SHPL ENTERPRISES PRIVATE LIMITED,VARANASI vs. ACIT, R - 1, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited, vs ACIT, C-27/273, C-13, Indian Press Range-1, Varanasi Colony Maldahiya, Varanasi, Uttar Pradesh-221002 PAN: AAHCS6003K (Appellant) (Respondent) Assessee by: Sh. Vipul Khandhar, C.A. Revenue by: Sh. Sabayasachi Chakraborty, Sr. DR Date of hearing: 12.05.2026 Date of pronouncement: 30.06.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC dated 27.12.2023, passed under section 250 of the Income Tax Act, 1961, wherein the ld. CIT(A) has dismissed the appeal of the assessee against the orders of the ld. Assessing Officer passed under section 147 r.w.s. 144B of the Income Tax Act, 1961. The grounds of appeal are as under:- “1. The learned ITO erred in law and on facts in passing the order u/s 147 r.w.s. 144B of IT Act, 1961 which is requested to be quashed. 2. The learned ITO erred in making addition of Rs.18687945/- being sale consideration of penny stock u/s 68 of IT Act, 1961. 3. The learned ITO erred in making addition of Rs.373759/-being commission as unexplained expenditure u/s 69C of the IT Act, 1961.” 2. The facts of the case are that the assessee filed a return of income on 11.11.2014 declaring total income of rupees Nil and the case was completed

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited under section 143(3) at this nil returned income. Subsequently, information was received from the Investigation Wing through the Insight Portal that the assessee was a beneficiary of fictitious profits in equity / derivative trading amounting to Rs. 1,86,87,945/-. Therefore, notice under section 148 was issued to the assessee and enquiries were initiated. The ld. AO observed that as per the note prepared by the Unit-6 of the Investigation Wing at Mumbai, several instances had come to light wherein asset or entities were consistently seen to be incurring in trading loss by executing reversal trades in stock options in equity derivative segments. It had also come to notice that alongwith reversal trades, huge losses had also been generated by various clients by letting the option expire. During the course of Project Falcon Investigations, the statement of various brokers were recorded and they confirmed this modus operandi. The ld. AO quoted from the decision of the Hon’ble Supreme Court in the case of Rakhi Trading Pvt. Ltd. to conclude that all the expired trades show a pattern of transactions where options had been purchased but not exercised and which resulted in a loss for every expired trade. From the same he concluded such transactions had been entered into only with a view to generate losses. He thereafter drew up a list of reversal trades that had been engaged into by the assessee and determined that the total amount of such trades amounted to Rs. 1,86,87,945/-. The assessee was asked to submit an explanation in this regard and the assessee submitted that all its transactions had been entered into its books of accounts properly reflected in the audit report, uploaded profit and loss account and the ITR. Furthermore, in support of the income shown in the audited profit and loss account, the assessee enclosed several ledger accounts of commodity trading, currency trading, F&O business, other charges settlement, dividend income from loan alongwith sales share transactions summary report, demat account copy and the tax audit report with the profit and loss account and 2

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited balance-sheet. It contended that there was no suppression of income in all transactions reflected in the ITR. It also submitted responses to the other documents asked for by the Assessing Officer. He further submitted that the scrips which it had dealt in, were not illiquid but frequently traded in the market. Furthermore, the stock exchange did not come out with a list of illiquid scrips in stock options and therefore, no responsibility could be fastened upon a single individual investor that he traded in illiquid option. Furthermore, it was submitted that the derivative market was a zero-sum game and thus in each and every case, one party will invariably make profit and the other would invariably make a loss. Because the market does not behave according to their prediction / expectation. That the assessee traded in the options segment could not be a ground to initiate proceedings against it. Furthermore, the assessee had not sold back the shares to the same party and therefore, it could not be said to be a case of reversal trades. Furthermore, the assessee submitted that the SEBI had not provided any evidence or proof to show that the assessee’s trades were fraudulent. While SEBI had investigated and issued SCN to parties involved in reversal trades of illegal stock options, it had not given any such notice to the assessee in respect of any such trading of illiquid stock. It was also argued that all the trades had been executed on the floor of the stock exchange and were in compliance with all the regulations and rules of the exchanges. At no point of time was there any warning or any observations about the scrips / stocks that were executed by the assessee and the trades were executed in the normal course of business. None of the trades were deceptive in nature or had any impact on the investors or their investment decisions. There was no nexus directly or indirectly with the counter party broker or clients and therefore, in the circumstances, there was no reason to hold that the assessee had indulged in trades that were fraudulent. Since, there was no allegation 3

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited that the assessee had been party to any arrangement and there was no evidence to show that any of the trades were fraudulent or in violation of the PFTUP Regulations, it could not be alleged that the assessee had engaged in any fraudulent trades. The assessee also submitted that variation in the price of various shares of alleged penny stocks could not be a ground to alleged any fraudulent trades because prices of shares go up and down in the stock market. 3. However, the ld. AO did not find the response of the assessee to be satisfactory and he therefore, issued a draft assessment order which he confronted to the assessee. The assessee submitted objection to the said draft assessment order where the points stated by it earlier were reiterated. However, the AO held that the trades entered by the assessee were reversed by it on the same day with the same counter party at substantial price difference without any basis for significant change in the contract price, and this indicated that these trades were artificial and non-genuine in nature. He further pointed out that the non-genuineness of these transactions was further evident from the fact that there was no commercial basis as to why within a short period of time the transactions were reversed with their counter parties with huge price differences. From the data made available by the DDIT (Inv.), Mumbai regarding coordinated and pre-mediated training on the Bombay Stock Exchange on account of reversal trades in illegal stock options resulting in non-genuine loss / gains to the beneficiary assessee, it was seen that the assessee had entered into profit generating or loss generating reversal trades of Rs. 1,86,87,945/- through the same broker, M/s Rudra Shares and Stock Brokers Limited and Mauzampuria Securities on the Bombay Stock Exchange. He thereafter, proceeded to discuss the findings of the SEBI with regard to manipulative reversal trades and pointed out that Sh.

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited Awdhesh Kumar Gupta, Director of Mauzampuria Security Broking Pvt. Ltd. in his statement on oath had admitted that fabricated reversal trades had been done in order to make illegal profit / losses through his ID. The relevant part of his statement was reproduced in the assessment order. As the AO was convinced that the assessee, by indulging in reversal trades in illiquid stock options, had indulged in booking of fraudulent profits and therefore, he brought the amount of Rs. 1,86,87,945/- to tax under section 68 of the Income Tax Act. He also observed that the commission paid for the same, amounting to Rs. 3,73,759/- was unaccounted for and paid for providing bogus profit and loss. He, therefore, brought the same to tax under section 69C of the Income Tax Act. 4. Being aggrieved by the said order, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) recorded the fact that he had issued and served various notices under section 250 upon the assessee to present his contentions alongwith documents supporting them through 2022 and 2023 but the assessee had not filed any response and from the same he concluded that the assessee was not interested in pursuing the appeal. Therefore, he dismissed the appeal of the assessee for non-pursuit. 5. The assessee is aggrieved by this summary disposal of his appeal by the ld. CIT(A) and has accordingly come in appeal before us. Sh. Vipul Khandhar, C.A. (hereinafter referred to as the ld. AR) submitted that the assessee wished to press an additional ground at the time of the appeal before the Tribunal in that the ld. AO had issued notice under section 148 based on materials seized during a search on a third party and the proceedings ought to have been initiated under section 153C of the Act and not under section 148 of the Act. Therefore, it was submitted that the entire re-assessment proceedings under section 148 was invalid and therefore, the

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited assessment order under section 147 was required to be quashed in the interest of justice. The ld. AR further submitted, that the ld. CIT(A) had not bothered to address any of these issues on merits even though the assessee had not withdrawn its appeal. Even if the assessee had not complied with the notices, the ld. CIT(A) was still bound to address the issues on merits and consider the very detailed arguments made by the assessee during the course of assessment proceedings before dismissing the appeal outright. Since the ld. CIT(A) had not done that, his order was bad in law. In addition to the same, the ld. AR presented a paper book containing detailed arguments with regard to each ground of appeal that had been preferred which, for the reasons of brevity, we need not reproduce here. It was, therefore, prayed that since there was no basis to make the additions in the case of the assessee, the order may be quashed and the additions deleted. 6. On the other hand, Sh. Sabayasachi Chakraborty, Sr. DR (hereinafter referred to as the ld. DR) referred to the order passed by the AO and submitted that the AO had passed a very elaborate order in which he had pointed out why the trades executed by the assessee were manipulated with a view to generating bogus profits / losses and therefore, the AO was justified in bringing such bogus profits to tax in accordance with section 68 of the Income Tax Act. He also pointed out that the CIT(A) had recorded in his order that he had given numerous opportunities to the assessee to make compliance but the assessee had failed to do so and therefore, he was dismissing the appeal of the assessee. The assessee could not skip a forum altogether and then demand that the case should be quashed without giving the ld. CIT(A) an opportunity to consider all the evidences. Accordingly, he prayed that there was no justification to allow the assessee’s appeal and it may be dismissed.

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited 7. We have duly considered the facts and circumstances of the case and the arguments of both parties. We find that the ld. CIT(A) has dealt with the appeal of the assessee in a very casual and summary manner. Even considering that the assessee did not make compliance to the notices under section 250, the appeal had not been withdrawn and therefore, the ld. CIT(A) was obliged to decide the issue to the best of his judgment on the merits of the case. The fact that he failed to look into the facts of the case at all renders his order to be unsustainable. Accordingly, after considering the fact that the assessee was not given proper opportunity to present its case before the ld. First Appellate Authority, we deem it appropriate in the interest of justice to restore the entire issue to the file of the ld. First Appellate Authority for fresh consideration and decision on the merits of the case. The assessee has also preferred some additional grounds of appeal. It may raise such grounds as additional ground which the ld. CIT(A), who may decide the same before proceeding to consider the issue on its merits. As the matter stands restored to the file of the ld. CIT(A), the appeal of the assessee is held to be allowed for statistical purposes. 8. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 30.06.2026. Sd/- Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/06/2026 Sh

ITA No.31/VNS/2024 A.Y. 2014-15 SHPL Enterprises Private Limited Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.