SANDHYA RAKESH SHARMA,MUMBAI vs. INCOME TAX OFFICER - 31(1)(1), MUMBAI, MUMBAI

The grounds of appeal are as under:- 1) The Ld. CIT (A) erred in law and facts of the case in upholding the Assessing Officer’s (AO) order u/s 143(3) r.w.s 147 dated 26.12.2017. 2) The Ld. CIT (A) has erred in law and facts of the case in upholding the addition made by AO of INR. 92,03,421/- vide order u/s. 250 dated 13/10/2025, treating it as unexplained cash credit under section 68 of the IT Act even though the same was explained to the Ld. AO with all the requisite evidences during the course of assessment proceedings. 3) The Ld. CIT (A) has erred in law and facts of the case in confirming the ad- hoc addition of INR. 2,76,103/- (being 3% commission on the above INR. 92,03,421/-) by treating it as unexplained expenditure although these were duly explained to the AO along with supporting evidences during the assessment proceedings. 4) The Ld. CIT (A) has erred in law and in the facts of the case by making an addition of Rs. 56/- on account of alleged “unexplained investment”. 5) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the AO’s order dated 26.12.2017 which was purely on the basis of third party statements which were never shared with the appellant. 6) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the AO’s order which was passed without providing any opportunity to appellant to cross-examine the third parties, whose statements were used against the appellant. 7) The Ld. AO erred in initiating penalty proceedings u/s 271(1)(c) of the Act.

Ground no.1 is general in nature while in ground nos.2 to 6, the assessee has contested the additions made in respect of transactions in a Penny stock. Brief facts of the case are that the assessee, filed her return of income for the year declaring total income of Rs. 7,82,460/-. The case was reopened on the basis of the information received from the Investigation Wing, Kolkata, which unearthed large

1 The Assessing Officer examined the price movement and trading pattern of the shares of SAL. It was found that during the period

3 The modus operandi, as explained by the Investigation Wing of the Department and reproduced in the assessment order, showed that beneficiaries would first provide cash to the entry operators. The cash would be routed through a web of shell entities and then used for artificial purchase of shares of penny stock companies at negligible prices. Later, through pre-arranged circular trading and price rigging, the same shares were sold on stock exchange platforms at highly inflated prices to generate fictitious LTCG, which was shown in the hands of beneficiaries as exempt under section 10(38) of the Act. In reality, it was nothing but the assessee’s own unaccounted cash returned in the guise of exempt capital gains.

4 With respect to Essar India Ltd,(EIL), the AO noted that its shares also showed similar features of rigging. The share price had risen by more than 13 times in a short period of 20 months and then crashed, without any financial fundamentals to justify such rise and fall. Investigation revealed that the scrip of Essar India Ltd was also used to generate both bogus LTCG and bogus STCG. The assessee was found to P a g e | 6 A.Y. 2014-15 Sandhya Rakesh Sharma have purchased shares of EIL but could not furnish relevant details during assessment.

5 The AO noted that the assessee failed to discharge her onus under section 68 of the Act. Though she filed contract notes, demat statements and bank statements, these documents merely showed the routing of transactions through banking channels but did not prove genuineness of the underlying transactions. Summons issued to her for examination was not responded. Notices u/s 133(6) of the Act were also issued to the exit providers which were not replied. The surrounding circumstances, SEBI findings, Investigation Wing reports, abnormal price rise, low volume trading and statements of operators all indicated that the transactions were pre-arranged and sham.

6 Relying on judicial precedents on the decisions of the Hon’ble Supreme Court in McDowell & Co. Ltd. v. CTO (154 ITR 148), CIT v. Durga Prasad More (82 ITR 540), and CIT v. Sumati Dayal (214 ITR 801), and the Hon’ble Bombay High Court in Sanjay Bimal chand Jain (89 taxmann.com 196), the AO concluded that the apparent could not be considered real when surrounding circumstances indicated otherwise. The LTCG claimed by the assessee was held to be not genuine and P a g e | 7 A.Y. 2014-15 Sandhya Rakesh Sharma merely an accommodation entry. On this basis, the AO made the additions in the assessment completed under section 143(3) read with section 147 of the Act and Rs. 92,03,421/- was added under section 68 of the Act as Unexplained Cash Credit, being bogus sale proceeds of penny stock shares while Rs. 2,76,103/- was added under section 69C of the Act as Unexplained Expenditure towards commission for obtaining such accommodation entries estimated @ 3 percent and Rs. 56/- was added as unexplained investment in shares.

Aggrieved by the impugned additions, the assessee filed appeal before the ld.CIT(A) reiterating the same contentions as stated before the AO who went on to observe that the Assessing Officer also issued summons under section 131 of the Act, requiring personal attendance of the assessee for verification of facts. However, it was noted from the assessment order that the assessee did not comply with the summons and failed to appear in person. Written replies were filed through her authorised representative, but critical explanations and confirmations were not forthcoming. During the reassessment proceedings, the AO confronted the assessee with the Investigation Wing report, SEBI orders and statements of various entry operators recorded under section 132(4), section 131 and section 133A of the Act. The assessee was asked to rebut or cross-examine the P a g e | 8 A.Y. 2014-15 Sandhya Rakesh Sharma evidence. However, she did not provide any substantial rebuttal or documentary confirmation from counterparties and confined herself to filing routine contract notes and demat statements. The Assessing Officer recorded that the assessee was given several opportunities of being heard. Despite this, the assessee did not fully cooperate with the proceedings, failed to appear personally and did not produce complete evidences in support of her claim. He, therefore, proceeded to complete the reassessment on the basis of the materials available on record. Thus, from the record, it was evident that reasonable, fair and effective opportunity of being heard had been provided to the assesse both at the stage of assessment and appellate proceedings. The complaint of denial of natural justice was, therefore, found without merit.

1 Before the ld.CIT(A), the assessee contended that the acquisition of shares was made in a genuine and bona fide manner. It was explained that she had originally invested in shares of M/s. Santoshi Maa Tradelinks Ltd. through regular banking channels, which subsequently got converted into shares of SAL due to amalgamation approved by the Hon’ble High Court. It was contended that such corporate actions are matters of law and beyond the control of small investors like the assessee and she had no role to play in the internal

The ld.CIT(A) in so far as the contention regarding cross examination was concerned, observed that from the record that the Assessing Officer confronted the assessee with the Investigation Wing reports and the statements of operators. However, it was equally true that the statements were not the sole basis of the addition. The statements were corroborated by objective data such as abnormal price

1 He stated that the Hon’ble Supreme Court in Surjeet Singh Chhabra v. Union of India (1997) 1 SCC 508 held that a confession made before authority is admissible even if cross-examination is not allowed, provided it is corroborated by other material. Further, in Kishanchand Chellaram v. CIT (125 ITR 713), the Court observed that while evidence collected at the back of assessee must be confronted, where corroborative material exists, the absence of cross-examination does not ipso facto vitiate the assessment. Reliance was also placed by the appellate authority on the decision of Hon’ble Supreme Court in State of J&K Vs Bakshi Ghulam Mohammad AIR 1967 SC 122 wherein it was held that a right of hearing cannot include a right of cross-examination and the right must depend on the circumstance of each case and must also depend on the statute under which the allegations are being enquired into.

2 According to the ld.CIT(A), the central issue was whether the LTCG claimed as exempt u/s 10(38) of the Act arising from the sale of shares of SAL represented genuine capital gains or was merely an P a g e | 12 A.Y. 2014-15 Sandhya Rakesh Sharma accommodation entry. The assessee had relied on contract notes, demat statements, and bank records. However, mere documentary compliance could not be decisive where the surrounding circumstances show otherwise. The Hon’ble Supreme Court in CIT v. Durga Prasad More (82 ITR 540) held that “if all that an assessee had to do was to produce some documents, then the door will be left wide open for fraud. Courts and authorities are entitled to look into the surrounding circumstances to find out the reality of such documents.” Similarly, in Sumati Dayal v. CIT (214 ITR 801), the hon’ble Supreme Court held that in judging the genuineness of transactions, the test of human probabilities has to be applied.

3 He further observed that applying this principle, certain adverse features were established i.e. the share price of SAL rose from Rs. 50/- to over Rs. 615/- in an abnormal manner within a short span, without any financial fundamentals of the company to justify such appreciation ,the trading was extremely thin, with very low daily volumes, yet the price rose steadily close to the circuit limits, SEBI itself had passed restraining orders against the operators of these scrips, categorically holding that the prices were manipulated, statements of brokers and operators recorded u/s 131of the Act revealed that the scrips were used for providing bogus LTCG entries to beneficiaries in lieu of P a g e | 13 A.Y. 2014-15 Sandhya Rakesh Sharma cash, the assessee failed to furnish any evidence of due diligence in selecting these obscure companies for investment.

4 He further stated that the jurisdictional Hon’ble Bombay High Court in Sanjay Bimal Chand Jain v. PCIT (Nagpur Bench, ITA No. 18/2017, order dated 10.04.2017 held that where shares of penny stock companies rose from Rs. 5/- to Rs. 485/- without justification and the assessee claimed LTCG exemption, the transaction was sham and the exemption u/s 10(38) could not be allowed. The Court observed: “Such a phenomenal rise in the price of shares of a little-known company in a short period of time without any corresponding increase in its financial worth defies human probabilities and can only be treated as a device to convert unaccounted money into tax-free long term capital gains.”

5 The ld.CIT(A) inferred that the submissions made by the assessee and the reasons adduced thereof by her could be controverted by relying on the decision of Hon’ble High Court of Calcutta in the case of Pr.CIT vs. Swati Bajaj as reported in (2022) 446 ITR 56(Calcutta) wherein it has been held by the Hon’ble Court that – “….Where assessee earned LTCG on sale of shares and AO denied said claim and made additions under section 68 on ground that assessee

8 Further, he also relied on the coordinate Bench decision by the ITAT, Mumbai in the case of Ratnakar M. Pujari Vs. ITO (ITAT Mumbai) Appeal Number: ITA No.995/Mum/2012,wherein the issue of penny stock has been considered by Hon’ble ITAT in detail and it was held that transactions in such penny stock could not be held as genuine transactions.

9 In light of the above, the ld.CIT(A) finally upheld the conclusion of the AO that the claim of LTCG in the present case was not genuine but a colourable device to introduce unaccounted income in the guise of exempt capital gains. The addition of Rs. 92,03,421/- as unexplained cash credit u/s 68 of the Act, was, therefore, confirmed.

10 The Assessing Officer had added an amount of Rs. 2,76,103/- being 3% commission alleged to have been paid to entry providers for arranging bogus LTCG. The assessee had denied incurring such expenditure. The ld.CIT(A) observed that the modus operandi established by the Investigation Wing clearly indicated that entry providers charged commission ranging from 2% to 5% for arranging such accommodation entries. This was corroborated by statements of P a g e | 18 A.Y. 2014-15 Sandhya Rakesh Sharma operators such as Shri Vipu lVidur Bhatt and Shri Anil Agarwal. The Hon’ble Gujarat High Court in Umesh Krishnani v. ITO in Tax Appeal No. 137 of 2020, order dated 17.02.2020 upheld the addition of commission on similar bogus LTCG transactions, holding that once the main transaction was found bogus, the estimation of commission payment is reasonable. Accordingly, the addition of Rs. 2,76,103/- u/s 69C of the Act, was also sustained.

Before us, the ld.AR has reiterated the same contentions as made before the lower authorities mainly stressing that the assessee was a mere investor who made the above investment which was fully documented and could not be brushed aside. It was submitted that the SEBI report was not against the assessee. Besides, the brokers involved in the impugned transactions were also not part in the said scam. She was not named in the Investigation report and was not a party to the wrong doings of the other players. On the basis of third party statements recorded which were not even provided to the assessee during the assessment proceedings, the AO wrongly treated the same as bogus LTCG and added the entire sale consideration of Rs. 92,03,421/- in the hands of the assessee under section 68 of the Act as unexplained cash credit and also made estimated addition on alleged commissions payment. Further, nо cross-examination of such third parties was given

Per contra the ld.DR has argued that the assessee did not respond to the summons issued by the AO to examine her on the relevant issues and specifically with investment in such penny stock. Besides, there was no compliance by the Exit providers as well. He also emphasised that SEBI suspended the trading in the said scrip. Therefore, the transaction entered into by the assessee was not genuine but only an accommodation entry for the purposes of money laundering. In the rejoinder, the ld.AR contended that exit provider issue has also been dealt with ITAT order. Moreover, production thereof was not in assessee’s hand.

We have carefully considered the relevant facts of the case. It is noticed that the purchase of the 21000shares of Santoshima Tradelinks Ltd. (now SAL) was done on 19.11.2012 in physical mode for Rs 4,41,000/- which were dematerialized on 23.02.2023. Subsequent to this transaction, the said company got amalgamated with of SFL.

1 It is worth mentioning here that the Securities and Exchange Board of India (SEBI) penalized Sunrise Asian Limited(SAL) and connected entities for fraudulent share price manipulation and trading violations and after finding such lapse in 2022imposed a joint and several penalty of Rs.1 cr. on SAL, five former directors, and 80 connected entities and also barred SAL and six directors from the securities market for one year. A group of other entities involved also faced capital market restrictions for six months. The investigation period under focus was on trading activity between October 2012 and September 2015. Incidently the transactions undertaken by the assessee pertain to this period. The said investigation was initiated following a reference from the Principal Director of Income Tax (Investigation), Kolkata. It was concluded that the said company utilized a scheme of amalgamation and artificial inflation of share prices across four trading patches. It also identified 77 out of 86 entities acting as counterparties to offload shares at artificially inflated prices. Pursuant to the investigation, it was observed that the price of the scrip opened at P a g e | 21 A.Y. 2014-15 Sandhya Rakesh Sharma Rs. 63.00at BSE registering a high of Rs. 615.00and closed at Rs. 88.80during investigation period.It was observed during investigation that a group of entities connected to the company had indulged in price manipulation by trading among themselves and were counterparties to the sale of shares by allottees who had been allotted shares of SAL pursuant to amalgamation of SantoshimaTradelinks Ltd. and Conart Traders Ltd with SAL, at artificially inflated price.SEBI observed that the connected group was acting in concert for price manipulation and had assisted the allottees to offload the shares of the scrip at manipulated price. It was, therefore, found that by indulging in manipulation of the price of the scrip, such entities violated various Regulations of (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003(PFUTP). These rules protect investors and keep India's stock market fair and transparent by stopping cheating and trickery.

2 Parallel enforcement proceedings under Sections 11 and 11Bof the SEBI Act were also initiated against them by SEBI and during the course of proceedings, SAL proposed to settle the said proceedings initiated against it through a settlement order and filed a settlement application dated April 03, 2019with SEBI interns of the provisions of SEBI (Settlement Proceedings) Regulations, 2018 and a P a g e | 22 A.Y. 2014-15 Sandhya Rakesh Sharma Settlement Order was passed by Whole Time Member of SEBI, subsequent to payment by the applicant to SEBI towards settlement amount as part of the settlement terms for settlement of aforementioned enforcement proceedings initiated against it.

3 From the above investigation report, it is evident that there was substantial manipulation in the share price of the said company which involved multiple parties i.e. directors of the company, brokers, entry and exit providers. The beneficiaries and the end users of the entire exercise taking benefit of such price manipulation booked Capital gains and also losses and profit as per their convenience which in the light of the above findings were considered to be bogus transactions by the Department. Over and above, such capital gains were also claimed to be exempt u/s 10(38) of the Act. Considering the settlement entered into by the said company i.e. Sunrise Asian Ltd.(SAL)with SEBI, the dubious nature of all such transactions had been categorically admitted by it.

4 In the backdrop of such admission, the role of the ultimate beneficiaries could not be considered as above board, as impliedly such beneficiaries were indirectly party to the entire modus operandi. In such a situation, the examination of the assessee sought by the AO to elicit the reasons for such investment in illiquid and penny stock and other

5 From the details submitted and placed before us, it does not appear that the assessee is a regular investor dealing in shares of other companies on regular basis or the impugned transaction was a solitary transaction. The details do not throw any light on such an important fact which is also germane to examine the rationale behind the impugned transactions. It is also not borne from the orders of the lower authorities or from the submissions of the assessee. Therefore, such deliberate non- compliance by the assessee to the departmental notices could not be ignored as it foiled AO’s attempt to reach the reality behind the façade of genuineness created and claimed by the assessee.

6 The SEBI report has also clearly brought out the role of exit providers who facilitated exit for the beneficiaries, apparently for a certain consideration/commission. Although it is claimed that the P a g e | 24 A.Y. 2014-15 Sandhya Rakesh Sharma transactions were made on screen based platform of BSE, considering the low volume of the transactions, being illiquid scrip, the exact role of the exit providers who already admitted wrong doings during investigation by the Department in their deposed statements, in the impugned transactions needed to be examined. Therefore, the exercise initiated by the AO in this regard on account of non compliance by them could not make any headway. As stated above, even in the sales, certain exit providers were clearly identified by the Investigation report. Thus, the contention of anonymity of the purchasers do not hold water in the light of such unrebutted facts.

7 The assessee has placed reliance on the various orders of Hugh Courts and ITAT. However, ongoing through the contents thereof, we find that each of such decisions could be factually distinguished as to whether the assessee is a regular investor or not, whether the holding period of share was within a reasonable period or not, whether the shares were purchased on line or offline and most importantly, whether the SEBI order referred above which is a crucial piece of evidence, were considered or not therein or not. Therefore, no straight jacket reliance could be placed as the facts of individual cases would differ depending upon the facts and the circumstances of each of such case. It is also P a g e | 25 A.Y. 2014-15 Sandhya Rakesh Sharma evident that there are contrary court decisions by higher courts on the same issue as also by the Tribunals.

8 In the case of Divyaben Prafulchandra Parmar 169 taxmann.com473(Guj), the assessee was found to be an investor having held the said shares for 2 to 2.5 years. Besides, there was not much price variation during the period which revolved around Rs 486 to Rs.492.The relevant SEBI report does not appear to have been taken note of. Further, the decision itself relied upon the decision of the Hon’ble Gujarat High Court itself relied on Jagat P.Sarabhai142 taxmann.com 287(Guj)wherein shares were held for more than 10 years. The decision in the case of Sanjay Kumar Damjibhai Gangani 187 taxmann.com 276(Guj) itself relied on Divyaben Prafulchandra Parmar(supra). Nilesh Jain HUF 163 taxmann.com 229(MP) mainly relied on ITAT, Mumbai orders.

9 In the case of Shyam R. Pawar 54 taxmann.com 108(Bom), we find that the decision pertains to AYs 2003-04 to 2006-07 and that too in respect of a different scrip i.e. Boston Properties Ltd. Likewise, in Indravadan Jain HUF 156 taxmann.com 605(Bom) where the assessment year was 2005-06,the scrip pertained to a different company i.e. Ramkrishna Fincap Ltd. Reliance placed on the decision of the P a g e | 26 A.Y. 2014-15 Sandhya Rakesh Sharma coordinate bench of ITAT on Sidhumati Ramvatar Pathak ITA No.4914/Mum/2025 is also misplaced as the holding period was over 30 months and the assessee being a regular investor, was found dealing in shares of other companies as well.

10 Likewise, in the case of Haresh Kumar Mafatlal Shah in ITA No.5439/Mum/2025, the ITAT relied on Shyam Pawar which has already been distinguished in preceding paras. Moreover, SEBI order does not appear to have been considered. In the case of Yogesh Praveen Kumar Shah ITA No.4544/Mum/2025, the assessee was found to be a regular investor. In Lalitaben Pravin Shah ITA No.2008/Mum/2023- SEBI report was not considered. In the case of Jayesh Karnia, HUF in ITA No.4034/Mum/2023, the ITAT considered the holding period but the SEBI order was not taken into account. It also placed reliance on Divyaben Prafulchandra Parmar (supra) which was already discussed above.

11 In the case of Rambilas Agrawal in ITA No.3238/Mum/2023 reliance has been placed on Ziauddin Siddique in ITA No. 2012 of 2017 (Bom) in respect of shares of Ramkrishna Fincap Ltd and is, therefore distinguishable. Hema Rajesh Jain 162 taxmann.com 440(Mum) was found to be a regular investor with several investments including SAL

12 Therefore, reliance placed by the assessee on the above stated decisions of High Courts and Tribunal is factually distinguishable being not applicable to the facts of the instant case.

In so far as the contention regarding lack of opportunity to cross examination is concerned, we find that the ld.CIT(A) has duly deliberated on the aspect and rejected the ground as the assessee was confronted with all the relevant evidences but did not come out to rebut the same. The Assessing Officer also issued summons under section 131 of the Act, requiring personal attendance of the assessee for verification of facts. However, the assessee did not comply with the summons and failed to appear in person. Written replies were filed through her authorised representative, but critical explanations and confirmations were not forthcoming. During

1 In our considered opinion right to cross-examine the witness who made adverse report is not an invariable attribute of the requirement of the dictum, “audi alteram partem”. The principles of natural justice do not require formal cross-examination. Formal cross examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is a part of legal and statutory justice therefore, it cannot be laid down as a general proposition of law that the Revenue cannot rely on any evidence which has not been subjected to cross examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross-examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. We find here that the Assessing Officer in the assessment order has referred to the general

2 In Bakshi Ghulam Mohammad(supra), the Hon’ble Supreme Court held that the right of hearing cannot include the right of P a g e | 30 A.Y. 2014-15 Sandhya Rakesh Sharma cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. Having noted such legal position, it goes without saying there is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. The Investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG. The Hon’ble Supreme Court in Surjeet Singh Chhabra v. Union of India (1997) 1 SCC 508 held that a confession made before authority is admissible even if cross- examination is not allowed, provided it is corroborated by other material. Further, in Kishanchand Chellaram v. CIT (supra), the Court observed that while evidence collected at the back of assessee must be confronted, where corroborative material exists, the absence of cross-examination does not ipso facto vitiate the assessment. In view of the legal position emerging from cited decisions and in the light of materials relied upon by the AO, we, accordingly, uphold the finding of the CIT(A) on that issue in dispute. The relevant ground of appeal in this regard is, therefore, dismissed.

We find that in the case of Sanjay Bimal Chand Jain v. PCIT(supra), the hon’ble Bombay High Court had an occasion to deliberate on a similar issue involving penny stock where the price rigging was palpable for no justifiable reasons. The hon’ble court dismissed the claim of LTCG. Relevant parts of the order are extracted as under:

1 Recently, the Hon’ble Delhi High Court in the case of Suman Poddar vs ITO ITA 841/2019 vide order dated 17.09.19 decided a penny stock case in favour of the revenue. Relevant parts of the order are reproduced as below:

Thus it appears that while it was for the Assessee to appear and adduce the relevant evidence for the genuineness of the transaction of sale of the shares, the Assessee was not vigilant and cooperative enough and did not produce the relevant evidence before the authorities below and did not even appear before the appellate authorities concerned to contradict the case against her, as set up by the Revenue during the course of assessment proceedings. This has resulted in the impugned findings of facts against the Assessee about the nature of the transactions of sale of shares of a shell company as sham and the same being taxed as ‘undisclosed income’ under Section 68 of the Act. Thus these findings of facts,

The AO has clearly brought out several circumstantial evidence to prove the bogus nature of the impugned transaction. We also notice that as against availability of listed share/securities for purchase through stock exchange, the assessee preferred to purchase unknown and unlisted share/securities that too through few brokers for inexplicable reasons. It is not clear as how and from which sources, the assessee identified potential of those shares as the summons issued to her for eliciting such reply went unheeded. The assessee herself does not appear to be a regular investor in shares and securities. The shares claimed to have been purchased in physical form had been dematerialized only immediately prior to their sale on the stock exchanges. At the time of the purchase, the value of the shares was very low and after purchase by the assessee, the prices of the shares had gone up astronomically, without any commensurate financial results of those

1 When the documentary evidence containing contract notes of purchase, demat account, contract note of the sale and receipt of sale proceeds in bank account are seen vis-à-vis the observations of the AO on transactions, in our opinion, the documents are not sufficient to discharge the burden of proof that the purchase and sale transactions of the assessee were genuine. The onus was on the assessee to explain astronomical rise in prices of all the scrips purchased by him, that too without any financial rational. This feature of the transactions of the assessee itself is against the human probabilities. The assessee has not demonstrated of earning such huge profits from shares of any listed companies purchased from the stock exchange either in the earlier years

4 In the case of Udit Kalra (supra), the Hon’ble Delhi High Court upheld the addition in respect of the long-term capital gain claimed exempted under section 10(38) of the Act on the ground of P a g e | 40 A.Y. 2014-15 Sandhya Rakesh Sharma impossibility of astronomical growth of the value of the company shares as against the consistent losses of the company. The relevant finding of the Hon’ble High Court is reproduced as under: “The court has considered the submissions of the parties. Besides from the fact that the findings in this case are entirely concurrent – A.O., CIT(A) and the ITAT have all consistently rendered adverse findings – what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company’s shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.”In the light of the ratio laid down in cases cited above, the contention of the assessee that the transaction leading to long- term capital gains are supported by documents of sale and purchase, bank statement etc., cannot be accepted keeping in view of the facts and circumstances of the case brought on record by the Assessing Officer after proper examination of the material facts and taking into account the corroborating evidences. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a pre-planned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction and huge profit in all shares traded by the assessee against the human probability, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute, which does not require any interference on our part, we uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the grounds raised by the assessee in the appeal. Accordingly, the appeal bearing ITA No. 1704/Del/2019 is dismissed.” 11.5 In the context of the Income-Tax Act one of the earliest judgments dealing with the concept of “preponderance” was delivered,

6 The application of the concept of “preponderance of probabilities” in the context of taxing statutes got further validated by the judgment of the Allahabad High Court in the case of CIT v. Swarup Cold Storage & General Mills [[1982] 10 Taxman 215 (All)] wherein in the context of levy of penalty u/s 271(1)(c) the High Court has noted that “while the onus is cast on the Assessee to prove the absence of fraud, gross or wilful neglect on his part, but the quantum of proof to discharge the onus is as in a civil case and is to be decided by the rule of preponderance of probability”. The hon’ble Supreme Court in the case of Sumati Dayal v. CIT (supra) clearly affirmed as follows:-

7 The Hon'ble Income Tax Appellate Tribunal, New Delhi in the case of Hersh W. Chadha v. Deputy Director of Income-tax, International Taxation [2011] 9 taxmann.com 1/43 SOT 544 (Delhi)] has held as under:- The admissibility of documents, evidence or material differs greatly in income-tax `proceedings and criminal proceedings respectively. In criminal proceedings, the charge is to be proved by the State against the accused, establishing it beyond doubt, whereas as per the settled proposition of law, the income-tax liability is ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities.

8 The decisions in Durga Prasad More and Sumati Dayal have been consistently referred in subsequent decisions of the Hon’ble Supreme Court and in this regard, it will be beneficial to refer to the decision in P. Mohanakala (2007) 291 ITR 278.The questions of law which were framed for consideration were more or less identical as the issue raised before us with regard to the burden of proof cast on the assessee under Section 68 of the Act. It was held that the expression “the assessee offers no explanation” means where the assessee offers no proper, reasonable and acceptable explanation as regard the sums found credited in the books maintained by the assessee. Further it was pointed

9 In the light of aforesaid discussion, we find no infirmity in the appellate order in affirming both the additions in respect of bogus LTCG and the unaccounted commission payment as made by the AO. Accordingly, the grounds of appeal in this regard are dismissed.

Ground no. 7 regarding initiation of penalty proceedings u/s 271(1)(c) of the Act does not require any adjudication, being premature.

Consequently, the appeal of the assessee stands dismissed.