broker.

Which sections of the Income-tax Act were involved?

Section 68,Section 69C,Section 147,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

For Appellant: Shri Aditya Nemani, C.A (Virtually)
For Respondent: Shri Vivek Singh, Sr. DR
Hearing: 24.03.2026Pronounced: 04.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 9444/MUM/2025 (AY: 2011-2012) (Physical hearing) Karn Rajesh Rataria, The Income Tax Officer, 401/402 B Wing Ramji House, Vs Ward 23(2)(6), Dr. SS Rao Marg, Jambulwadi, Mumbai, Parel, Mumbai, Maharashtra – 400002 Maharashtra- 400012 [PAN: ASRPR4194D] Appellant / Assessee Respondent /Revenue Assessee by Shri Aditya Nemani, C.A (Virtually) Revenue by Shri Vivek Singh, Sr. DR Date of hearing 24.03.2026 Date of pronouncement 04.06.2026 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assesseeis directed against the order of Ld. CIT(A) / NFAC dated 12.11.2025 for A.Y. 2011-12. The assessee has raised following grounds of appeal; i. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in law by upholding the addition of Rs. 24,796/- u/s. 69C of the Income Tax Act, 1961. ii. On the facts and the circumstances of the case, the Ld. CIT(A) has erred in law by confirming the addition despite the fact that no copy of the statement recorded which was relied upon OR opportunity for cross examination of the said party was provided despite a specific request made for the same. iii. The appellant prays to allow it to add, alter, amend, modify and/OR DLEETE any OR all of the above grounds of appeal at OR before the time of hearing. iv. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law by upholding the reopening of the assessment u/s 148 of the Income Tax Act, 1961. v. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law by upholding the addition of Rs.8,26,562/- u/s. 68 of the Income Tax Act, 1961.

2.

Brief facts of the case are that the assessee is individual, filed his return of income for assessment year (AY) 2011-12 on 27.07.2011 declaring total income at Rs. 87,67,32/-. Initially, return was processed and accepted under Section 143(1). Later on, the case was reopened under Section 147 and notice under Section 148 dated 30.03.2018 was served upon the assessee. Case was reopened on the basis of information of investigation that an organized racket of generating bogus entries of long term capital gain in penny stock companies has been unearthed in the investigation carried out throughout the country. As a result of which,beneficiaries who have availed bogus entries of long term capital gain have been identified. The assessee is one of such person who has transacted in penny stock of “Tuni Textile” during the year under consideration. The assessee has claimed exemption of long term capital gain of Rs. 8,26,562/- on which Securities Transaction Tax (STT) was paid. Such transaction needs to be examined. The assessing officer (AO) also recorded that there was failure on the part of assessee to disclose fully and truly all the material facts necessary for assessment. In response of show cause notice, the assessee filed letter dated 18.04.2018 before AO to treat the return filed originally, as return in response to notice under Section 148. The AO proceeded for reassessment and recorded that the assessee vide his reply dated 09.11.2018 furnished details like purchase of sale of shares, copy of demat account, contract note, copy of bank statement in respect of sale and purchase. From the details furnished by the assessee, the AO further recorded that the assessee purchased 17,500 shares of Tuni Textile at the rate of Rs. 2.50/- per share for consideration of Rs. 43,750/- on 07.07.2009 out of which 3200 shares were sold on 30.03.2011 at the rate of Rs. 256.51/- per share aggregating of Rs. 8,26,562/-. The AO further noted that shares of Tuni Textile Mills Ltd. are involved in penny stock shares. The AO by recording the modus operandi of penny stock companies and on relying upon report of investigation, treated the entire sale consideration of Rs. 8,26,562/- as unexplained credit under Section 68. The AO also added 3.00% as commission expenses of sale consideration of share of Rs. 8,265,62/-. The AO computed unexplained expenditure of Rs. 24,796/- and added under Section 69C in the assessment order dated 15.12.2018. 3. Aggrieved by the action of AO, the assessee filed appeal before ld CIT(A). Before Ld. CIT(A) filed detailed written submission. Submissions of assessee are recorded at page No. 8-20 of order of Ld. CIT(A). The Ld. CIT(A) also scanned the entire assessment order from page No. 22 to 37. In the written submission, the assessee challenged the validity of reopening as well as additions on merit. The assessee submitted that the long term capital gain is genuine. The AO has not brought any iota of evidence to prove the allegation against the assessee. The assessee has discharged its onus to prove and establish the transaction. The assessee received credit on account of sale of shares. The Tribunal has also decided various cases of identical facts. The assessee furnished complete details in the form of evidence of purchase and sale through account payee cheque. Shares were received in de-mat account and were sold through recognized stock exchange after payment of STT. The assessee is fully eligible for long term capital gain. The assessee also relied upon various case laws to substantiate that once the assessee discharged its onus, the onus shifts on the revenue to disprove the evidences filed by the assessee. 4. The Ld. CIT(A) after considering the submission of assessee, confirm the action of AO. The Ld. CIT(A) held that the AO has information to suspect the transaction and genuineness has to be decided considering the sequence of events and while lifting the veil. The financial of Tuni Textile shows that there was no activity in the said company up to 2009-10 and profit was increased suddenly in AY 2013-14, but profit of the said company in other years remained very lower. Rising in the share price and profit of the company is possible only when share prices were rigged at the stock exchange by hawala operators or promoters. The Ld. CIT(A) by referring the decision of Sumati Dayal v. CIT (214 ITR 801, SC) and CIT v. Durga Prasad More (82 ITR 540, SC) wherein it was held that the apparent must be tested on human probabilities and confirm the action of AO. Further aggrieved, the assessee has filed present appeal before Tribunal. 5. We have heard the submission of Ld. Authorized Representative (in short ‘AR’) of the assessee and the Ld. Sr. DR for the revenue. The Ld. AR of the assessee submits that the assessee purchased 17,500/- equity shares of Tuni Textile Ltd. on 10.07.2009 for a total consideration of Rs. 1,75,000/-. Entire purchase consideration was paid through banking channel which is evident in the bank account of assessee. The shares were allotted in the name of assessee. The assessee sold 3200 shares on 30.03.2011 for a total consideration of Rs. 8,26,562/- through share broker namely JSM Securities Ltd. who is member of Bombay Stock Exchange and registered with Security Exchange Board of India. The sale consideration was received after deduction of statutory brokerage and security transaction tax. During assessment, the assessee furnished complete documentary evidence in support of his transaction which includes copy of contract note issued for payment of purchase and receipt for sale consideration. The evidence furnished by assessee clearly establishes genuineness of purchase and sale transaction. The shares were remained in De-mat account and sold through stock exchange. The lower authorities failed to appreciate the same and completely ignore such fact and proceeded in a mechanical manner solely relying upon general information. There is no evidence of any cash transaction or cash exchange. The assessee hold shares for more than 18 months. The Ld. CIT(A) also confirm the action of AO in a mechanical way. Neither the name of assessee was mentioned in the price nor there any adverse order against the broker of assessee. In the case of assessee’s sister, the Ld. CIT(A)/NFAC has decided identical matter in her favour, however, in assessee’s case a different view is taken. The long term capital gain earned by assessee is genuine. Copy of report of investigation carried by investigation wing nationwide is not provided. The AO relied on statement without allowing cross examination of such parties. To support his submission, the Ld. AR of the assessee relied upon as under :-  Sameer Shah (HUF) vs. ITO in ITA No. 248/RJT/2025,  Mrs. Neeta Bothra v. ITO [2022] 137 taxmann.com 43/92 ITR(T) 450 (ITAT Chennai)

 Ramesh Chandra K. Shah Vs. ACIT in ITA (SS) A Nos. 112 & 113/Kol/2018. 6. On the other hand, the Ld. Sr. DR for the revenue supported the order of Ld. CIT(A). The Ld. Sr. DR submits that the nationwide investigation was carried out by investigation wing to unearth the modus operandi of entry provider. A list of beneficiary was also prepared who has availed entry of long term capital gain or long term capital loss. Tuni Textile is one of the penny stock company. The financial of such company was not very sound. The prices of share of Tuni Textile was manipulated by promoter/entry provider and by brokers. 7. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We also deliberated on the case law relied ld. AR of the assessee. We have also deliberated on various documentary evidence filed by the assessee consisting of summery of purchases & sale of shares, contract note issued by broker, copy of bank statement, copy of contract notes, copy of Demat account and statement of holding period. . We find that the AO doubted the transaction of assessee on the basis of report of information in ITD system, which was based on report of Investigation Wing Kolkata. The AO made addition of sale consideration of scrips of GFL Financial India as unexplained taxable income under section 68. The AO also added 3.00% of sale transaction by taking view that the paid commissions to the entry provider. We find that before ld CIT(A), the assessee has furnished complete evidence including contract note of shares, Dmat account details, brokers statement, detail of bank account. However, no adverse evidence was brought against such evidence, nor the assessing officer made adverse comment on such evidences. We find that neither the AO nor ld CIT(A) made any independent investigation of facts to connect the assessee or his broker with the transaction of alleged price rigging. So far as allegation of price rigging is concerned, no role or the activities of the brokers of assessee in price manipulation is brought on record. We find that there is no material is brought on record by AO or ld CIT(A) about any adverse finding or report of SEBI about price manipulation either by the assessee or by the broker of assessee. No independent investigation of facts was carried out by the lower authorities, if any transaction of assessee even remotely connected with entry provider. 8. We find that Hon'ble Gujarat High Court in the case of Himani M. Vakil (2014) 41 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. 9. 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 Assessing Officer 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 a recent decision 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 Assessing Officer alleged 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. Hence, we direct the AO to delete the addition under section 68 of Rs. 8,26,562/- Considering the facts that we have deleted the addition under section 68, therefore, addition of unexplained expenditure under section 69C, which is otherwise consequential, is also deleted. In the result, ground No. 1 to 3 of the appeal raised by the assessee are allowed. Further considering the facts that we have deleted the additions of merit, hence, adjudication on ground no. 4 has become academic. 10. In the result, the appeal of the assessee is allowed Order was pronounced on 04/06/2026 in open Court. Sd/- Sd/- MAKARAND VASANT MAHADEOKAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, Dated: 04/06/2026 Z.U., P.S Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order

Assistant Registrar ITAT, Mumbai

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