BHAVIKA JARIWALA ,MUMBAI vs. DCIT, 41(3)(1), MUMBAI

At the outset, we noticed that there is a delay of 442 days in filing the appeal before us. In this regard, the Ld. AR submitted that, while filing Form No. 36, the assessee had inadvertently and erroneously mentioned the date of the order of the Ld. CIT(A) as 02.04.2024 instead of the correct date, i.e., 25.11.2025. Therefore, the delay reflected in the system is purely on account of an inadvertent clerical error while filing Form No. 36 and is not due to any lapse or negligence in filing the appeal within time.

At the time of hearing, the Ld. AR appearing on behalf of the assessee submitted that Grounds No. 1 and 2, challenging the validity of reopening under section 147 and violation of the principles of natural justice, are not pressed.

The Ld. DR did not raise any objection to the same. Accordingly, Grounds No. 1 and 2 are dismissed as not pressed.

Ground No. 3 pertains to the addition of Rs. 49,59,915/- made by the Assessing Officer under section 68 of the Act, treating the sale consideration from the sale of equity shares of M/s. Sunrise Asian Ltd. as bogus accommodation entries. Ground No. 4 relates to the consequential addition of Rs. 2,47,995/- made under section 69C of the Act towards estimated/notional commission allegedly paid for procuring such accommodation entries.

The brief facts emerging from the record are that the assessee purchased 10,000 equity shares of M/s. Conart Traders Ltd. at Rs. 20 per share on 28.11.2011. The purchase consideration was duly remitted through proper banking channels via the assessee’s HDFC Bank account. Subsequently, pursuant to a Scheme of Amalgamation sanctioned by the Hon’ble High Court of Bombay vide order dated 22.03.2013, M/s. Conart Traders Ltd. was amalgamated with M/s. Sunrise Asian Ltd. By virtue of the said court-approved amalgamation, the assessee was allotted 10,000 equity shares of M/s. Sunrise Asian Ltd. in lieu of her shareholding in M/s. Conart Traders Ltd. The said shares were directly credited to the assessee’s Demat account with a depository.

During the financial year 2013-14 relevant to A.Y. 2014-15, the assessee sold the said 10,000 shares of M/s. Sunrise Asian Ltd. in three separate tranches on the Bombay Stock Exchange (BSE) through a registered stockbroker, as under:

All the sale transactions were routed through the online trading mechanism of the BSE, and the statutory Securities Transaction Tax (STT) was duly paid. The entire sale proceeds were credited directly to the assessee’s bank account with HDFC Bank through banking channels. The assessee claimed the resulting long- term capital gains as exempt under section 10(38) of the Act.

The Assessing Officer, drawing inferences from general reports of the Investigation Wing regarding alleged penny-stock transactions and price rigging, treated the scrip of M/s. Sunrise Asian Ltd. as an accommodation-entry vehicle. Consequently, the Assessing Officer treated the aggregate sale consideration of Rs. 49,59,915/- as unexplained cash credit under section 68 of the Act and made an estimated addition of 5%, amounting to Rs. 2,47,995/-, under section 69C of the Act on account of alleged unaccounted commission paid. The Ld. CIT(A) confirmed both additions in the first appeal.

The Ld. AR submitted that the assessee held the shares for over two years before selling them on the stock exchange platform. It was submitted that every stage, namely, purchase of the original shares, payment through banking channels, amalgamation approved by the Hon’ble Bombay High Court, credit of shares in the Demat account, sale on the BSE through registered brokers, and receipt of sale consideration through banking channels, was supported by documentary evidence.

It was further submitted that the Assessing Officer did not point out any defect in the documents furnished by the assessee, nor did he bring any evidence on record linking the assessee with any entry operator, broker or syndicate involved in the alleged price manipulation. It was also submitted that the scrip of M/s. Sunrise Asian Ltd. was not held to be rigged by the Securities and Exchange Board of India (SEBI).

The Ld. AR further submitted that, on identical facts and involving the very same scrip for the same Assessment Year, i.e., A.Y. 2014-15, the Coordinate Bench of the ITAT, Mumbai, Bench “F”, had allowed the appeal in the case of the assessee’s mother. It was submitted that the issue also stands covered by the judgment of the Hon’ble Gujarat High Court in PCIT v. Divyaben Prafulchandra Parmar [2024] 169 taxmann.com 473 (Guj.), subsequently followed in PCIT v. Sanjaykumar Damjibhai Gangani [2025] 178 taxmann.com 276 (Guj.), and by the Hon’ble Madhya Pradesh High Court in CCIT (OSD) v. Nilesh Jain (HUF) [2024] 163 taxmann.com 229 (MP).

The Ld. DR, on the other hand, strongly supported the orders of the lower authorities. He contended that the exponential appreciation in the share price within a short duration lacked commercial rationale and fundamental financial backing. Relying on circumstantial evidence and the theory of preponderance of human probabilities, the Ld. DR urged that the impugned additions be sustained.

We have heard both sides, perused the material available on record and considered the judicial precedents cited.

We find that the undisputed facts are that the assessee purchased 10,000 shares of M/s. Conart Traders Ltd. on 28.11.2011 through regular banking channels. Pursuant to the Scheme of Amalgamation sanctioned by the Hon’ble Bombay High Court on 22.03.2013, the assessee received 10,000 shares of M/s. Sunrise Asian Ltd. The shares were credited to her Demat account and retained for over two years. The shares were subsequently sold in tranches during the relevant financial year on the recognised trading platform of the BSE through SEBI-registered brokers, and STT was duly paid. The entire sale consideration was received through account payee banking channels.

It is settled law that suspicion, howsoever grave, cannot take the place of legal proof. The Assessing Officer has neither discredited nor disputed the genuineness of the documentary evidence produced by the assessee, including purchase bills, bank statements, Demat holding statements and broker contract notes. Crucially, the Revenue has failed to bring any material on record to demonstrate that cash changed hands or that the assessee was a party to any price- rigging mechanism or accommodation-entry network.

We further notice that the identical issue concerning the scrip of M/s. Sunrise Asian Ltd. for the very same Assessment Year, i.e., A.Y. 2014-15, has been considered by the higher judicial authorities.

The Hon’ble Gujarat High Court in PCIT-1 v. Divyaben Prafulchandra Parmar [2024] 169 taxmann.com 473 (Guj.), affirming the order of the ITAT, Surat, observed:

The Hon’ble Madhya Pradesh High Court in CCIT (OSD) v. Nilesh Jain (HUF) [2024] 163 taxmann.com 229 (MP), also dealing directly with the scrip of M/s. Sunrise Asian Ltd., held that where shares were held in a Demat account, transactions were conducted through the stock exchange platform, payments were received through banking channels and STT was paid, the claim of exemption under section 10(38) could not be branded bogus under section 68 solely on the basis of an investigation report without corroboration or establishing a nexus.

The Hon’ble Gujarat High Court also reaffirmed this position in PCIT- 1 v. Sanjaykumar Damjibhai Gangani [2025] 178 taxmann.com 276 (Guj.).

Furthermore, in the case of the assessee’s own mother, the Coordinate Bench of the ITAT, Mumbai, Bench “F”, has deleted identical additions arising from the same scrip for the same Assessment Year.

Following the principle of judicial consistency and respectfully adhering to the decisions of the Hon’ble High Courts cited above, we hold that the addition of Rs. 49,59,915/- made by the Assessing Officer under section 68 of the Act cannot be sustained. The same is accordingly directed to be deleted. Ground No. 3 is allowed.

As regards Ground No. 4, the addition of Rs. 2,47,995/- made under section 69C of the Act represents estimated commission expenses allegedly incurred in connection with the accommodation entries. Since the primary addition under section 68 of the Act has been deleted, the consequential addition under section 69C of the Act cannot be sustained and is accordingly deleted. Ground No. 4 is allowed.

In the result, the appeal of the assessee is partly allowed.