KETAKI NAWAL AGARWAL,JOGESHWARI WEST vs. INCOME TAX OFFICER WARD 16(2)(5), AAYAKAR BHAVAN

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ITA 2082/MUM/2024Status: DisposedITAT Mumbai24 June 2026AY 2014-1513 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT(A) erred in confirming the addition of LTCG as unexplained cash credit. The case was remanded back to the AO for fresh adjudication after allowing the assessee to cross-examine the relevant parties.

What were the facts?

The assessee claimed Long Term Capital Gains (LTCG) from the sale of shares of Blue Circle Services Ltd. The Assessing Officer (AO) treated the sale consideration as an unexplained cash credit under Section 68, suspecting the shares were part of a penny stock scam providing bogus LTCG. The CIT(A) confirmed the addition.

What were the issues?

Whether the LTCG from the sale of shares can be treated as unexplained cash credit under Section 68 without proper evidence and opportunity for cross-examination. Whether the AO's assessment was based on borrowed satisfaction.

Which sections of the Income-tax Act were involved?

Section 68,Section 10(38),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI GIRISH AGRAWAL

For Respondent: Shri Hemanshu Joshi, Sr. DR
Pronounced: 24.06.2026

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: E BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND HON’BLE SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 2082/MUM/2024 िनधा�रण वष�/Assmt. Year: 2014-15 Ketaki Nawal Agarwal Flat No.702 C Wing Meera CHS Ltd Near Mega Mall Income Tax Officer Opp Link Road Ward - 16(2)(5) Jogeshwari (West), Vs. Mumbai Mumbai - 400102

(अपीलाथ� Appellant) (��थ� Respondent) Permanent Account Number of AJGPA1327F Assessee: िनधा�रती �ारा/Assessee represented by: Shri Neelkanth Khandelwal, CA राज� व �ारा/Revenue represented by: Shri Hemanshu Joshi, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 06.04.2026 घोषणा की तारीख / Date of pronouncement: 24.06.2026 आदेश / ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of Ld. CIT(A)/National Faceless Appeal Centre (NFAC), Delhi vide DIN: ITBA/NFAC/S/250/2024-25/1064111713(1) dated 15.04.2024, passed against the assessment order by Income Tax Officer, Ward- 16(2)(5), Mumbai, u/s 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.12.2016, for Assessment Year 2014- 15.

2.

Assessee has raised the following grounds of appeal:

1.

On facts and circumstances of the case, and in law, the Honorable CIT Appeal (NFAC), DELHI has erred in confirming the action of the Assessing Officer in passing the order and under section 143(3) merely on the basis of borrowed satisfaction, presumption and surmises, as such the order is unreasonable, arbitrary against principle natural justice, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed. 2. On facts and circumstances of the case, and in law, the Honorable CIT Appeal(NFAC), DELHI has erred in confirming the action of the Assessing Officer by treating Long Term Capital Gain from the sale of shares of M/s Blue Circle Services Ltd. as suspicious Long Term Capital Gain and adding them to the total income of the Appellant under the head Income from other sources under section 68 of the Income Tax Act, 1961 without taking into consideration documents and legal submission made by the Appellant during the course of Assessment /Appeal Proceedings. As such the addition is made :- a) On the basis of suspicion & presumption, b) Based on Third-party statement, c) Without any proof of refund of the cash, d) By wrongly co-relating general data of the listed company with the Appellant, e) By making only guess work and overlooking documents and by relying upon cases not applicable in this case, f) By not offering the opportunity to cross examining the brokers and without furnishing copies of the statement, and g) By not following the decision of the Jurisdictional High Court i.e. Mumbai High Court.

3.

Brief facts of the case are that return of income was filed on 28.06.2014, reporting total income at Rs.2,57,830/-. Case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. During the course of assessment proceeding, ld. Assessing Officer received certain information that assessee booked substantial amount of Long Term Capital Gain (LTCG) on listed scrips of Blue Circle Services Ltd which was purchased off-market. As per the information received from the Investigation Directorate, Kolkata, this scrip is tainted as a penny stock company used by the exit providers to provide accommodation entries in the form of bogus LTCG. Based on the information, ld. AO observed that assessee purchased 1,25,000 shares of this company at face value of Rs.10/- per share. Later this company had split the face value from Rs.10/- to Re.1/- per share. Assessee sold 11,76,514 shares through a broker India Infoline Ltd for a consideration of Rs.89,53,681/-. This sale transaction resulted into LTCG which was claimed as exempt u/s. 10(38), details of which are tabulated below: S. Scrip Purchase Qty Cost Sale Qty Sale Value LTCG No. Date Date 1 16.03.11 470000 470000.00 26.08.13 470000 26,81,500.00 22,11,500.00 Blue Circle 16.03.11 407000 407000.00 06.09.13 407000 28,51,849.00 24,44,849.00 160000 160000.00 18.10.13 160000 19,56,416.00 17,96,416.00 16.03.11 16.03.11 129514 129514.00 15.01.14 129514 13,52,125.52 12,22,611.52 16.03.11 10000 10000.00 15.01.14 10000 93,791.00 83,791.00 11,76,514 11,76,514 11,76,514 89,53,681.52 LTC G

3.1. Ld. Assessing Officer summoned the assessee and recorded the statement u/s 131. After recording the statement, ld. Assessing Officer concluded that assessee did not have any satisfactory explanation for investing in the shares of Blue Circle Services without having any knowledge about this company. He also referred to the modus operandi as revealed by the investigation of the Investigation Directorate of Kolkata about the penny stock companies and which included Blue Circle Services. Ld. Assessing Officer also examined the financials of this company according to which this company did not have any net worth to justify substantial increase in its share prices. He thus, concluded that share prices were artificially rigged up to accommodate the beneficiaries including the assessee. Hence, the entire sale consideration of Rs.89,35,682/- received by the assessee was treated as unexplained cash credit u/s 68.

3.2. Ld. Assessing Officer also estimated 2% of commission on this transaction as unexplained expenditure, worked out to Rs. 1,78,714/-. Aggrieved, assessee went in appeal before the ld. CIT(A), who confirmed the additions made by the ld. Assessing Officer. While dismissing the appeal, he placed strong reliance on the decision of Hon’ble High Court of Calcutta in the case of PCIT vs. Swati Bajaj [2022] 139 taxmann.com 352 (Cal) to hold that the said decision squarely applies to the present case. However, he granted relief in respect of estimated commission alleged to have been paid by the assessee to earn the bogus LTCG which was worked out @ 2% of the sale consideration amounting to Rs.1,78,714/-. In this respect, he deleted the addition by holding that ld. Assessing Officer did not have any evidence of payment of the commission. Department is not in appeal against the relief so granted by the ld. CIT(A).

4.

Before us, Id. Counsel for the assessee reiterated the submissions made before the authorities below. He also placed on record all the relevant documents and evidences in the form of paper book, details of which are as under: a) Copy of detailed ledger of LTCG account b) Copy of Ledger of share of Blue Circle Service Ltd c) Photocopy of DMAT account statement disclosing sale of shares. Preferential Shares were allotted on 24.03.2011 bearing Folio no. K00116 and Certificate No. 0000423 which were subsequently converted into DMAT form evident from the opening balance as reflected in the DMAT statement. d) Photocopy of allotment letter received from registrar and share transfer agent of the company e) Global report from broker showing sale of shares. In respect of purchase of share, assessee stated that the shares were purchased in physical form i.e. Non-Dmat form hence, global report of the year in which it were purchased is not applicable. f) Payment for purchase of shares was made from assessee’s HDFC bank savings account. The source of same being FD matured from Sweep account maintained with bank. Photocopy of bank statement highlighting payment and source. g) Copy of ITR-V for the return filed along with Statement of Income, photocopy of Bank statement along and statement of purchase of shares for A.Y. 2011-12 h) Copy of directors’ report and annexure thereto of company stating details of sub-division of shares from face value of Rs.10/- each into Re.1/-. i) Statement of holding of shares after the sale transaction, as on 31.03.2014 dated 27.06.2016 showing beneficiary holding of balance 73486 shares as on 31.03.2014. j) Photocopy of A/c. No. 00191930001357 held with Andheri (W)- Versova for period 06.12.2013 to 31.03.2014 k) Detailed working of LTCG l) Latest postal address of Blue Circle Service Ltd. was furnished as under: 324,3rd Floor, Building No.9, Laxmi Plaza, Laxmi Ind. Estate, New Link Road, Andheri-West. Mumbai -400053 5. Ld. Counsel referred to detailed submissions made to demonstrate discharge of onus by the assessee casted under section 68. In this respect, assessee duly established the identity and credit worthiness as well as genuineness of the transaction corroborated by relevant documentary evidences placed on record. Submissions made in this respect are reproduced for ready reference:

a) Identity i. Blue Circle Services Limited was incorporated as a public limited company in February 1983 under the provisions of Companies Act, 1956

ii. Corporate Identification Number is (CIN) L74140MH1983PLC029378

iii. Registered address is Unit No. 324, 3rd Floor, Bldg No. 9, Laxmi Plaza, New Link Road, Mumbai, Maharashtra-400053

iv. The Company was Listed on BSE

v. BSE:508939 ISIN:INE526KO1023 | Sector: Finance Investments

vi. Company Information such as history, formation, quarterly results, share capital, various e-forms filed by the companies available in the public domain (www.bseindia.com) & (www.mca.gov.in)

vii. The above documents clearly prove the identity of the company.

b) Creditworthiness It may be appreciated that the said company is a listed entity wherein the equity shares are listed on Bombay Stock Exchange. When a person buys or sells shares on the Stock exchange, he/she is in no position to know the person to whom / from whom he/she buys/sells shares on the exchange. When we sold shares of Blue Circle Services Limited on the Bombay Stock Exchange, the market price of the share was between Rs.4 and Rs.12. Despite not being satisfied with the returns it was getting, we sold them on recognized stock exchange as downfall of script had started and there was no sign of upward movement and without knowing as to who was the counter party purchasing them, further, we also required the fund for the working capital of our family business. The shares were sold through the broker India Infoline Limited and the sales consideration in lieu of the sale transaction once the shares are kept for sale under the exchange. Further, the company being a listed entity, its financial is available in the public domain. The above clearly indicates the creditworthiness of the transactions. The sales consideration was received from the broker India Infoline Limited through whom the shares were sold on the Bombay Stock Exchange. If you wish, you can call for information from the said broker or Bombay Stock Exchange enquiring about the share transactions. Thus, there can be no question regarding the creditworthiness of the share transaction. c) Genuineness 1. Contract notes Issued by the broker which are system generated and which clearly mentions the following details- a. Details of the broker b. Client ID c. Contract number with trade date, orders, order time, trade no d. Scrip name e. Quantity of shares sold, rate at which sold, brokerage f. Amount of STT-charged, Service tax levied

ii. Bank statement showing the sales consideration received from the broker iii. Demat statement showing the holding of shares for more than 12 months iv. Purchase bill, letter confirming the purchase, bank statement highlighting the payment made for acquisition of shares v. Demat statement showing the dematerialization of sbares vi. Balance sheet for various years reflecting the shares as investments Above documents clearly proves the genuineness of the transactions

6.

We note that transactions for purchase were undertaken in an off-line mode which is an acceptable mode and that of the sale of the aforesaid shares were undertaken on the stock exchange platform through the SEBI registered broker on which STT was levied and the consideration was routed through normal banking channel. The entire flow of these transactions is corroborated by relevant documentary evidences placed on record. While making the addition, there are no discrepancies pointed out by the Assessing Officer in the documents and the details furnished by the assessee. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. At any stage of the present case, Revenue has not brought on record any material about participation of the assessee with any such dubious transactions relating to accommodation entry, price rigging or exit providers. To our mind, ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office. Once the assessee has produced documentary evidence to establish the veracity of his claim, the burden would shift on the Revenue to establish its case.

7.

On the perusal of records, it is discernible that ld. Assessing Officer had proceeded on the basis of analysis of the financials of the company. According to him, sharp jump in the share prices of the aforesaid scrip is not justified. He has relied upon the search and survey operations conducted by the investigation wing of the Department at various locations in respect of alleged penny stock which sets out the modus operandi adopted in the business of providing entries for bogus capital gains. The conclusion drawn by the ld. Assessing Officer of implicating the assessee is un-supported by any cogent material on record. The finding arrived at by the ld. Assessing Officer is thus purely an assumption based on conjectures and surmises. In our thoughtful considerations to the facts and circumstances of the case, it is not in controversy that assessee has discharged his burden by submitting the relevant documents, details of which are already extracted above, forming part of the paper book.

7.1. For our above observations and findings, we place reliance on the decision in the case of CIT vs. Jamnadevi Agrawal [2012] 20 taxmann.com 529 (Bom), wherein it was held that transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. We also draw our force from the decision of Hon’ble High Court of Delhi in the case of PCIT v. Krishna Devi [2021] 126 taxmann.com 80 (Del) wherein the Hon’ble Court noticed that the reasoning given by the Assessing Officer to disbelieve the capital gain declared by the assessee, viz. astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures.

7.2. Reliance placed by the ld. Assessing Officer on the report of investigation wing without further corroboration based on cogent material does not justify the conclusion that the impugned transaction is bogus, sham and part of racket of accommodation entries. It does not prove that the assessee has carried out the impugned transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of share prices. In absence of any such material, enquiry and examination, the addition made pertaining to receipt of sale consideration of the impugned transaction cannot be sustained. In our considered view, ld. Assessing Officer has not established that the assessee was involved in price rigging.

8.

From the above, we note that ld. Assessing Officer has not brought on record any material to show that assessee was part of any group which was involved in the manipulation of share prices. Suspicion by the ld. Assessing Officer on the purchase and sale of shares is baseless.

9.

For our observations and to arrive at the findings, we find force of binding nature from the decisions of Hon'ble High Court of Bombay being a jurisdictional High Court: i) Pr. CIT v. Ziauddin A Siddique [Income-tax Appeal No. 2012 of 2017, dated 4-3-2022] held as under:-

"1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was DMATed and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal.” 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 v. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs."

ii) PCIT vs. Indravadan Jain HUF [2023] 156 taxmann.com 605 (Bom) wherein it was held: “Where shares were purchased by assessee on floor of stock exchange and not from broker, payment was made through banking channel, deliveries were taken in DMAT account where 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”

iii) CIT vs. Shyam R. Pawar [2015] 54 taxmann.com 108 (Bom) wherein it was held: “Where DMAT account and contract note showed details of share transaction, and 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”

10.

Ld. CIT(A) has without dealing with the facts and detailed documentary evidences placed on record by the assessee, dismissed the appeal by stating that issue is a covered matter by the decision in the case of Swati Bajaj (supra). In the said decision, it was held that assessee had to establish the genuineness of rise in price of shares within a short period of time that too, when general market trend was recessive. However, we note that there are several decisions of Hon'ble Jurisdictional High Court as stated supra which are in favor of the assessee. Accordingly, the same would prevail on the issue before this Tribunal. In the present case, decision of the Hon'ble Non- Jurisdictional High Court carries only a persuasive value. The law is very well settled by the Hon'ble Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of Hon'ble Jurisdictional High Court would have higher precedence value on the Tribunal than the decision of Hon'ble Non-Jurisdictional High Court. Hon'ble Supreme Court emphasized therein that the orders of Tribunal should be followed by the authorities falling within its jurisdiction so that judicial discipline would be maintained in order to give effect to orders of the higher 11 appellate authorities. The Hon'ble Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. Respectfully following the same, we deem it fit and appropriate to follow the decisions of Hon'ble Jurisdictional High Court of Bombay referred supra wherein the impugned issue is decided in favour of the assessee. Moreover, when there are conflicting decisions of various High Courts on the same issue, the Hon'ble Supreme Court in the case of Vegetable Products reported in 88 ITR 192 (SC) had held that construction that is favorable to the assessee should be adopted. Hence by following this principle, reliance placed by ld. CIT(A) on the decision of Hon'ble Calcutta High Court in Swati Bajaj (supra) does not hold its fort. Further in the present case, we find that assessee has duly established the nature and source of credit representing sale proceeds of shares of Blue Circle Services Ltd.

11.

Considering the totality of facts and circumstances of the case, factual matrix and submissions of parties narrated as well as discussion and observations made herein above, we delete the addition made u/s 68 towards proceeds of sale of listed shares of Blue Circle Services Ltd which gave rise to Long Term Capital Gain on the said sale, claimed exempt by the assessee u/s 10(38). Accordingly, grounds taken by the assessee in this regard are allowed.

12.

In the result, appeal of the assessee is allowed.

Order is pronounced in the open court on 24 June, 2026 Sd/- Sd/- (Sandeep Gosain) (Girish Agrawal) Judicial Member Accountant Member Dated: 24 June, 2026 MP, Sr.P.S.

Copy to: 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai

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