The Pr. Commissioner Of Income Tax I vs. Aditya Agrawal

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ITA/12/2026HC Madhya Pradesh01 April 2026Bench: HON'BLE SHRI JUSTICE VIVEK RUSIA5 pages
For Petitioner: Siddharth Sharma[P-1]
AI SummaryDismissed

What did the High Court hold?

The High Court held that there was a concurrent finding in favour of the assessee. The Court noted that the Assessing Officer's findings were based solely on the Investigation Wing's record, indicating a lack of independent inquiry. The Court observed that M/s Safal Herbs Ltd. had negligible profits between 2012-2016, with a sudden 119% share price increase in 2015-2016, which was not attributable to the respondent/assessee, a small commodity trader. The Court further stated that the respondent had discharged their liabilities under Section 68 by submitting proof of investment through banking channels/DEMAT. The Department had not filed any documents relating to the conclusions in the matters of Sanjay Shah and Jignesh Shah of Ahmedabad, with whom the appellant's name was connected by the Investigation Wing. Consequently, the High Court found no ground to interfere with the ITAT's order dated 30.09.2025 and dismissed the appeal.

What were the facts?

The assessee, Aditya Agrawal, filed a return of income for AY 2016-17. The Assessing Officer (AO) reopened the case, alleging that the assessee's declared exempt capital gain of Rs. 1,24,465/- from shares of M/s. Safal Herbs Ltd. was not genuine and treated it as a penny stock. The AO added back the total transaction amount of Rs. 2,20,137/- to the assessee's income and initiated penalty proceedings. The National Faceless Appeal Centre (NFAC) allowed the assessee's appeal, directing the deletion of the addition, finding the transaction genuine. The Revenue appealed to the ITAT, which dismissed the appeal, relying on similar orders from its coordinate benches. The Revenue then filed the present appeal before the High Court, citing an amount in dispute of Rs. 2,20,137/-.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the ITAT erred in ignoring evidence presented by the AO to establish manipulation of share prices of Safal Herbs Ltd. for fictitious Long Term Capital Gain (LTCG)? (Section 68) 2. Whether the ITAT's order was perverse for ignoring facts establishing share price manipulation as a colourable device to generate fictitious LTCG for tax evasion? 3. Whether the ITAT erred in deleting the addition of Rs. 2,20,137/- made under Section 68, overlooking that the transactions were stage-managed to facilitate the ploughing back of unaccounted income as fictitious LTCG? 4. Whether the ITAT's finding that the AO made no independent inquiry was perverse, given the AO's findings regarding violations of SEBI circulars and defective purchase bills? 5. Whether the ITAT was perverse in deleting the addition under Section 68 by ignoring the Supreme Court's ratio in Sumati Dayal vs. CIT, considering the improbable rise in Safal Herbs Ltd.'s share price with negligible financials? 6. Whether the ITAT erred in accepting the transaction's genuineness solely on contract notes and bank payments, disregarding the AO's finding of an illegal 'off-market' transaction? 7. Whether the ITAT erred in holding that the onus under Section 68 was discharged merely by proving banking channels, when the transaction violated SEBI regulations and failed STT payment conditions? 8. Whether the ITAT committed a substantial error and perversity by passing an order without considering the Revenue's revised grounds of appeal? Assessee's Contention (implied from the questions): The assessee would argue that the ITAT correctly appreciated the facts and evidence, that the transactions were genuine, and that the AO's findings were not supported by independent inquiry. The assessee would rely on the NFAC's order and the ITAT's reliance on coordinate bench decisions. Revenue's Contention: The Revenue argued that the ITAT erred in ignoring direct and circumstantial evidence of share price manipulation, that the transactions were a colourable device for tax evasion, that the addition under Section 68 was justified, that the AO conducted independent inquiries, that the share price rise was improbable, that the transactions were illegal 'off-market' deals, and that the ITAT failed to consider revised grounds of appeal, violating natural justice.

Which sections of the Income-tax Act were involved?

Section 148,Section 143(2),Section 271(1)(c),Section 68,Section 10(38)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF MADHYA PRADESH AT JABALPUR BEFORE HON'BLE SHRI JUSTICE VIVEK RUSIA & HON'BLE SHRI JUSTICE PRADEEP MITTAL ON THE 1st OF APRIL, 2026 INCOME TAX APPEAL No. 12 of 2026 THE PR. COMMISSIONER OF INCOME TAX I Versus ADITYA AGRAWAL Appearance: Shri Siddharth Sharma - Advocate for the appellant. ORDER Per: Justice Vivek Rusia This is an appeal filed against the order dated 30.09.2025 passed by the Income Tax Appellate Tribunal, Jabalpur, whereby the appeal filed by the Income Tax Officer, Ward-1, has been dismissed. The order passed by the National Faceless Appeal Centre (NFAC), Delhi, dated 30.10.2024, about the assessment year 2016-17 has been affirmed. 2. The respondent/assessee, an individual who filed his return of income through electronic mode declaring total income Rs.5,98,850/- on 26.07.2016 for the assessment year 2016-17, showing his income from the salary, income from other sources and trading of commodities. The Assessing Officer reopened the assessee's case and issued a notice under Section 148 of the Income Tax Act, 1961 ("Act", for short). He filed his return of income on 22.02.2020. Thereafter, a notice under Section 143(2) of 1 ITA-12-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:26504 Signed by: SHRUTI JHA Signing time: 08-04- 2026 18:04:02 Signature Not Verified

the Act was issued and served upon the assessee. 3. The Assessing Officer, based on the available material held that the assessee had invested in shares of M/s. Safal Herbs Ltd., and declared and claimed exempt capital gain of Rs.1,24,465/- was not a genuine transaction and was treated as a penny stock and the same amount was added back to the income of the assessee. Vide order dated 27.09.2021, total transaction of Rs.2,20,137/- invested in the shares of M/s. Safal Herbs Ltd., has been added back to the total income of the assessee alongwith the initiation of penalty under Section 271(1)(c) of the Act. Being aggrieved by the aforesaid order, the respondent/assessee preferred an appeal before the NFAC, Delhi. Vide order dated 30.10.2024, the appeal was allowed by issuing a direction to the Assessing Officer to delete the additional amount of Rs.2,20,137/- made under Section 68 of the IT Act as the appellant has made out a case about the genuineness of the transaction to support the document. 4. Being aggrieved by the aforesaid order, the Department preferred an appeal before the ITAT, which came to be dismissed because under the identical facts, the Coordinate Bench of this Tribunal in the case of Smt. Sudha Agrawal Vs. ITO, Ward-6(4), Jaipur, in ITA No.532/JP/2024 vide order dated 30.09.2024, had quashed the notice under Section 148 of the Act. Further, the Division Bench in the case of Sejal Jignesh Shah Vs. ITO, Mumbai in ITA No.444/Mum/2023 vide order dated 20.01.2025 had taken a similar view. Hence, the present appeal before this Court. Admittedly, the total tax liabilities effect involved in this case is Rs.2,20,137/-, but an appeal is filed seeking it to be an exception under Clause 3.1(h) of the CBDT 2 ITA-12-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:26504 Signed by: SHRUTI JHA Signing time: 08-04- 2026 18:04:02 Signature Not Verified

Circular No.05/2024. 5. Shri Siddharth Sharma, Advocate, has proposed the following substantial questions of law:- 1. Whether on the facts and circumstance of the case and in law the Ld. Tribunal erred in ignoring the direct and circumstantial evidence brought on records by the Assessing Officer to establish that the assessee had indulged in manipulation of the share prices of Safal Herbs Ltd. with a view to record fictitious Long Term Capital Gain?

2.

Whether on the facts and circumstance of the case and in law the order of the Ld. Tribunal suffers from perversity as it ignores the facts brought on record establishing manipulation of shares price of Safal Herbs Ltd. as part of colourable device to generate fictitious Long Term Capital Gain with aim to evade taxes?

3.

Whether on the facts and circumstances of the case and in law the Ld. Tribunal erred in deleting the addition of Rs.2,20,137/- made u/s 68, overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back its unaccounted income in the form of fictitious Long Term Capital Gain and claim bogus exemption?

4.

Whether the finding of the Hon'ble ITAT that 'the AO made no independent enquiry is perverse and contrary to the record, given that the Assessment Order explicitly records independent findings regarding the violation of SEBI Circular No.SMDRP/Policy/Cir- 32/99 (banning off-market negotiated deals) as evidenced by the defective purchase bills lacking Order No., Trade Time, and Client Code and details of STT paid?

3 ITA-12-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:26504 Signed by: SHRUTI JHA Signing time: 08-04- 2026 18:04:02 Signature Not Verified

5.

Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT was perverse in deleting the addition made u/s 68by ignoring the ratio laid down by the Hon'ble Supreme Courtin Sumati Dayal vs. CIT (214 ITR 801), failing to appreciate that a 119% rise in the share price of a company (Safal Herbs Ltd)with negligible financials and no business activity defies all human probabilities?

6.

Whether the Hon'ble ITAT erred in law in accepting the genuineness of the transaction solely on the basis of contract notes and bank payments, while totally disregarding the Assessing Officer's specific finding that the initial purchase was an illegal 'off-market' transaction evidenced by a defective debit note and an 'Inter-Depository Transfer', thereby constituting a colourable device?

7.

Whether the Hon'ble ITAT erred in holding that the onus u/s 68 was discharged by the assessee merely by proving the banking channel, when the surrounding circumstances and the independent verification by the AO revealed that the transaction was executed in violation of mandatory SEBI regulations and failed the statutory condition of STT payment u/s 10(38)?

8.

Whether the Hon'ble ITAT committed a substantial error and perversity in passing the impugned order without considering and adjudicating the 'Revised Grounds of Appeal filed by the Revenue, thereby violating the principles of natural justice and rendering the decision legally unsustainable?

9.

It is further submitted that the present appeal involves an organized tax evasion scheme concerning the claim of bogus Long Term Capital Gains (LTCG) via penny stocks. 6. There is a concurrent finding in favour of the assessee. The findings 4 ITA-12-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:26504 Signed by: SHRUTI JHA Signing time: 08-04- 2026 18:04:02 Signature Not Verified

(VIVEK RUSIA) JUDGE (PRADEEP MITTAL) JUDGE of the Assessing Officer were based solely on the record of the Investigation Wing. Therefore, there was a lack of independent inquiry. M/s Safal Herbs Ltd., had negligible profit from the year 2012-2016, but suddenly, it was increased in the year 2015-2016 up to 119% in share price that was not in the hands of the respondent/assessee, who is a small trader in the field of commodity trading. 7. The respondent has discharged his liabilities under Section 68 of the Act by submitting an investment in the shares through the banking transaction/DEMAT. The Department has not filed any document relating to the conclusion in the matter of Sanjay Shah and Jignesh Shah of Ahmedabad with whom the name of the appellant was connected by the Investigation Wing, Ahmedabad. 8. In view of the above, we do not find any ground to interfere with the order dated 30.09.2025 passed in ITA No.200/JAB/2024 by the Income Tax Appellate Tribunal, Jabalpur. Consequently, the appeal is dismissed. Shruti

5 ITA-12-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:26504 Signed by: SHRUTI JHA Signing time: 08-04- 2026 18:04:02 Signature Not Verified

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