DCIT(CC)-8(3) , MUMBAI vs. NAKCHHATRA VIMLESHKUMAR MEHTA, MUMBAI

PER AMIT SHUKLA, J.M :

At the very outset, the learned Departmental Representative submitted that, due to an inadvertent mistake, two separate appeals have been filed by the Revenue against the very same appellate order dated 21st March, 2025, passed by the Learned
Commissioner of Income Tax (Appeals)–50, Mumbai [“Ld. CIT(A)”]
for A.Y. 2012–13. Both appeals arise from the same order and contain identical grounds. In such circumstances, it was fairly conceded that one of the appeals deserves to be treated as withdrawn.
Since was filed subsequently, it is rendered infructuous and stands dismissed accordingly.
2. We therefore proceed to consider ITA No. 3726/Mum/2025, which remains for adjudication. This appeal by the Revenue is ITA Nos. 3726 & 3777/Mum/2025
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directed against the order dated 21st March, 2025, passed by the Ld. CIT(A), arising from the assessment framed under section 143(3) read with section 147 of the Income-tax Act, 1961, for the assessment year 2012–13. In its memorandum of appeal, the Revenue has raised the following grounds for our consideration:
3. The brief facts of the case are that the assessee filed his return of income for the assessment year 2012–13 on 21st December,
2012. In the said return, he declared a total taxable income of ₹16,55,116/–. Along with this, the assessee also disclosed exempt income of ₹4,00,69,645/–, shown as Long-Term Capital
Gains (LTCG) arising from the sale of shares, and claimed exemption under section 10(38) of the Income-tax Act, 1961 (“the Act”). This return was taken up for routine processing and was accepted under section 143(1) of the Act on 18th March, 2013. Thus, at that stage, no variation was made and the return stood concluded.
4. Subsequently, the Assessing Officer received information from the Investigation Wing, Mumbai. The information suggested that the scrip of M/s. Banas Finance Limited, a company listed on the Bombay Stock Exchange (BSE), was a “penny stock” which had been misused for providing accommodation entries. It was alleged that such scrips were used as a device to bring unaccounted income into the books of beneficiaries, either as exempt capital gains or as artificial short-term losses. It was also noted that the assessee had sold shares of M/s. Banas Finance
Limited for a total consideration of ₹4,22,93,793/–. Acting upon ITA Nos. 3726 & 3777/Mum/2025
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this information, the Assessing Officer formed the belief that income had escaped assessment and reopened the case under section 147 of the Act by issuing notice under section 148 on 27th March, 2019. 5. In the reassessment proceedings, the Assessing Officer referred extensively to the findings of the Investigation Wing. He described the general modus operandi allegedly followed in penny stock transactions. He observed that M/s. Banas Finance
Limited, incorporated on 6th June, 1983, had made several preferential allotments. On 30th December, 2010, it issued 99
lakh equity shares of ₹10 each at a premium of ₹10 per share to promoters and others. On 12th September, 2011, the company carried out a stock split in the ratio of 10:1. Again, on 26th
March, 2013, it issued 1,17,60,000 equity shares of Re. 1 each at a premium of ₹16 per share to non-promoter entities. The Assessing Officer further highlighted the sharp movements in the share price: from ₹9.40 on 27th January, 2011, the price rose to ₹562.00 on 29th October, 2013, and later fell to ₹13.30 on 22nd
December, 2015. He also analysed the financials of the company, its trading volumes, and the turnover in the stock exchange, and recorded the listing prices during February to September 2011 to support his view that the price movements were abnormal.
6. The Assessing Officer also relied upon statements recorded by the Investigation Wing of certain alleged “exit providers,” many of whom were found to be fictitious or non-existent. The assessment order reproduced large portions of the Investigation Wing’s report

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almost verbatim, but no specific or direct link was shown with the assessee. In addition, reference was made to an order passed by the Securities and Exchange Board of India (SEBI) on 27th
April, 2018, imposing penalties on M/s. Banas Finance Limited for violations of SEBI regulations. On this basis, and after denying the assessee’s request for cross-examination of the alleged exit providers, the Assessing Officer concluded that the assessee had taken accommodation entries in the form of bogus
LTCG. Accordingly, the entire amount of ₹4,00,69,645/– was treated as unexplained money under section 69 of the Act.
7. Aggrieved, the assessee preferred an appeal before the Learned
Commissioner of Income Tax (Appeals) [Ld. CIT(A)]. After considering the matter in detail, the Ld. CIT(A) found that the addition made by the Assessing Officer was not justified. The appellate authority examined the assessment order, the submissions made by the assessee, and the evidences produced, and concluded that the transactions were genuine. In support of his claim, the assessee had furnished the following documents:
1. Copy of the share application dated 11.12.2010
submitted to M/s. Banas Finance Ltd. for allotment of preferential shares;
2. Copy of the cheque dated 11.12.2010 for ₹20 lakhs drawn on Syndicate Bank in favour of M/s. Banas Finance
Ltd.;
3. Allotment letter dated 01.01.2011 confirming the allotment of one lakh preferential shares to the assessee;
4. Copy of the assessee’s demat account reflecting the shares held;

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The appellant has shown LTCG of Rs. 4,00,69,644/- from the sale of these shares and the same is claimed as exempt u/s 10(38) of the IT. Act.
From the above, it is seen that the appellant has purchased the preferential shares of M/s Banas Financial Ltd and for the same payment of Rs. 20 lakh has been made through the banking channels. Subsequently, these shares were sold on the stock exchange and the receipts are reflected in the bank account.
10. Now, coming to the observations of the AO that the price of the shares is not supported by the fundamentals of the company. The appellant has submitted the financials of this company and has contended that when this company started its operation in A.Y 2010-11, the turnover was only Rs. 2
lakhs which has increased to Rs. 7 crores in the AY 2011-12

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and 2012-13 showing revenue growth at 350 times. This growth in revenue has increased investor confidence which led to the rise in the price of these shares. The price rise on the stock exchange depends on multiple factors and mostly it is driven by the investors' sentiment. In this case, the substantial rise in revenue along with future prospects of the company has contributed to the rise in price of this alleged share. Regarding the authenticity of Banas Finance, the appellant has submitted that this company is still listed on BSE and is regularly traded. Further, recently it has acquired another listed company, Proaim Enterprises Ltd. From the details submitted by the appellant, I find that there is substantial force in the appellant's contention and hence the same cannot be brushed aside.
11. The next contention of the appellant that the investments made by the appellant for purchase of the preferential shares of M/s Banas Financial Ltd is held to be genuine as the Hon'ble ITAT Mumbai has upheld the investment received by M/s Banas Financial Ltd as genuine. It is seen that Hon'ble
ITAT vide order dated 02.01.2019 decided the appeal in case of M/S Banas Financial Ltd forA.Y 2011-12 (ITA No.
1096/MUM/2016). The relevant portion of the decision of Hon'ble ITAT is reproduced as under:
"We have carefully heard the rival contentions and perused relevant material on record including written submissions/documents placed in the paper-book & judicial pronouncements cited before us. Some undisputed facts to be noted are that the assessee is a public listed company and the made preferential allotment of shares having face value of Rs. 10/- per share to as many as 49 investors at a premium of Rs. 10/- per share. The Ld. AO has doubted the valuation of shares on the premise that the market value was much lower than the issue price LAW & HUSTI the financials of the company did not justify issue of shares at high premium However, we find that nothing in law prohibits issue of shares at prices higher than the prevailing market prices.
The revenue by questioning the wi om of the investor, could not make addition in the hands of the assessée as Unexplained cash credit u/s 68 unless it was established

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that the assessee's unaccounted money was routed in the books through the mechanism of fictitious share allotment.
Nothing on record dermonstrate such exchange of cash between the investor and the assessee.