KAMLESH INDERMAL JAIN,MUMBAI vs. ITO WARD 16.2.1, MUMBAI

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ITA 9298/MUM/2025Status: DisposedITAT Mumbai24 June 2026AY 2015-166 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 assessee had discharged the initial onus under Section 68 by providing documentary evidence for the share transactions. The authorities below did not controvert this evidence, and no independent investigation against the assessee was conducted.

What were the facts?

The assessee purchased shares of RIL, held them for over 29 months, and sold them through the BSE, claiming long-term capital gains (LTCG) as exempt. The Assessing Officer made additions based on investigations into penny stocks and alleged bogus LTCG.

What were the issues?

Whether additions made by the Assessing Officer on account of alleged bogus LTCG from penny stocks are sustainable when the assessee has provided documentary evidence and the authorities have not conducted independent investigations against the assessee.

Which sections of the Income-tax Act were involved?

Section 68,Section 10(38),Section 143(2),Section 142(1),Section 69,Section 147,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: HON’BLE SHRI NARENDER KUMAR CHOUDHRY

Pronounced: 24.06.2026

आदेश / ORDER

PER: NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER:

This appeal has been preferred by the Assessee against the order dated 19.11.2025, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2015-16.

2.

In the instant case, the Assessee, on 28.11.2011, applied for preferential shares of M/s Rutron International Ltd. (in short, "RIL") by making payment of Rs. 15 lakhs through Cheque No. 59432 dated 28.11.2011 drawn on Oriental Bank of Commerce, Fort Branch.

3.

Subsequently, the Assessee was allotted 1,50,000 shares of ‘RIL’ at face value of Rs. 10 each vide allotment letter dated 05.12.2011.

4.

Thereafter, the Assessee dematerialized the said shares on 08.12.2011.

5.

Subsequently, vide resolution dated 25.11.2013, RIL subdivided its shares in the ratio of 1:10, whereby each share of face value of Rs. 10/- was split into 10 shares of face value of Rs. 1 each.

6.

During the year under consideration, on 20.05.2014, 26.05.2014, and 04.06.2014, the Assesse sold 3,40,000 shares through a registered stock broker on the online platform of Bombay Stock Exchange ‘BSE’ for an aggregate sale consideration of Rs. 24,37,100/-.

7.

Consequently, the Assessee earned a long-term capital gain of Rs. 20,97,100/- after holding the shares for more than 29 months from the date of acquisition and claimed the said LTCG, as exempt under Section 10(38) of the Act.

8.

Subsequently, based on the investigation conducted by the Kolkata Investigation Directorate into 54 penny stocks, including RIL, wherein allegations were made regarding bogus LTCG/STCL lodged by a large number of beneficiaries and the modus operandi adopted by operators, intermediaries, and beneficiaries, the case of the

Assessee was selected for scrutiny under CASS for the following reasons:

A. Sale of shares under open offer scheme (CIB, Code 5-19). B. Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny Stocks).

9.

Consequently, statutory notices under Section 143(2) and 142(1) respectively on dated 29.07.2016 and 07.06.2016, were issued to the Assessee, who in response filed its replies along with relevant details and documents, which were taken on record.

10.

The Assessing Officer by considering the findings of the Kolkata Investigation Wing, analysis of the share transactions and the scrip involved, investigation carried out in the case of operators, examination of entry providers, the SEBI report and its findings regarding accommodation entry providers, and the alleged cash trail, ultimately made an addition of Rs. 24,40,500/- being the amount claimed as long-term capital gain, and a further addition of Rs. 48,810/- being commission at the rate of 2% of the said amount, under Sections 68 and 69 of the Act respectively.

11.

The Assessee thus, being aggrieved by the said additions, preferred 1st appeal before the ld. Commissioner, substantially relying upon the same reasoning as adopted by the Assessing Officer, confirmed the additions and dismissed the appeal.

12.

Hence, the Assessee has preferred the present appeal which is before this Court.

13.

Heard the parties and perused the material available on record. As noted above, the Assessee purchased the shares on 28.11.2011 by making payment of Rs. 15 lakhs through banking channels, and held them for more than 29 months, and sold them through the

Bombay Stock Exchange (BSE). The Assessee in order to discharge the primary onus cast under Section 68 of the Act, furnished the following documents:

A. Copy of share application form. B. Copy of share allotment letter. C. Copy of broker ledger. D. Copy of bank statement reflecting payment of Rs. 15 lakhs towards purchase of shares. E. Copy of demat statement showing credit of 1,50,000 shares. F. Copy of contract notes/bills evidencing sale of shares of RIL through the Bombay Stock Exchange. G. Copy of bank statement reflecting receipt of sale consideration. 14. Thus, the Assessee duly discharged the initial onus cast under Section 68 of the Act. It is also an admitted position that the authorities below neither controverted nor doubted the authenticity of the aforesaid documents. Further, no investigation has been conducted against the Assessee by any investigation agency, such as SEBI etc.. The purchase and sale transactions were carried out through recognized stock exchange mechanisms and banking channels. The Assessee could not have been aware of the identity of the ultimate purchasers of the shares sold through the online platform of the stock exchange. Therefore, any alleged price manipulation or rigging by third parties cannot be attributed to the Assessee.

15.

This Court further note that the identical scrip has also been considered by various Coordinate Benches of the Tribunal in the following cases:

a) Raj Shardakumar Agarwal vs. ITO 42(1)(4), Mumbai in ITA No. 3290/Mum/2025 decided on 16.02.2026.

b) Sunita Motilal Sinha vs. ITO 25(1)(3), Mumbai in ITA No. 3662/Mum/2023 decided on 29.04.2024.

c) Ramprasad Agarwal vs. ITO 2(3)(2) in ITA Nos. 4843 and 1228/Mum/2018 decided on 30.11.2018.

16.

In all the aforesaid cases, similar additions were deleted.

17.

It is also a distinguishing feature of the present case, as evident from the reply dated 09.01.2023 furnished by the Assessing Officer to the RTI application dated 02.11.2022, the Assessing Officer specifically replied that no independent enquiry was conducted prior to issuance of notice under Section 148 of the Act. The statement of Shri Anil Agarwal was not recorded, nor was any enquiry undertaken regarding alleged price rigging in the shares of RIL so as to establish the involvement of the Assessee. Further, no enquiry was conducted from the Directors of RIL regarding such allegations. The Assessee was also not afforded an opportunity to cross-examine Shri Praveen Agarwal, Shri Paras Chaplot, Shri Pankaj Shah, and Shri Vijay Jain. Moreover, no examination of the books of account was carried out for invoking the provisions of Section 68 of the Act in respect of any alleged cash credit.

17.1 Thus, in these peculiar facts and circumstances, even the reopening proceedings u/s 147 of the Act by issuing a notice u/s 148 of the Act along with such notice appears to be unsustainable and therefore liable to be quashed being void ab initio.

18.

This Court further observe that the judgment of the Jurisdictional High Court in the case of Principal Commissioner of Income Tax–3, Mumbai vs. Ziauddin A. Siddique (ITA No. 2012 of

2017 decided on 04.03.2022) clearly also lays down that where the documentary evidence regarding purchase and sale of shares has not been discredited and there is no allegation or material demonstrating participation by the Assessee in price rigging of the shares, the addition under Section 68 of the Act cannot be sustained.

19.

Accordingly, in view of the aforesaid analysis, this Court has no hesitation in deleting the additions under consideration. The appeal of the Assessee is, therefore, allowed.

20.

In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on 24.06.2026.

Sd/- NARENDER KUMAR CHOUDHRY JUDICIAL MEMBER (Aditi Pandare) Private Secretary

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai

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