ITO 41(3)(1), MUMBAI, MUMBAI vs. DEEPIKA ANIL AGARWAL, MUMBAI

ORDER \nPER SANDEEP GOSAIN, JM:\nThe present appeal has been filed by the revenue\nchallenging the impugned order dt. 22.01.2025 passed u/s 263\nof the Income Tax Act, 1961 (‘the Act'), by the National Faceless\nAppeal Centre, Delhi (NFAC) for the assessment year 2011-12.\n2. All the ground raised by the revenue are interrelated and\ninterconnected and relates to challenging the order of Ld. CIT(A)\nin deleting the additions made u/s 68 of the Act. Therefore we\nhave decided to adjudicate the same through the present\nconsolidated order.\n3. Ld. DR appearing on behalf of the revenue while relying\nupon the order of AO submitted that the scrip M/s. Splash\nMedia & Infra Ltd (Now know as Loharuka Media & Infra Ltd) is a\npenny stock scrip and the assessee during the course of\nassessment proceedings had categorically admitted that she was\nminor at the time of investment in the scrip and thus all the\ninvestments were made by her father Shril Anil Kumar Agarwal\nwho operated a share broking company viz M/s. Comforts Pvt\nLtd, whose case such action u/s 132 of the Income Tax Act was\ncarried out by the Mumbai Investigation Wing and during the\ncourse of search action the said Shri Anil Kumar Agarwal in his\nstatement recorded u/s 132(4) of the Act had categorically\nadmitted that the said scrip to be a penny stock. It was further\nsubmitted that the said Anil Kumar Agarwal also stated in detail\nthe process, how the transactions in penny scrip take place to\nthe stock exchange with the connivance of commission agents on\nnominal commission in cash in order to provide bogus and LTCG\n/ STCG through rigging of shares. Ld. DR also challenged the\norder of Ld. CIT(A) by submitting that Ld. CIT(A) deleted the\nadditions while ignoring all the vital aspects which leads to the\nconclusion that M/s Splash Media & Infra Ltd was a penny\nscript and that the assessee's investments in A grade shares\nsuch as Reliance Power etc, is very low and in very small\nquantity as compared to the investments made in the penny scrip\nof M/s. Splash Media and Infra Ltd. Thus requested to set aside\nthe order of CIT(A) and requested to uphold the order of AO.\n4.\nOn the contrary, Ld. AR while relying upon the order\npassed by Ld. CIT(A) submitted that assessee had entered into a\ngenuine transactions in the said scrip and therefore additions\nwere wrongly made by the AO u/s 68 of the Act treating the\ntotal sale consideration received from sale of M/s. Splash Media\n& Infra Ltd as income from other sources. Ld. AR also relied\nupon his written submissions filed before us and the same is\nreproduced herein below:\nA. Brief facts of the case\n1.\nThe appellant is an individual having income for the year under\nconsideration from income from the head capital gain and income from\nother sources. Return of Income was originally filed on 21/07/2011\ndeclaring total income of Rs.1,11,889/- which was processed u/s.143 (1)\nof the Income Tax Act, 1961.\n2.\nIn the above return, the assessee had income from LTCG from sale of\nscrip M/s Splash Media of Rs.3,56,92,613/- which was claimed\nexempt u/s 10(38) which reflected in the Profit and Loss Account. (PB\nPg. No. 3)\n3.\nThe assessee is a regular investor. The same can be verified from\nInvestment in the Balance Sheet (PB Pg No. 3 and 6). The assessee has\nsizable portfolio.\n4.\nFurther we would like to state that the father of appellant has purchased\n10,000 shares of Splash Media & Infra Limited (Now Known as Luharuka\nMedia & Infra Limited) on 21/12/2009 since appellant was minor at the\ntime of investment. Further the company i.e. Splash Media & Infra Limited\n(Now Known as Luharuka Media & Infra Limited) has issued Bonus shares\nin the ratio of 3:1 {Three shares for every One share held} as a result of\nwhich the resultant shares has become 40,000 bonus share on\n30.12.2009 further these shares were transferred in the Demat account of\nthe appellant on 05.01.2010. Further the company i.e. Splash Media &\nInfra Limited (Now Known as Luharuka Media & Infra Limited) on\n02.08.2010 has split the face value of shares of Rs 10/- each to the face\nvalue of Rs 1/- each resulting into the total holding of the appellant to\n4,00,000 shares of the company which the appellant has sold in A.Y.\n2011-12 on which the appellant has earned long term capital gain of Rs\n3,56,92,613/-.\n5.\nSubsequently assessment proceeding was reopened u/s 147 of the Income\nTax Act, 1961 by issuing notice u/s 148 of the Income Tax Act, 1961\ndated 24/03/2017 appellant vide her letter dated 27/03/2017 has\nrequested Ld. AO to provide with reasons recorded for reopening\nassessment proceedings and issue of notice u/s.148 of the Income Tax\nAct, 1961.\n6.\nLd. AO along with notice u/s 142(1) of the Income Tax Act 1961 dated\n27.07.2017 has provided appellant with reason recorded for reopening of\nassessment proceedings, against said reasons recorded necessary\nobjection has been filed on 12.09.2017 for reopening of the assessment\nproceedings, objection so raised by appellant was disposed by Ld. AO vide\norder dated 24.10.2017.\n7.\nLd. AO while completing assessment u/s.143(3) r.w.s.147 of the Income\nTax Act, 1961 vide order dated 29.12.2017, has assessed total income at\nRs.4,11,31,810/- by making addition u/s.68 of the Income Tax Act,\n1961 of Rs 4,10,19,922/- by treating total sales consideration received\nfrom the sale of shares of Splash Media and Infra Limited (Now Known as\nLuharuka Media & Infra Limited) as Income from Other Sources, without\ntaking into considering details. documents and legal submissions made by\nA.R. of appellant during the course of assessment proceeding for\njustification of appellant claim relating to Long Term Capital Gain from\nsales of Shares of M/s. Splash Media and Infra Limited (Now Known as\nLuharuka Media & Infra Limited).\n8.\nFurther it may be stated that above sale consideration from sales of\nshares of M/s. Splash Media and Infra Limited (Now Known as Luharuka\nMedia & Infra Limited) has been duly reflected in the return of income\nafter reducing cost of investment as Long Term Capital Gains and the\nsame has been claimed as exempt income u/s.10(38) of the Income Tax\nAct, 1961 however while completing assessment proceeding Ld. AO has\nbeen out rightly rejected appellant claim without bringing on to records or\nin assessment order any direct material evidence against appellant that\nappellant was one of the beneficiaries of bogus accommodation entries in\nthe scrip of M/s. Splash Media & Infra Limited (Now Known as Luharuka\nMedia & Infra Limited).\n9.\nThe case was reopened on mere information which was received from DIT\n(Inv.) Kolkata in respect of bogus LTCG claimed by the assesse on sale of\npenny stock script.\n10. TheRespondenthad submitted to Ld AO all documents pertaining to sale\nand purchase of shares of M/s Splash Media like demat account\nstatement, copy of bank statement reflecting payment and receipt of\nshares purchased and sold and relevant contract notes with detailed\nsubmission to prove the genuineness of the transaction.(PART OF PAPER\nBOOK32-56)\n11. The Ld AO stating that the transaction of LTCG is a manipulated\ntransaction done by respondent in connivance with MrAnil Agarwal to\nevade taxes on his unaccounted income and relying on statement\nmade by Mr. Anil Agarwal treated the sale proceeds of Rs.\n4,10,19,922/- as unexplained income and made anaddition of Rs.\n4,10,19,922/- under section 68of the Income Tax Act, 1961without\nconsidering the documentary evidences submitted by respondent\nduring the assessment proceedings and passed order dated\n29.12.2017 raising a demand of Rs.2,27,19,630/-.\n12. The Ld. AO did not do analysis of facts and he only relied on information,\nwithout appreciating evidences. Ld. A.O. did not apply his mind and made\naddition without checking figure with collaborative evidences.\n13. The Respondent then, through his share broker, sold the Shares after\nholding for more than a year at the recognized stock exchange and\ndelivered the shares in demat form to the stock exchange clearing\nhouse and also received the sale consideration from the recognized\nstock exchange through the broker.\n14. There is Neither reference of assesse's name in search report nor\nDepartment has proved cash trail.\n15. The said statement made by Mr. Anil B Agarwal has been retracted on\n15.04.2015 by way of an affidavit before notary public. There is no\nspecific name taken in the affidavit given by Mr. Anil B Agarwal.\n16. The Ld. AO did not do analysis of facts and he only relied on information,\nwithout appreciating evidences. Ld. A.O. did not apply his mind and made\naddition without checking figure with collaborative evidences.\nA. BY HON’BLE NATIONAL FACELESS APPEAL CENTRE, DELHI\nThe Respondent had preferred appeal before CIT-A, vide Appeal No. CIT (A)\n41, Mumbai/10168/2017-18and contested the additions made by the A.O. of\nRs.4,10,19,922/-. The appeal was heard by NFAC and vide order no.\nITBA/NFAC/S/250/2024-25/1072439520(1)dated 22.01.2024 the appeal\nwas allowed.\nThe NFAC held as below,\nPara 6.

31. The assessee has\npurchased the shares through broker from Bombay Stock\nExchange and sold at Bombay Stock Exchange through its\nshare brokers. The shares were purchased in D-mat A/c and\non sale, the D-mat shares were delivered to the clearing\ncorporation of BSE through its share broker. The AO denied\nthe claim of long-term capital gain on sale of shares under\nsection 10(38) of the Act and made addition of total sale\nconsideration under section 68 of the Act.\n14.Since, the shares had been in D-mat form and the\npayment had been made through account payee cheques duly\ndisclosed by assessee in the earlier year and said purchase of\nshares was evidenced from the bank statement. Thus,\npossession of the shares was not in doubt at all because\nsame was also reflected in D-mat account. Not only that, the\nsale of shares was also evidenced from transaction\nundertaken through registered stock at a specific trade time\nin BSE and after the sale of shares, the net receipts had been\ncredited to the assessee's bank account. Hence, the nature of\nthe transaction was clearly purchase and sale of shares and\nthe source of the credit, from the material facts on record\nwere quite evident that it was from the sale of shares. As\nthere was no tangible material brought on record to\ncontrovert these transactions, therefore the same cannot be\ntreated as unexplained cash credit to be added under\ndeeming provisions of section 68 of the Act. There was no\nevidence or any whisper that some unaccounted money had\nbeen routed and therefore the addition of sale proceeds were\nrightly deleted. Thus Ld. CIT(A) has rightly held as under:\n“Based on the unique facts the additions made by the AO in\nrespect of LTCG claimed by the Appellant are not substantiated\nwith any cogent evidences. In view of the above, Ground No.-2\nand 3of the appeal is hereby allowed. The sale of shares of\nM/s Splash Media and Infra Limited (Now Known as Luharuka\nMedia & Infra Limited) is treated as genuine and exemption\nclaimed in respect of long-term capital of Rs.3,56,92,613/-\nu/s.10(38) is allowed. Thus, the addition of the AO towards\nthe said sale proceeds of Rs 4,10,19,922/- is hereby deleted.”\n15.We also noticed that the Coordinate Benches of ITAT in\ndifferent cases had dealt with the same scrip / shares of M/s\nSplash Media & Infra Ltd and had deleted the additions made\nin those respective appeals, the details of which are herein\nbelow:\nSR.\nNO.\nCitation\nObservation\n1\nIN THE INCOME TAX\nAPPELLATE TRIBUNAL,\nMUMBAI BENCH “F”,\nMUMBAI\nAsst. Commissioner of\nIncome Tax\nVs.\nMrs. Rehana Mohammed Ali\nGheewala, (Legal heir of\nMohammed Ali Ebrahim\nGheewala)\nITA Nos.1487 &\n1503/Mum/2024\nWe notice that, in the instant case, the\nAO has not established that the\nassessee was involved in price rigging\nand further the AO did not find fault\nwith any of the documents furnished\nby the assessee. Hence, the ratio laid\ndown in the above said cases by the\njurisdictional Hon'ble Bombay High\nCourt shall apply to the facts of the\npresent case.\nAccordingly, we are of the view that\nthe\nLd.CIT(A) was justified in\ndeleting the addition made by the\nAO in respect of long term capital\ngains in the original assessment\norder and short term capital gains in\nthe reassessment order.\n16. In view of the above, the Ld.CIT(A)\nwas justified in deleting the estimated\naddition of commission expenses.\nAccordingly, we confirm the orders\npassed by the Ld.CIT(A) on the three\nissues, viz., addition of sale value of\nM/s. Splash Media & Infra Ltd, and\naddition of commission expenses on\nestimated basis in the original\nassessment proceedings and addition\nof sale value of M/s. Comfort Intech\nLtd., in the reassessment proceedings.\nIn the result, both the appeals of the\nRevenue and the cross objection\nfiled by the assessee are dismissed.\n6.15 Finally, keeping in the facts and\ncircumstances of the case, we are\ninclined to hold that impugned\nadditions are not sustainable in the\neyes of law. The assessee had\ndischarged the primary onus of\nestablishing the genuineness of the\ntransactions whereas the onus as\ncasted upon revenue to corroborate\nthe impugned additions by\ncontroverting the documentary\nevidences furnished by the assessee\nand by bringing on record, any\ncogent material to sustain those\nadditions, could not be discharged\nby the revenue. The whole basis of\nmaking additions is third-party\nstatement and no opportunity of cross-\nexamination has been provided to the\nassessee to confront these parties. As\nagainst this, the assessees position\nthat that the transactions were genuine\nand duly supported by various\ndocumentary evidences, could not be\ndisturbed by the revenue. Hence, going\nby the factual matrix and respectfully\nfollowing the binding judicial\nprecedents as enumerated in the order,\nthe additions made by Ld. AO and\nconfirmed by Ld. CIT(A), are not\nsustainable in the eyes of law.\nTherefore, we are inclined to delete the\nsame. We order so. Consequentially,\nthe addition of estimated commission\nalso stands deleted. Ground Nos.1, 3\n& 4 stands allowed. No argument has\nbeen urged with respect to Ground\nNo.2 which is related with fulfillment of\nrequirement of provisions of Sec.153D\nand therefore, this ground stand\ndismissed. The appeal stand partly\nallowed.\n7.1 The facts in both these years are\npari-materia the same. The assessment\nfor both the year has similarly been\nframed u/s 143(3) r.w.s.153A on\n29/12/2017. The Long-term gains\nearned by the assessee on sale of scrip\nof SMIL have been treated as\nundisclosed income and added u/s 68.\nThe Ld. AO has estimated commission\nof 6% in similar manner. The\nimpugned order has confirmed the\norder of Ld. AO on similar logic and\nreasoning. Aggrieved, the assessee is in\nfurther appeal before us with identical\ngrounds of appeal

.\n7.2 Facts being pari-materia the same\nincluding the fact that assessment for\nboth the year is unabated assessment,\nour findings as well as adjudication as\nfor AY 2010-11 shall mutatis-mutandis\napply to both these year. Resultantly,\nthe appeals for both the year stands\npartly allowed.\n3\nIN THE INCOME TAX\nAPPELLATE TRIBUNAL,\nMUMBAI BENCH “A”,\nMUMBAI\nAmit H. Patel (HUF) Vs.\nDCIT-CC 3(4)\nITA Nos.5761, 5762, 5764\n& 5765/M/2019\nThe assessee was allotted warrants on\npreferential basis from M/S Comfort\nIntech Ltd. on 20.05.2008 for Rs.\n4,77,000/.\nShares were issued in lieu\nof warrants which were listed on\n21.11.2008 and listed on the exchange\nsame date. Thereafter the shares were\nsplit in the ratio of 1:10 on 14.10.2009.\nSimilarly the assessee was allotted\nwarrants on preferential basis by M/s\nSplash Media & Infra Ltd. and were\nconverted into shares and listed on the\nstock exchange on 29.10.2009.\nthereafter there was a bonus issue in\nthe ratio of 3:1 followed by shares split\nin the ratio of 1:10 on 27.07.2010.\nBoth these shares went up\nspirally over a short period of time\nAccording to the Revenue the said\ntransactions are suspicious and bogus\nwhich was revealed during the course\nof search and seizure action on the\nassessee. The search team found that\nthese two companies M/s. Comfort\nIntech Ltd. and M/s. Splash Media &\nInfra Ltd. which are listed on Bombay\nStock Exchange were used for\nproviding accommodation entries of\nlong term capital gain/ short term\ncapital gain.\nHeld that:\n15. Therefore, respectfully, following\nthe decision of the coordinate bench of\nthe Tribunal, we hold that the long\nterm capital gain on the sale of shares\nof M/s. Splash Media & Infra Ltd. is\nnot a bogus capital gain as the AO has\nsolely relied on the report of\ninvestigation/search team and has not\ncarried out any further verification on\nthe basis of documents furnished by\nthe assessee. Similarly, the position of\nlong term capital gain earned on the\nsale of shares of M/s. Comfort Intech\nLtd. Of Rs.1,34,42,069/- is same as\nthe assessee has filed all the necessary\nevidences before the AO and AO has\nfailed to carry out any further\ninvestigation to prove that the long\nterm capital gain earned by the\nassessee is bogus and fictitious.\nConsequently, theappeal of the\nassessee succeeds on merit also.\nAccordingly, the issue raised in ground\nNo.3 & 4 are allowed.\n16. The issue raised in ground No.5 is\nagainst the order of Ld. CIT(A)\nconfirming the\naddition\nof\nRs.46,64,066/- by Ld. CIT(A) as made\nby the AO under section 69 of the Act\ntowards commission paid on the\naccommodation entries. Since we have\nalready decided the grounds raising\nlegal as well as merits in favour of the\nassessee and consequently the addition\nof Rs.46,64,066/- is also ordered to be\ndeleted as this is consequential one.\nAccordingly the ground No.5 is allowed.\n17. Accordingly, the appeal of the\nassessee is allowed.\n4\nIN THE INCOME TAX\nAPPELLATE TRIBUNAL\nDELHI BENCH: SMC:\nNEW\nDELHI\nGopal Chand Mundhra\nand Sons Vs. ITO, Ward-\n55(5), New Delhi.\nITA No. 1375/Del/2019\n4. The Assessing Officer recorded the\nfollowing reasons for reopening of the\nassessment u/s 147 of the Act\n\"Information has been received from\nInvestigation Wing of the Income tax\nDepartment that large scale,\nmanipulation had been done in the\nmarket price of shares of SPLASH\nMEDIA by a group of persons acting as\na syndicate in order to provide entries\nof tax exempt long term capital gains to\nthe assessee (beneficiary). According to\nthe information available, the assessee\nhad traded in the above scrip to the\ntune of Rs.2374500/- during the\nfinancial year 2010-11 and bogus\nLTCG amounting to Rs.2116776 /-\nhad\nbeen facilitated to the assessee during\nthe financial year 2010-11. Hence, I\nhave reason to believe that the above\nincome of Rs.2116776/- chargeable to\ntax has escaped assessment for the\nasst, year 2011-12, within the meaning\nof sec.147 of the Income-tax Act.\"\nHeld that:\n26. Since the assessee succeeds on\nthis legal ground challenging the\nvalidity\nof\nreassessment\nproceedings, the addition on merit is\nnot being adjudicated being\nacademic in nature. The appeal filed\nby the assessee is accordingly\nallowed.\n27. In these appeals also identical\ngrounds have been taken by the\nrespective assessees and in all these\ncases the approving authorities have\ngiven approval to the reopening of\nassessment in a mechanical manner\nwithout due application of mind.\nTherefore, following the reasons\ngiven in the preceding paragraphs,\nthe reassessment proceedings\ninitiated in the case of these\nassessees are also held to be not in\naccordance with the law and are\naccordingly quashed.\n28. In the result, all the five appeals\nfiled by the respective assessees are\nallowed.\n16. Apart from the above reliance is also been placed on\nthe following case laws.\nSr.\nNo.\nCITATION\nOBSERVATION\n17.\nIn the SUPREME COURT\nOF\nINDIA Principal\nCommissioner of Income-\ntax v. Kuntala Mohapatra\nSLP (CIVIL) DIARY NOS.\n5269 OF 2024\nSection 10(38), read with sections 68 and 69, of\nthe Income-tax Act, 1961- Capital gains\nIncome arising from transfer of long term\nsecurities(Illustrations)\n Assessment year 2014-15- Assessee filed its\nreturn for relevant year Subsequently,\npursuant to a survey assessee filed revised\nreturn and claimed exemption in respect of\nlong-term capital gains on shares under section\n10(38) - Assessing Officer rejected assessee's\nplea and made additions undersections 68 and\n69 by relying on statements from 'entry\noperators' - On appeal, Commissioner (Appeals)\naccepted assessee's claim, noting that shares\nwere purchased via Account Payee Cheques,\nheld in a Demat Account for over 12 months,\nand sold through a recognized stock exchange\nafter payment of security transaction tax\nTribunal upheld Commissioner (Appeal)'s\ndecision, emphasizing assessee's right to\ncorrect mistakes and criticized Assessing\nOfficer's reliance on statements from 'entry\noperators' to support additions under sections\n68 and 69 as those statements were recorded in\nunrelated proceedings before survey on\nassessee, and assessee was not afforded an\nopportunity to challenge or cross examine\nproviders of those statements On revenue's\nappeal, High Court confirmed order of Tribunal\nWhether there was no reason to interfere with\norder passed by High Court and therefore, SLP\nwas to be dismissed Held, yes [Para 3] [In\nfavour ofassessee]\n18. [2015] 54 taxmann.com\n108 (Bombay) HIGH\nCOURT OF BOMBAY\nCommissioner of Income-\ntax-13 v. Shyam R. Pawar*\nDECEMBER 10, 2014\nSection 68 of the Income-tax Act, 1961 - Cash\ncredit (Share dealings) Assessment years\n2003-04 to 2006-07 - Assesse declared capital\ngain on sale of shares of two companies\nAssessing Officer, observing that transaction\nwas done through brokers at Calcutta and\nperformance of concerned companies was not\nsuch as would justify increase in share prices,\nheld said transaction as bogus and having been\ndone to convert unaccounted money of assesse\nto accounted income and, therefore, made\naddition under section 68 - On appeal, Tribunal\ndeleted addition observing that DMAT account\nand contract note showed credit/details of\nshare transactions; and that revenue had\nstopped inquiry at particular point and did not\ncarry forward it to discharge basic onus\nWhether on facts, transactions in shares were\nrightly held to be genuine and addition made by\nAssessing Officer was rightly deleted - Held, yes\n[Para 7] [In favor of assesse]\n19. [2014] 41 taxmann.com\n118 (Hyderabad - Trib.) IN\nTHE ITAT HYDERABAD\nBENCH 'A' Income-tax\nOfficer,\nWard\n2,\nNizamabad v. Smt. Aarti\nMittal* NOVEMBER 6,\n2013\nSection 10(38) of the Income-tax Act, 1961\nCapital gains - Exemption of, on transfer of\nsecurities [Genuineness of transactions]\n Assessment year 2006-07 Assesse filed its\nreturn declaring long term capital gains on\nshares traded in Calcutta Stock Exchange\nSince sale transactions took place through\nauthorized stock exchange and securities\ntransaction tax was paid, assesse claimed\nentire sale proceeds arising out of transaction\nas long term capital gain exempt from tax\nunder section 10(38) - Assessing Officer did not\nbelieve transactions in question as genuine and\ntreated entire sale proceeds as 'Income from\nOther Sources' Commissioner (Appeals)\nopined that in absence of any positive evidence,\nmerely on basis of suspicion, transactions\ncould not be held to be not genuine\nCommissioner (Appeals) thus set aside addition\nmade by Assessing Officer - It was noted that\neven though enquiry with Chennai Stock\nExchange (CSE) revealed that no purchase had\ntaken place through it, since transactions were\nin physical form and done through off market,\nquestion of same being routed through floor of\na recognized stock exchange did not arise It\nwas also apparent that assesse having\npurchased shares in question, converted them\nin D-mat form and thereupon sale of those\nshares was carried out through CSE after\npaying Securities Transaction Tax - Whether on\nfacts, transactions of purchase and sale of\nshares were to be regarded as genuine in\nnature and, therefore, assesses claim was\nrightly allowed - Held, yes [Para 23] [In favor of\nassesse]\n20. [2017] 77 taxmann.com\n260 (Ahmedabad Trib.)\nIN THE ITAT AHMEDABAD\nBENCH 'B' Pratik\nSuryakant Shah\nIncome-tax Officer, Ward-\n10 (3), Ahmedabad*\nOCTOBER 21, 2016\nSection 10(38), read with section 147, of the\nIncome-tax Act, 1961 Capital gains - Income\narising from transfer of long-term securities\n(Bogus transactions) Assessment year 2006-\n07 Assesse purchased 3000 shares of\ncompany 'T' through a stock broker These\nshares were transferred to assesses demat\naccount - However, said stock broker submitted\nbefore authorities that he was providing\naccommodation entries for taking profit or loss\nby showing purchase or sales of shares and\nsecurities commission from beneficiary parties\nand that assesse was one of beneficiary of such\naccommodation entries Assessing authorities\nreopened assessment of assesse Whether\nsince shares of said company was listed in\nBSE/NSE and these were also transferred to\ndemat account of assesse, assesses claim of\nexemptions of long-term capital gain on sale of\nshares could not be denied on basis of\nsubmission of said broker - Held, yes [Paras 17\nand 18] [In favor of assesse]\n21. ACIT\nvs.\nVineet\nSureshchandra Agarwal\n(ITAT Ahmedabad) ITA No.\n1442/Ahd/2013 & CO No.\n209/Ahd/2013\n Assessment Year : 2005-\n06\nBogus capital gains from penny stocks: The fact\nthat the Stock Exchanges disclaimed the\ntransaction is irrelevant because purchase and\nsale of shares outside the floor of Stock\nExchange is not an unlawful activity. Off-\nmarket transactions are not illegal. It is always\npossible for the parties to enter into\ntransactions even without the help of brokers.\nTherefore, it is not possible to hold that the\ntransactions reported by the assesse were sham\nor bogus\n22. Surya Prakash Toshniwal\nHUF vs. ITO (ITAT\nKolkata)\nITA\nNo.1213/Kol/2016\n Assessment Year :2005-06\nBogus capital gains from penny stocks: Long-\nterm capital gains claimed exempt u/s 10(38)\ncannot be treated as bogus unexplained income\nif the paper work is in order. The fact that the\nCompany whose shares were sold has violated\nSEBI norms and is not traceable does not mean\nthat the assesse is at fault\n23. CIT\nvs.\nMukesh S.\nRatilalMarolia (Bombay\nHigh Court) INCOME TAX\nAPPEAL NO. 456 OF 200 7\n7th September 2011\n10(38)/ 68: Long-term capital gains on sale\nof \"penny\" stocks cannot be treated as bogus &\nunexplained cash credit if the documentation is\nin order & there is no allegation of\nmanipulation by SEBI or the BSE. Denial of\nright of cross-examination is a fatal flaw which\nrenders the assessment order a nullity\n24. Smt. Sunita Jain, V/s.\nIncome Tax Officer,\nWard10 (3), Ahmedabad\nITA. Nos: 501 &\n502/AHD/2016\n Assessment Year: 2008-\n09)\nThe claim of the assesse cannot be denied on\nthe basis of presumption and surmises in\nrespect of penny stock by disregarding the\ndirect evidences on record relating to the\nsale/purchase transactions in shares\nsupported by broker's contract notes,\nconfirmation of receipt of sale proceeds through\nregular banking channels and the demat\naccount\n25. ITO-24(3)(1) V/s M/s\nArvind Kumar Jain HUF\nITA No. 4862/MUM/2014\n Assessment Year: 2005-06\nWhere assesses broker share transaction was\nbone fide in all respect, merely because share\nbroker was tainted violating SEBI regulations,\nwould not make assesses share transactions\nbogus.\n26. Kamla Devi S. Doshi V/s.\nThe Income Tax Officer\nWard 16(3)(1), I.T.A.\nNo.1957/Mum/2015\n Assessment Year: 2006-\n07)\nBogus penny stocks capital gain: The s.131\nstatement implicating the assesse is not\nsufficient to draw an adverse inference against\nthe assesse when the documentary evidence in\nthe form of contract notes, bank statements,\nSTT payments etc prove genuine purchase and\nsale of the penny stock. Failure to provide\ncross-examination is a fatal error\n27. Shri Sunil Prakash V/s.\nACIT\n-15(2)\nΙ.Τ.Α./6494/Mum/2014,\n Assessment Year: 2005-06\nS. 68 bogus gains from penny stocks: If the AO\nrelies upon the statement of a third party to\nmake the addition, he is duty bound to provide\na copy of the statement to the assesse and\nafford the opportunity of cross-examination.\nFailure to do SO vitiates the assessment\nproceedings. A transaction evidenced by\npayment/receipt of share transaction value\nthrough banking channels, transfer of shares in\nand from the Dmat account, etc cannot be\ntreated as a bogus transaction so as to attract\ns.68\n28. Pramod Kumar Lodha vs.\nITO (ITAT Jaipur)\nS. 10(38) Bogus long-term gains from penny\nstocks: The transaction cannot be treated as\nbogus until and unless a finding is given that\nthe shares were acquired by the assesse from\nthe person other than the broker claimed by the\nassesse. The enquiry conducted by the\nInvestigation Indore is not a conclusive finding\nof fact in view of the fact that the shares were\nduly materialized & held in the d-mat account.\nMerely supplying of statement to the assesse at\nthe fag end of the assessment proceedings is\nnot sufficient to meet the requirement of giving\nan opportunity to cross examine. The AO\ncannot proceed on suspicion without any\nmaterial evidence to controvert or disprove the\nevidence produced by the assesse\n29. Navneet Agarwal vs. ITO\n(ITAT Kolkata)\nBogus Capital Gains From Penny Stocks: In\norder to treat the capital gains from penny\nstocks as bogus, the Dept has to show that\nthere is a scam and that the assesse is part of\nthe scam. The chain of events and the live link\nof assesses action giving her involvement in the\nscam should be established. The Dept cannot\nrely on alleged modus operandi & human\nbehavior and disregard the evidence produced\nby the assesse. All imp judgements referred\n30. ACIT vs. Vineet\nSureshchandra Agarwal\n(ITAT Ahmedabad)\nBogus capital gains from penny stocks: The fact\nthat the Stock Exchanges disclaimed the\ntransaction is irrelevant because purchase and\nsale of shares outside the floor of Stock\nExchange is not an unlawful activity. Off-\nmarket transactions are not illegal. It is always\npossible for the parties to enter into\ntransactions even without the help of brokers.\nTherefore, it is not possible to hold that the\ntransactions reported by the assesse were sham\nor bogus\n31. Meenu Goel vs. ITO (ITAT\nDelhi)\nBogus Capital gains from penny stocks: Capital\ngains from penny stocks cannot be assessed as\nunexplained cash credit u/s 68 if the assesse\nhas produced documentary evidence to prove\nthe source, identity and genuineness of the\ntransaction and the AO has not found any fault\nwith it. The fact that the investigation dept has\nalleged that there is a modus operandi of bogus\nLTCG scheme is not relevant if the same is not\nsubstantiated\n32. Dipesh Vardhan and others\nVS DCIT-Central\nCircle\nΙ.Τ.Α. No.7648,\n7650,\n7651\n7662/Mum/2019\nand\nS. 10(38)/68: Bogus Capital Gains from\nPenny Stocks: The AO has not discharged\nthe onus of controverting the documentary\nevidences furnished by the assessee and by\nbringing on record any cogent material to\nsustain the addition. The allegation of price\nrigging / manipulation has been levied\nwithout establishing the vital link between\nthe assessee and other entities. The whole\nbasis of making additions is third party\nstatement and no opportunity of cross-\nexamination has been provided to the\nassessee to confront the said party. As\nagainst this, the assessee's position that\nthe transactions were genuine and duly\nsupported by various documentary\nevidences, could not be disturbed by the\nrevenue\nPara 6 of the order states as follows:-The\nperusal of record would reveal that the\nassessee purchased certain shares of an entity\nnamely M/s STL as early as September, 2011.\nThe shares were converted into demat form in\nassessee's account during the month of March,\n2012. The transactions took place through\nbanking channels. The investments were duly\nreflected by the assessee in financial\nstatements of respective years. The copies of\nfinancial statements of M/s STL for FYs 2009-\n10 & 2010-11 which led to investment by the\nassessee in that entity was also furnished\nduring the course of assessment proceedings.\nSubsequently, M/s STL got merged with\nanother entity viz. M/s SAL(Sunrise Asian Ltd.)\npursuant to scheme of amalgamation u/s 391\nto 394 of The Companies Act, 1956. The\nScheme was duly approved by Hon'ble Bombay\nHigh Court vide order dated 22/03/2013, a\ncopy of which is on record. Consequently, the\nshares of M/s STL held by the assessee got\nswapped with the shares of M/s SAL and new\nshares were allotted to the assessee during\nJune, 2013 pursuant to the approved scheme\nof amalgamation. M/s SAL is stated to be\nlisted public company Group 'A' shares\nsignifying high trades with high liquidity. The\nassessee has sold these shares through its\nstock broker namely M/s Unique Stockbro\nPrivate Limited in online platform of the\nrecognised stock exchange during the month of\nMarch, 2014. The selling price was in the\nrange of Rs.489/- to Rs.491/- per share. The\ntransactions took place through online\nmechanism after complying with all the\nformalities and procedure including payment\nof STT. The delivery of the shares was through\nclearing mechanism of the stock exchange and\nsale consideration was received through\nbanking channels. The transactions are duly\nevidenced by contract notes, demat\nstatements, bank statements and other\ndocumentary evidences. The key person of\nassessee group, in his statement, maintained\nthe position that trading transactions were\ngenuine transactions carried out through stock\nexchange following all process and legal\nprocedures. The assessee also filed trading\nvolume data and price range of the scrip for a\nperiod of more than 2 years i.e. from Jan, 2013\nto July, 2015.The shares reflected healthy\ntrading volume and the price range reflected\ntherein was in the range of Rs.360/- to\nRs.600/- per share. The price range was stated\nto be in the same range for 15 months after the\nperiod of sale of shares by the assessee, which\nhas not been disputed by the revenue. On the\nbasis of all these facts, it could be gathered\nthat the assessee had duly discharged the\nonus casted upon him to prove the\ngenuniness of the stated transactions and\nthe onus had shifted on revenue to rebut\nthe same. Resultantly, the addition on\naccount of alleged Long-Term Capital Gains as\nwell as estimated commission against the\nsame, stands deleted. The grounds of appeal,\nto that extent, stand allowed.\nReliance is also placed on following case laws where such purchase and sale were\nallowed.\n1. C.I.T Vs. Mukesh Marolia ITA 456 of 2007-Bombay HC\n2. Muksh R Morolia V/s Add CIT(2006)6 SOT 247\n3. ITO V/s. Mrs. Rasila N Gala ITA No.1773/Mum/2010\n4. CIT V/s Kan Singh Rathore ITA 192of 2014 (Rajasthan HC)\n5. M/s SBD Estate Private Limited V/s. ITO 584/Mum/2015\n6. Ms Farrah Marker V/s ITO order dated 27/04/2016\n7. Mr.ArvindAsmal Mehta V/s ITO ITA No.2799/Mum/2015 order dated\n29/02/2016\n8. Smt Jyoti D Shah V/s ITO ITA No.1843/Mum/2012\n9. ITO V/s Deep Darshan Properties Pvt Ltd.2117 & 2118/Mum/2014\n10. CIT-13 V/s ShyamR.Pawar (2015) -54 Taxmaan.com108- Bombay High Court\n11. JafferaliK.Rattonsey vs DCIT ITA No.5068 Mum 2009\n12. Kamla Devi S. Doshi ITA No. 1957/Mum/2015\n13. Pratik Suryakant Shah (2017)-77 Taxmann.com 260 Ahemdabad Tribunal\n14. Aarti Mittal (2014)

41. Taxmann.com 118(Hyderabad Tribunal)\n15. CIT Appeal order in case of Umang D Soni\n16. C.I.T Mumbai Vs. Mukesh RatilalMarolia Supreme Court - 2015 (9) TMI 854\nSUPREME COURT\n17. The Commissioner of Income Tax-16. Vs. Mrs. Kesar A. Gada 2015 (1) TMI\n1220 - BOMBAY HIGH COURT\n18. Ramprasad Agarwal vs ITO2(3)(2), Mumbai[2018] 100 taxmann.com 172\n(Mumbai - Trib.)\n19. Shri Amar Nath Goenka Vs. The ACIT, Circle-20(1), New Delhi.\nITA.No.5882/Del./2018\n20. Mukta Gupta vs. ITO, Ward-1(4), Ghaziabad .I.T.A. No.2766/DEL/2018\n21. AJAY GOEL vs .I.T.O, WARD 39(5)ITA No. 4481/DEL/2018\n22. Principal Commissioner of Income-tax,(Central), Ludhiana v. Prem Pal Gandhi\n(P&H HC)\n23. CIT VS Bhagwati Prasad Agarwal ITA No.22/Kol/2009 Calcutta High Court\n24. Mr. Shyam R Pawar vs DCIT Central Circle 24 &

26. ITAT Mumbai (ITA\nNo.5585/M/11, 5620,5621 & 5622/M/11)\n25. CIT (Jamshedpur) vs Arun Kumar Agarwal (HUF) Jharkhand HC\n26. PCIT (Ludhiana) vs Sh. Hitesh Gandhi P &H HC\n27. ACIT Central Circle-II, Jalandhar vs Hitesh Gandhi ITAT Amritsar [I.T.A.\nNo.129(Asr)/2014]\n28. Manish Kumar Baid and Mahendra Kumar Baid vs ACIT,Cir-35, ITA\nNo.1236,1237/Kol/2017[ Kolkata-Tribunal]\n29. Shri Jignesh Desai vs Income Tax Officer 35(2),ITA No.1263/Kol/2017)\n[Kolkata-Tribunal]\n30. Navneet Agarwal, Legal Heir of Late Kiran Agarwal vs ITO, Ward-35(3) ITA\nNo.2281/Kol/2017 [Kolkata-Tribunal]\n31. Kiran Kothari HUF vs ITO Ward 35(3), Kolkata ITA No.443/Kol/2017\n32. Shri Gautam Kumar Pincha vs ITO 34(4), Kolkata (ITA No.569/Kol/2017)\n33. Ketulkumar D Jaiswal vs ITO S.K. ward-4 Modasa (ITA No. 546/Ahd/2015 )\n[Ahemdabad-Tribunal]\n34. CIT-I Jaipur vs Smt Pooja Agarwal, Shri Jitendra 2017 Rajasthan High Court\n35. Shri Pramod Jain, Shri Ankit Jain, Shri Sunil Jian, Naina Jain and Smt.Nisha\nJain vs DCIT & ITO Wd 3(2) Jaipur [Jaipur –Tribunal]\n36. Shri Vivek Agarwal vs ITO Wd 1(2), Jaipur [Jaipur –Tribunal]\n37. MrVimalchandGulabchand,Mr Praveen Chand, Mr.Gatraj Jain & Sons (HUF),\nMrMahendra Kumar Bhandari VS ITO Chennai\n2003,1721,2293,2748/CHNY/2017 [Chennai –Tribunal]\n38. Anand Paul vs ACIT Circle-50 ITA No.165/Kol/2015 [Kolkata –tribunal]\n39. M/s Bhoruka Engineering Industries Ltd vs DCIT Bangalore, KARNATAKA\nHIGH COURT\n40. CIT vs Pushpa Malpani ITA No.50 of 2010 Rajasthan HC\n41. M/s Amit Rastogi HUF, Shilpa Rstogi, Sadhana Rastogi, Ajay Kumar Rastogi\nvs ITO wd1(1) wd-2(3), Meerut ITA No.2128/2129/2131/2132/Del/2018\n[Delhi-Tribunal]\n42. Smt Shikha Dhawan vs ITO, Wd-4(2) ITA No.3035/Del/2018 [Delhi-Tribunal]\n43. Shamim Imtiaz Hingora, Parvez Hingora, Shabeena Irfan Hingora, Arif Abdul\nRazakHingora vs ITO Wd-I Jalna, ITA No.1875,1876,1877,1878/Pun/2018\n[Pune-Tribunal]\n44. CIT (A)-45, MUMBAI order in case of Parul Hemant Patel\n45. Mukesh B Sharma Vs ITO 11(3)(2) ITA No.6249/Mum/2018\n46. Deepak Nagar Vs The ACIT-17 ITA No. 3212/Del/2019\n47. Kaushalya Agarwal Vs ITO 35(3) ITA No.194/Kol/2018\n48. Vijayrattan Balkrrishan Mittal Vs DCIT ITA No. 3427, 3428, 3429/Mum/2019\n49. Amit Mafatlal Shah vs ACIT ITA No. 5793/MUM/2019\n50. Dipesh Ramesh Vardhan and others vs DCIT CC 2(2) ITA No.7648, 7662,\n7651, 7650 and 7649/MUM/2019\n51. Nishant Kantilal Patel and Others vs. ITO ITA No 05,06,07 and 10/SRT/2019\n52. SUPREME COURT OF INDIA Principal Commissioner of Income-tax v. Kuntala\nMohapatra SLP (CIVIL) DIARY NOS. 5269 OF 2024\n53. ACIT 4(1)(1), Mumbai Vs. Ankur AgrawalITA No. 5179/MUM/2024\n54. ACIT vs Abhishek Rajendrakumar Mundra ITA 3929/MUM/2024\n55. ASHA HIMMAT BHADRA vs DCIT CIRCLE 32(1) ITA No. 2154/MUM/2024\n56. RAJENDRA KUMAR MUNDRA (HUF) vs National Faceless Assessment Centre\nITA No. 1000/MUM/2024\n57. VARSHABEN LAHERIKANT BHADRA vs ITO 25(3)(1) ITA No. 1665/MUM/2024\nFURTHER RELIANCE IS PLACED ON VARIOUS JUDGMENT WHERE ADDITION\nMADE ON THE BASIS OF THIRD PARTY STATEMENTS HAVE BEEN DELETED:-\nA. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait\nreported in (1959)

37. ITR 151 (S C) had held that no addition can be made on\nthe basis of surmises, suspicion and conjectures.\nB. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT\n37 ITR 271 held that suspicion however strong, cannot take the place of\nevidence.\nC. Hon'ble Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal\nin I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows:\na. \"The tribunal found that the chain of transaction entered into by the\nassesse have been proved, accounted for, documented and supported by\nevidence. The assesse produced before the Commissioner of Income\nTax(Appeal) the contract notes, details of his Demat account and, also,\nproduced documents showing that all payments were received by the\nassesse through bank.\"\nRELIANCE IS ALSO PLACED ON FOLLOWING JUDICIAL PRECEDENTS:-\n(a) ΙΤΟ 31(2)(2) vs.Kalpana M Ruia ITA 4130 and 4131/M/2015(Mum-Trib)\n(b) CIT vs. Pinakin L Shah (ITA 3380 of 2010 dated 18-01-2012)(Bom)\n(c) Smita P Patil Vs. ACIT-CC-1 (ITA Nos.1407, 1408 & 1409/PN/2012)\n(d) Arvind Asmal Mehta vs. ITO (ITA No.2799/Mum/2015)(Mum-Trib)\n(e) Smt. Sarita Devi vs. ITΟ (ΙΤΑ No.1228/Hyd/2016)(Hyd-Trib)\nTHE LD. AO HAVE NOTHING ON RECORD TO SUGGEST THAT:-\n(a) Traded Shares (Scrips) were not listed on stock exchange.\n(b) Traded Shares (Scrips) are of bogus companies.\n(c) Demat /Bank account not in the name of assesse or do not exist.\n(d) Enquiry with Depository Participant ie NSDL/CDSL As share is\npurchased and sold through Stock Exchange.\nD. ASSESSMENT IS COMPLETED ON SUSPICION, WHIMS, ASSUMPTION AND\nSURMISES, WITHOUT PROVIDING COPIES OF MATERIAL RELIED UPON,\nWITHOUT PROVIDING OPPORTUNITY TO CROSS EXAMINE PERSON\nWHOSE STATEMENT RELIED UPON IS AGAINST THE PRINCIPLE OF\nNATURAL JUSTICE AND LIABLE TO BE ANULLED:\ni.\nThe evidences discussed in the order give rise to suspicion only and does\nnot indicate and support the finding arrived at by the learned Assessing\nOfficer. The learned Assessing Officer is working on probability which has\nno legs and not supported by any cogent material in his possession\nSuspicion howsoever may be strong cannot take place of evidence. No\ndoubt this may lead to some kind of suspicion in the mind of the Assessing\nOfficer but the Assessing Officer should have made proper enquiry and\nbring cogent material on record to support and justify his stand before\nmaking addition to the total income of the respondent. The assessment\ncannot be made on the basis of whims, suspicion, assumption and\nsurmises. The addition made to the total income of the respondent has to\nbe supported by documentary evidences Thus the learned Assessing Officer\nis wrong in arriving at the conclusion that the respondent has manipulated\nthe transactions in connivance with MrAnil Agarwal and M/s Comfort\nFincorp to evade the taxes on his unaccounted income. The learned\nAssessing Officer should have made proper enquiry and establish beyond\ndoubt that transactions made by the respondent is nothing but\naccommodation entries.\nii.\nIt is submitted that the respondent has not been provided with any\nmaterial on the basis of which observation is made that respondent have\nobtained accommodation entries. The respondentclaim that there is no\nsuch material in possession of the Assessing Officer which support such\nobservation. This observation is made on the basis of suspicion,\nassumption and surmises.\niii. During the course of assessment the respondent produced copies of\ncontract notes in support of long term capital gains earned by him. She has\nalso produced copies of bank statement to justify that all\npayments/receipts are made by account payee cheques as per provisions of\nIncome Tax Act. Thus the respondent has complied with provisions of the\nAct and produced prime and vital document which is in his possession to\nsubstantiate the long term capital gain and to rebut that these are not in\nthe nature of accommodation entries.\niv. It is submitted that the learned Assessing Officer failed to collect and bring\non record the evidences from MrAnil B Agarwal which was later retracted\nback by him. If at all said evidences are collected, copies of same have not\nbeen provided to the respondent before using the same against the\nrespondent. The evidences which are collected back of the respondent and\nnot provided copies thereof or not confronted with should not be admitted\nas evidence while framing assessment.\nV. The learned Assessing Officer in assessment order relied upon statement of\nShri Anil B Agarwal. According to him in said statement Shri Mr Anil B\nAgarwal has certified that he was indulged in providing accommodation\nentries but has not mentioned names of persons to whom he has provided\nthe said entries.\nvi. The learned Assessing Officer failed to provide copy of said statement and\nlist of beneficiaries of accommodation entries to verify whether name of the\nrespondent is included in said list or not. In absence of copy of statement\nand list of beneficiaries the respondent could not verify the correctness of\nsaid observation of Assessing Officer and the respondent could not rebut\nhis allegation.\nvii. The respondentsubmits that without providing copies of statement and list\nof beneficiaries on which assessment is based upon is against the principle\nof natural justice and said assessment kindly be annulled.\nOn the facts and circumstances of case and in law, Ld Assessing officer erred in\nnot providing cross examination to verify transaction\nThe Ld AO erred in passing assessment orderwithout providing opportunity to\nrebut the material relied by him during the reassessment proceedings\nexamination which is against the principal of natural justice and hence the said\norderis liable to be quashed\n•\nThe assessing officer did not disclose to the assesse what information had been\nsupplied by DGIT Investigation Wing.\n•\nThe assessing officer did not give any opportunity to the assesses to rebut the\nmaterial furnished.\n•\nThe assessing officer did not consider any materials that the assesses wanted\nto produce in support of the case.\n•\nThe fundamental principles of natural justice have been violated.\nRELIANCE IS PLACED ON THE FOLLOWING CASE LAWS / JUDICIAL\nPRONOUNCEMENTS FOR ADDITIONS DELETED WHICH WERE MERELY\nBASED ON INFORMATION NOT DISCLOSED TO THE ASSESSE IS IN\nVIOLATION OF PRINCIPLES OF NATURAL JUSTICE\nThe Ld. AO have relied on statement made by Mr Anil B Agarwal. However, this\nstatement has not been supplied to the respondent and hence this is in violation of\nfundamental rules of justice. This has also been upheld by various judicial\npronouncements. Reliance is placed on following:\nSN\nCase Citation\nObservation/ Held\n1.\nM/S\nANDAMAN\nTIMBER INDUSTRIES\nV/s CCE CIVIL APPEAL\nΝΟ. 4228 OF 2006\nNot allowing the assesse to cross-examine the\nwitnesses by the Adjudicating Authority though\nthe statements of those witnesses were made the\nbasis of the impugned order is a serious flaw\nwhich makes the order nullity inasmuch as it\namounted to violation of principles of natural\njustice because of which the assesse was\nadversely affected\n2.\nLalchand\nBhagat\nAmbicaDav V/s CIT (37)\nITR 28)(SC)\nAssessment made without disclosing to the\nassesse the information supplied by the\ndepartment and without giving any opportunity to\nthe assesse to rebate the information is violation\nof fundamental rules of justice.\n3.\nDHAKESWARI COTTON\nMILLS LTD. υ.\nCIT\n[1954]

26. ITR 777\nAn assessment so made without disclosing to the\nassesse the information supplied by the\ndepartmental representative and without giving\nany opportunity to the assesse to rebut the\ninformation so supplied and declining to take into\nconsideration all materials which the assesse\nwanted to produce in support of case constituted a\nviolation of the fundamental rules of justice and\ncalled for interference on our part.\n4. SETH\nGURUMUKH\nSINGH v. CIT [1944] 12\nITR 393\nThe Tribunal violated certain fundamental rules of\njustice in reaching its conclusions. Firstly, it did\nnot disclose to the assesse what information had\nbeen supplied to it by the departmental\nrepresentative. Next, it did not give any\nopportunity to the assesse to rebut the material\nfurnished to it by him, and lastly, it declined to\ntake all the material that the assesse wanted to\nproduce in support of its case. The result was that\nthe assesse had not had a fair hearing. The\nestimate of the gross rate of profit on sales, both\nby the ITO and the Tribunal, was based on\nsurmises, suspicions and conjectures.\n5. Jai Karan Sharma v/s\nDCIT [2012]\n23\ntaxmann.com\n300\n(Delhi)\nIt is a fundamental principle of natural justice that\nno material should be relied upon against a party\nwithout giving him an opportunity of explaining\nthe same\n6. Hamish Engineering\nIndustries (P.) Ltd. V/s\nDCIT [2009] 120 ITD\n166 (MUM. Trib.)\nWhether since statements recorded from three\nparties on which Assessing Officer relied for\npurpose of assessment, had not been provided to\nassesse, order of Assessing Officer was bad in\nlaw to that extent - Held, yes\n7. KishinchandChellaram\nv/s\nCIT [1980]\nТахтап

29. (SC)-\n4\nITO, on the basis of letters from bank manager,\nnot shown to assesse, treated amount so remitted\nas income from undisclosed sources—Tribunal,\nrelying on letters of bank manager, upheld ITO's\naction—Whether tribunal justified-Held, on facts,\nno.\n8. C Vasantlal& Co. vs.\nCIT [1962]

45. ITR 206\n(SC)\nIt was open to an income tax officer to collect\nmaterials to facilitate assessment even by private\nenquiry. But if he desires to use materials so\ncollected, the assesse must be informed of the\nmaterials and must be given an adequate\nopportunity of explaining it.\nSuspicious cannot take place the evidence\n1. DCIT v. Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. 6727/M/2012\ndt.20/8/2014\n2. K.P. Varghese v. ITO, (1981) 131 ITR 579 (SC);\n3. CIT v. Roman & Co., (1968) :

67. ITR 11. (SC);\n4. CIT v. Calcutta Discount Co. Ltd.', (1973) 91. ITR 8. (SC);\n5. Umacharan Shaw & Bros v. CIT', (1959)

37. ITR 271 (SC\nIncome assessed without evidence is bad-in-law.\nIncome assessed by revenue without supporting material is not justified.\n1. CIT V. BHUVANENDRA 303 ITR 235 (MAD.)\n2. VINOD SOLANKI VS. UOI (233) ELT 157 (S.C.)\n3. CIT V. KASHIRAM TEXTILE MILLS (P) LTD [2006]284 ITR

61. (GUJ)-\n4. SARASWATHI OIL TRADERS V. CIT [2000] 254 ITR 259 (SC)\nIncome cannot be assessed on mere statement basis. For assessment there has to\nbe some evidence.\nIncome cannot be assessed on mere retracted statement If not material to\nprove\n1. Meghraj Jain V. UOI (Bombay High Court)\n2. KailashbenManharlalChokshi v. CIT [2008] 174 Taxman 466 (Guj.)\n3. M. Narayanan & Bros. v. Asstt. CIT [2011] 201 Taxman 207 (Mag.)\n4. Bansal High Carbons (P)Ltd. 2009) 223 CTR 179 (Del).\n5. Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H)\n6. CIT vs. K. Bhuvanendra and others (2008) 303 ITR 235 (Mad.)\n7. Abid Malik Vs UOI, (2009TIOL272HC Del-FEMA)\n8. CIT vs. Uttamchand Jain 320 ITR 554 (Bom),\n9. Srinivas Naik (2009)117 ITD 201 (Bang)\nAddition cannot be made on assumption basis.\nThere must be some material on record as evidence for addition. Addition\nmade on the basis of presumption cannot be sustained in law.\n1. CIT v. Roman & Co., (1968) :

67. ITR 11. (SC)\n2. CIT v. Calcutta Discount Co. Ltd. (1973) 91. ITR 8. (SC)\n3. Omar Salay Mohamed Sait V/s CIT 1959

37. ITR 151 (SC)\n4. DhirajlalGirdharilal V/s CIT (26 ITR 734) (SC)\n5. Dr. Anita Sahai V/s DIT (266 ITR 597) (All)\n6. MODI Creations Pvt. Ltd. V/s ITO [2011] 13 taxmann.com 114 (Delhi)-It will\nhave to be kept in mind that section 68 only sets up a presumption against\nthe assessee whenever unexplained credits are found in the books of\naccount of the assessee. It cannot but be gainsaid that the presumption is\nrebuttable. In refuting the presumption raised, the initial burden is on the\nassesse. This burden, which is placed on the assesse, shifts as soon as the\nassesse establishes the authenticity of transactions as executed between\nthe assesse and its creditors.\n7. CIT- IV v. Shree Rama Multi Tech Ltd [2013] 34 taxmann.com 32\n(Gujarat):-Expenditure cannot be disallowed on account of 'bogus\npurchase' only on basis of assumption and presumption\n8. View taken in Modi creation Pvt. Ltd. Is also taken in following decision.\ni. CIT v/s Divine Leasing & Finance Ltd. 158 Taxmann 440\n(Delhi) (2007).\nii. Nemichand Kothari V/s CIT (136 Taxman 216) (Gau.) (2004).\niii. CIT V/s Value Capital Services (P) Ltd. 307 ITR 334\n(Delhi)(2008).\nThus, the addition made on the basis of bad-assessment order is also bad-in-law\nand requires to be deleted.\nE. CASE LAWS RELIED BY LD. AO DISTINGUISHED\n1. The Ld. AO in para 12.5pg no 28 of assessment order has laid reliance on Mc\nDowell and Co. Ltd. Vs. CTO 154 ITR 148 which is distinguished as under:-\nSR.\nNO.\nMC DOWELL AND CO. LTD.\nCASE OF ASSESSEE\n1.\n\"Tax planning may be legitimate\nprovided it is within the\nframework of law. Colourable\ndevices cannot be part of tax\nplanning and it is wrong to\nencourage or entertain the belief\nthat it is honourable to avoid the\npayment of tax by resorting to\ndubious method. It is obligation of\nevery citizen to pay the taxes\nhonestly without resorting to\nsubterfuges.\"\nThe fact remains that the assessee has\nduly placed on record the relevant\ncontract notes, share certificate(s),\ndetailed\ncorroborative documentary\nevidence indicating purchase / sale of\nshares through registered brokers by\nbanking channel, demat statements\netc., The Ld. AO's only case as per its\npleadings and unanimously conclusion\nthat there is very strong\ncircumstantial evidence against theassessee\nsuggesting bogus LTCG accommodation entries. I\nfind that there is not even a single case\nwhich could pin-point any making\nagainst the assessee which could be\ntaken as a revenue nexus.\n2. The Ld. AO in para 12.4pg no 27 of assessment order has laid reliance on\nfollowing case law as under and the same has been distinguished:\nSr.\nNo.\nSumatiDayal Vs. CIT (1995)\n214 ITR 801 (SC)\nCase of Assessee\n\"the principle of human\nprobabilities and applying it in that\ncase, held that whether apparent is\nreal is to be decided on the basis of\nincriminating circumstances. The\nsupreme court even took note of the\nscheme of converting black money\nWe discuss the modus operandi,\npreponderance of probability and human\nbehavior as laid down by Ld. AO. It can be\nnoted that the AO has rejected all evidences\nfiled by the assessee by referring to 'Modus\nOperandi\" of persons for earning long term\ncapital gains which is exempt from Income\n==End of OCR for page 28== into white through the route of\nlottery winnings ete by stating that\n\"In this context it would be relevant\nto mention that in order to give\neffect to the recommendations of\nthe Direct Taxes Enquiry\nCommittee funder the\nChairmanship of Justice K.N,\nWanchoo, retired Chief Justice of\nIndia) the definition of \"income\" in\nsection 2(24) of the Act was\namended with effect from April\n61.1972 by the Finance Act, 1972\nso as to include within its ambit,\nwinnings from he lotteries, cross\nword puzzles, races including horse\nraces, card games and other games\nof any sort or from, gambling or\nbetting of any form or nature\nwhatsoever. The reason underluing\nthe said amendment was that\nexemption from tax that was\nenjoyed in respect of such winnings\nhad provided scope for conversion\nof \"black\" money into \"white\"\nincome.\" The apex court concluded\nthat \"There is no dispute that the\namounts were received by the\nappellant from various race clubs\non the basis of winning tickets\npresented by her. What is\ndisputed is that they were really the\nwinnings of the appellant from the\nraces. This raises the question\nwhether the apparent can be\nconsidered as real. As laid down by\nthis Court, apparent must be\nconsidered real until it is shown\nthat there are reasons to believe\nthat the apparent is not the real\nand that the taxing authorities are\nentitled to look into the\nsurrounding circumstances to find\nout the reality and the matter has\nto be considered by applying the\ntest of human probabilities.\" \"\nGround 4\nOn the facts and circumstances of the case the AO erred in initiating penalty\nproceedings under section 271(1)(c) of Income Tax Act, 1961.\nThe Ld. AO erred in initiating penalty under section 271(1)(C) of the Income Tax\nAct, 1961.\nHUMBLE PRAYER\nIn view of the aforesaid facts and circumstances of the case and in the interest of\njustice the respondent humbly requests your Honour to consider the above\nsubmission and uphold the order passed by the National Faceless Appeal Centre.\n5.\nWe have heard the counsels for both the parties, perused the\nmaterial placed on record, judgments cited before us and also the\norders passed by the revenue authorities. From the records we\nnoticed that assessee being an individual, declared her income\nfrom LTCG from the sale of script of M/s Splash Media & Infra Ltd\nof Rs.3,56,92,613/- which was claimed exempt u/s 10(38) of the\nAct as the father of the assessee had purchased 10,000 shares of\nthe said scrip on 21.12.2009. From the records, we also noticed\nthat the said company i.e M/s Splash Media & Infra Ltd., had\nissued bonus shares in the ration of 3:1 as a result of which the\nresultant shares had become 40,000 bonus shares on 30.12.2009.\nThese shares were transferred in the D-mat account of the\nassessee and further the said company had split the face value of\nthe shares of Rs.10/- each to the face value of Rs.1/- each\nresulting into the total holding of the assessee to 4 lakh shares of\nthe company which the assessee had sold in A.Y 2011-12 on which\nthe assessee had earned LTCG of Rs.3,56,92,613/-.\n6.\nSubsequently the assessment was reopened and completed\nby making additions u/s 68 of the Act by treating total sale\nconsideration received as income from other sources. On further\nappeal, Ld. CIT(A) allowed the claim of the assessee.\n7.\nNow after appreciating the entire facts and circumstances of\nthe present case, we noticed that AO reopened the case of the\nassessee on the basis of information received from DDIT(Inv)\nKolkata to the effect that the assessee had obtained\naccommodation entries in the form of bogus LTCG and relied upon\nthe statement recorded of one Mr. Anil B Agarwal, wherein he had\nadmitted being a bogus entry provider and had provided bogus\nLTCG entry.\n8.\nAfter analyzing the entire records, we found that during the\nyear under consideration the assessee had sold shares and booked\nthe LTCG and the summary of which is reproduced herein below:\nIn Assessment year i.e. A Y 2011-12Assessee sold shares and booked the Long\nTerm capital gain. Summary is given as under. The brief facts of transaction are\nas under:\nName of scrip: Splash Media & Infra Ltd\nPURCHASE\nDate\nName of\nthe\nScript\nQuantity\nof\nShares\nRate\nDate of amount\ndebited in\nComfort\nSecurities\nLimited\nAmount Paid to\nComfort\nSecurities\nLimited\nChq No.\nName of\nBank\nAccount\n23/12/2009\nLuharuka\nMedia &\nInfotech\nLtd.\n10,000\n528.10\n30.12.2009\n01.01.2010\n11.01.2010\n16.01.2010\n10,00,000\n19,00,000\n20,00,000\n3,94,250\n218786\n218787\n218789\n218790\nUnion\nBank of\nIndia\n10,000\n59,24,250\nSALE\nDate\nName of the\nScript\nQty\nof\nShar\nes\nSold\nRa\nte\nShares\nSold\nDate\nof\nRecei\npt of\nMone\ny\nfrom\nComf\nort\nSecur\nities\nLimit\ned\nAmou\nnt\nRecei\nved\nfrom\nComf\nort\nin\nName of\nBank\nAmt\nCh\ngs\nNet\nsale\nDate\nAmou\nnt\nRecei\nved in\nour\nBank\nAcco\nunt\n12-\nSplash\nMedia &\nInfra Ltd.\n15,0\n00\n83.\n17\n12,47,\n523\n14-\n01-\n2011\n12,00,\n000\n14-01-\n2011\nUnion\nBank of\nIndia\n1,8\n85\n12,45,\n638\n17-\nSplash\nMedia &\nInfra Ltd.\n3,50\n0\n89.\n25\n3,12,3\n87\n21-\n01-\n2011\n3,60,0\n00\n21-01-\n2011\nUnion\nBank of\nIndia\n472\n3,11,9\n15\n27-\nSplash\nMedia &\nInfra Ltd.\n81,5\n00\n11\n95,35,\n573\n31-\n01-\n2011\n60,00,\n000\n31-01-\n2011\nUnion\nBank of\nIndia\n14,\n40\n95,21,\n168\n07-\nSplash\nMedia &\nInfra Ltd.\n1,00,\n000\n10\n1,02,0\n1,356\n16-\n02-\n2011\n50,00,\n000\n17-02-\n2011\nUnion\nBank of\nIndia\n15,\n410\n1,01,8\n5,946\n08-\nSplash\nMedia &\nInfra Ltd.\n25,0\n00\n10\n1.1\n25,29,\n725\n21-\n02-\n2011\n5,50,0\n00\n22-02-\n2011\nUnion\nBank of\nIndia\n3,8\n20\n25,25,\n905\n09-\nSplash\nMedia &\nInfra Ltd.\n1,75,\n000\n98.\n01\n1,71,5\n2,330\n10-\n03-\n2011\n2,60,0\n0,000\n11-03-\n2011\nUnion\nBank of\nIndia\n25,\n909\n1,71,2\n6,421\n21-\n03-\n2011\n10,00,\n000\n21-03-\n2011\nUnion\nBank of\nIndia\n31-\n03-\n2011\n06-04-\n2011\nUnion\nBank of\nIndia\nTOTAL\n4,00\n,000\n4,09,\n8,894\n4,10,\n50,11\n0\n61,\n901\n4,09,1\n6,993\nDATE\nPARTICULAR\nQTY\nRATE\nAMOUNT\n21-12-2009\nTotal Shares Purchased\n10,000\n528.63\n52,86,281\n14-12-2009\nBonus Share 3:1\n30,000\nTotal Shareholding\n40,000\n132.16\n52,86,281\n14-07-2010\nShares Split 10:1\n4,00,000\n13.22\n52,86,281\n9.\nWhereas the revenue authorities relied upon the\nfindings of DDIT(Inv), Mumbai and Kolkata and made the\nadditions.\n10. However, the fact remains that the shares in questions\nwere brought by the father of the assessee when the assessee\nwas minor and at the time of purchase the father of the\nassessee had made payments of full consideration from\nassessee's bank account and the entire payment was routed\nthrough banking channel and in this regard the relevant\ndocuments have already been placed on record at paper\nbook page No.

.\n7.2 Facts being pari-materia the same\nincluding the fact that assessment for\nboth the year is unabated assessment,\nour findings as well as adjudication as\nfor AY 2010-11 shall mutatis-mutandis\napply to both these year. Resultantly,\nthe appeals for both the year stands\npartly allowed.\n3\nIN THE INCOME TAX\nAPPELLATE TRIBUNAL,\nMUMBAI BENCH “A”,\nMUMBAI\nAmit H. Patel (HUF) Vs.\nDCIT-CC 3(4)\nITA Nos.5761, 5762, 5764\n& 5765/M/2019\nThe assessee was allotted warrants on\npreferential basis from M/S Comfort\nIntech Ltd. on 20.05.2008 for Rs.\n4,77,000/.\nShares were issued in lieu\nof warrants which were listed on\n21.11.2008 and listed on the exchange\nsame date. Thereafter the shares were\nsplit in the ratio of 1:10 on 14.10.2009.\nSimilarly the assessee was allotted\nwarrants on preferential basis by M/s\nSplash Media & Infra Ltd. and were\nconverted into shares and listed on the\nstock exchange on 29.10.2009.\nthereafter there was a bonus issue in\nthe ratio of 3:1 followed by shares split\nin the ratio of 1:10 on 27.07.2010.\nBoth these shares went up\nspirally over a short period of time\nAccording to the Revenue the said\ntransactions are suspicious and bogus\nwhich was revealed during the course\nof search and seizure action on the\nassessee. The search team found that\nthese two companies M/s. Comfort\nIntech Ltd. and M/s. Splash Media &\nInfra Ltd. which are listed on Bombay\nStock Exchange were used for\nproviding accommodation entries of\nlong term capital gain/ short term\ncapital gain.\nHeld that:\n15. Therefore, respectfully, following\nthe decision of the coordinate bench of\nthe Tribunal, we hold that the long\nterm capital gain on the sale of shares\nof M/s. Splash Media & Infra Ltd. is\nnot a bogus capital gain as the AO has\nsolely relied on the report of\ninvestigation/search team and has not\ncarried out any further verification on\nthe basis of documents furnished by\nthe assessee. Similarly, the position of\nlong term capital gain earned on the\nsale of shares of M/s. Comfort Intech\nLtd. Of Rs.1,34,42,069/- is same as\nthe assessee has filed all the necessary\nevidences before the AO and AO has\nfailed to carry out any further\ninvestigation to prove that the long\nterm capital gain earned by the\nassessee is bogus and fictitious.\nConsequently, theappeal of the\nassessee succeeds on merit also.\nAccordingly, the issue raised in ground\nNo.3 & 4 are allowed.\n16. The issue raised in ground No.5 is\nagainst the order of Ld. CIT(A)\nconfirming the\naddition\nof\nRs.46,64,066/- by Ld. CIT(A) as made\nby the AO under section 69 of the Act\ntowards commission paid on the\naccommodation entries. Since we have\nalready decided the grounds raising\nlegal as well as merits in favour of the\nassessee and consequently the addition\nof Rs.46,64,066/- is also ordered to be\ndeleted as this is consequential one.\nAccordingly the ground No.5 is allowed.\n17. Accordingly, the appeal of the\nassessee is allowed.\n4\nIN THE INCOME TAX\nAPPELLATE TRIBUNAL\nDELHI BENCH: SMC:\nNEW\nDELHI\nGopal Chand Mundhra\nand Sons Vs. ITO, Ward-\n55(5), New Delhi.\nITA No. 1375/Del/2019\n4. The Assessing Officer recorded the\nfollowing reasons for reopening of the\nassessment u/s 147 of the Act\n\"Information has been received from\nInvestigation Wing of the Income tax\nDepartment that large scale,\nmanipulation had been done in the\nmarket price of shares of SPLASH\nMEDIA by a group of persons acting as\na syndicate in order to provide entries\nof tax exempt long term capital gains to\nthe assessee (beneficiary). According to\nthe information available, the assessee\nhad traded in the above scrip to the\ntune of Rs.2374500/- during the\nfinancial year 2010-11 and bogus\nLTCG amounting to Rs.2116776 /-\nhad\nbeen facilitated to the assessee during\nthe financial year 2010-11. Hence, I\nhave reason to believe that the above\nincome of Rs.2116776/- chargeable to\ntax has escaped assessment for the\nasst, year 2011-12, within the meaning\nof sec.147 of the Income-tax Act.\"\nHeld that:\n26. Since the assessee succeeds on\nthis legal ground challenging the\nvalidity\nof\nreassessment\nproceedings, the addition on merit is\nnot being adjudicated being\nacademic in nature. The appeal filed\nby the assessee is accordingly\nallowed.\n27. In these appeals also identical\ngrounds have been taken by the\nrespective assessees and in all these\ncases the approving authorities have\ngiven approval to the reopening of\nassessment in a mechanical manner\nwithout due application of mind.\nTherefore, following the reasons\ngiven in the preceding paragraphs,\nthe reassessment proceedings\ninitiated in the case of these\nassessees are also held to be not in\naccordance with the law and are\naccordingly quashed.\n28. In the result, all the five appeals\nfiled by the respective assessees are\nallowed.\n16. Apart from the above reliance is also been placed on\nthe following case laws.\nSr.\nNo.\nCITATION\nOBSERVATION\n17.\nIn the SUPREME COURT\nOF\nINDIA Principal\nCommissioner of Income-\ntax v. Kuntala Mohapatra\nSLP (CIVIL) DIARY NOS.\n5269 OF 2024\nSection 10(38), read with sections 68 and 69, of\nthe Income-tax Act, 1961- Capital gains\nIncome arising from transfer of long term\nsecurities(Illustrations)\n Assessment year 2014-15- Assessee filed its\nreturn for relevant year Subsequently,\npursuant to a survey assessee filed revised\nreturn and claimed exemption in respect of\nlong-term capital gains on shares under section\n10(38) - Assessing Officer rejected assessee's\nplea and made additions undersections 68 and\n69 by relying on statements from 'entry\noperators' - On appeal, Commissioner (Appeals)\naccepted assessee's claim, noting that shares\nwere purchased via Account Payee Cheques,\nheld in a Demat Account for over 12 months,\nand sold through a recognized stock exchange\nafter payment of security transaction tax\nTribunal upheld Commissioner (Appeal)'s\ndecision, emphasizing assessee's right to\ncorrect mistakes and criticized Assessing\nOfficer's reliance on statements from 'entry\noperators' to support additions under sections\n68 and 69 as those statements were recorded in\nunrelated proceedings before survey on\nassessee, and assessee was not afforded an\nopportunity to challenge or cross examine\nproviders of those statements On revenue's\nappeal, High Court confirmed order of Tribunal\nWhether there was no reason to interfere with\norder passed by High Court and therefore, SLP\nwas to be dismissed Held, yes [Para 3] [In\nfavour ofassessee]\n18. [2015] 54 taxmann.com\n108 (Bombay) HIGH\nCOURT OF BOMBAY\nCommissioner of Income-\ntax-13 v. Shyam R. Pawar*\nDECEMBER 10, 2014\nSection 68 of the Income-tax Act, 1961 - Cash\ncredit (Share dealings) Assessment years\n2003-04 to 2006-07 - Assesse declared capital\ngain on sale of shares of two companies\nAssessing Officer, observing that transaction\nwas done through brokers at Calcutta and\nperformance of concerned companies was not\nsuch as would justify increase in share prices,\nheld said transaction as bogus and having been\ndone to convert unaccounted money of assesse\nto accounted income and, therefore, made\naddition under section 68 - On appeal, Tribunal\ndeleted addition observing that DMAT account\nand contract note showed credit/details of\nshare transactions; and that revenue had\nstopped inquiry at particular point and did not\ncarry forward it to discharge basic onus\nWhether on facts, transactions in shares were\nrightly held to be genuine and addition made by\nAssessing Officer was rightly deleted - Held, yes\n[Para 7] [In favor of assesse]\n19. [2014] 41 taxmann.com\n118 (Hyderabad - Trib.) IN\nTHE ITAT HYDERABAD\nBENCH 'A' Income-tax\nOfficer,\nWard\n2,\nNizamabad v. Smt. Aarti\nMittal* NOVEMBER 6,\n2013\nSection 10(38) of the Income-tax Act, 1961\nCapital gains - Exemption of, on transfer of\nsecurities [Genuineness of transactions]\n Assessment year 2006-07 Assesse filed its\nreturn declaring long term capital gains on\nshares traded in Calcutta Stock Exchange\nSince sale transactions took place through\nauthorized stock exchange and securities\ntransaction tax was paid, assesse claimed\nentire sale proceeds arising out of transaction\nas long term capital gain exempt from tax\nunder section 10(38) - Assessing Officer did not\nbelieve transactions in question as genuine and\ntreated entire sale proceeds as 'Income from\nOther Sources' Commissioner (Appeals)\nopined that in absence of any positive evidence,\nmerely on basis of suspicion, transactions\ncould not be held to be not genuine\nCommissioner (Appeals) thus set aside addition\nmade by Assessing Officer - It was noted that\neven though enquiry with Chennai Stock\nExchange (CSE) revealed that no purchase had\ntaken place through it, since transactions were\nin physical form and done through off market,\nquestion of same being routed through floor of\na recognized stock exchange did not arise It\nwas also apparent that assesse having\npurchased shares in question, converted them\nin D-mat form and thereupon sale of those\nshares was carried out through CSE after\npaying Securities Transaction Tax - Whether on\nfacts, transactions of purchase and sale of\nshares were to be regarded as genuine in\nnature and, therefore, assesses claim was\nrightly allowed - Held, yes [Para 23] [In favor of\nassesse]\n20. [2017] 77 taxmann.com\n260 (Ahmedabad Trib.)\nIN THE ITAT AHMEDABAD\nBENCH 'B' Pratik\nSuryakant Shah\nIncome-tax Officer, Ward-\n10 (3), Ahmedabad*\nOCTOBER 21, 2016\nSection 10(38), read with section 147, of the\nIncome-tax Act, 1961 Capital gains - Income\narising from transfer of long-term securities\n(Bogus transactions) Assessment year 2006-\n07 Assesse purchased 3000 shares of\ncompany 'T' through a stock broker These\nshares were transferred to assesses demat\naccount - However, said stock broker submitted\nbefore authorities that he was providing\naccommodation entries for taking profit or loss\nby showing purchase or sales of shares and\nsecurities commission from beneficiary parties\nand that assesse was one of beneficiary of such\naccommodation entries Assessing authorities\nreopened assessment of assesse Whether\nsince shares of said company was listed in\nBSE/NSE and these were also transferred to\ndemat account of assesse, assesses claim of\nexemptions of long-term capital gain on sale of\nshares could not be denied on basis of\nsubmission of said broker - Held, yes [Paras 17\nand 18] [In favor of assesse]\n21. ACIT\nvs.\nVineet\nSureshchandra Agarwal\n(ITAT Ahmedabad) ITA No.\n1442/Ahd/2013 & CO No.\n209/Ahd/2013\n Assessment Year : 2005-\n06\nBogus capital gains from penny stocks: The fact\nthat the Stock Exchanges disclaimed the\ntransaction is irrelevant because purchase and\nsale of shares outside the floor of Stock\nExchange is not an unlawful activity. Off-\nmarket transactions are not illegal. It is always\npossible for the parties to enter into\ntransactions even without the help of brokers.\nTherefore, it is not possible to hold that the\ntransactions reported by the assesse were sham\nor bogus\n22. Surya Prakash Toshniwal\nHUF vs. ITO (ITAT\nKolkata)\nITA\nNo.1213/Kol/2016\n Assessment Year :2005-06\nBogus capital gains from penny stocks: Long-\nterm capital gains claimed exempt u/s 10(38)\ncannot be treated as bogus unexplained income\nif the paper work is in order. The fact that the\nCompany whose shares were sold has violated\nSEBI norms and is not traceable does not mean\nthat the assesse is at fault\n23. CIT\nvs.\nMukesh S.\nRatilalMarolia (Bombay\nHigh Court) INCOME TAX\nAPPEAL NO. 456 OF 200 7\n7th September 2011\n10(38)/ 68: Long-term capital gains on sale\nof \"penny\" stocks cannot be treated as bogus &\nunexplained cash credit if the documentation is\nin order & there is no allegation of\nmanipulation by SEBI or the BSE. Denial of\nright of cross-examination is a fatal flaw which\nrenders the assessment order a nullity\n24. Smt. Sunita Jain, V/s.\nIncome Tax Officer,\nWard10 (3), Ahmedabad\nITA. Nos: 501 &\n502/AHD/2016\n Assessment Year: 2008-\n09)\nThe claim of the assesse cannot be denied on\nthe basis of presumption and surmises in\nrespect of penny stock by disregarding the\ndirect evidences on record relating to the\nsale/purchase transactions in shares\nsupported by broker's contract notes,\nconfirmation of receipt of sale proceeds through\nregular banking channels and the demat\naccount\n25. ITO-24(3)(1) V/s M/s\nArvind Kumar Jain HUF\nITA No. 4862/MUM/2014\n Assessment Year: 2005-06\nWhere assesses broker share transaction was\nbone fide in all respect, merely because share\nbroker was tainted violating SEBI regulations,\nwould not make assesses share transactions\nbogus.\n26. Kamla Devi S. Doshi V/s.\nThe Income Tax Officer\nWard 16(3)(1), I.T.A.\nNo.1957/Mum/2015\n Assessment Year: 2006-\n07)\nBogus penny stocks capital gain: The s.131\nstatement implicating the assesse is not\nsufficient to draw an adverse inference against\nthe assesse when the documentary evidence in\nthe form of contract notes, bank statements,\nSTT payments etc prove genuine purchase and\nsale of the penny stock. Failure to provide\ncross-examination is a fatal error\n27. Shri Sunil Prakash V/s.\nACIT\n-15(2)\nΙ.Τ.Α./6494/Mum/2014,\n Assessment Year: 2005-06\nS. 68 bogus gains from penny stocks: If the AO\nrelies upon the statement of a third party to\nmake the addition, he is duty bound to provide\na copy of the statement to the assesse and\nafford the opportunity of cross-examination.\nFailure to do SO vitiates the assessment\nproceedings. A transaction evidenced by\npayment/receipt of share transaction value\nthrough banking channels, transfer of shares in\nand from the Dmat account, etc cannot be\ntreated as a bogus transaction so as to attract\ns.68\n28. Pramod Kumar Lodha vs.\nITO (ITAT Jaipur)\nS. 10(38) Bogus long-term gains from penny\nstocks: The transaction cannot be treated as\nbogus until and unless a finding is given that\nthe shares were acquired by the assesse from\nthe person other than the broker claimed by the\nassesse. The enquiry conducted by the\nInvestigation Indore is not a conclusive finding\nof fact in view of the fact that the shares were\nduly materialized & held in the d-mat account.\nMerely supplying of statement to the assesse at\nthe fag end of the assessment proceedings is\nnot sufficient to meet the requirement of giving\nan opportunity to cross examine. The AO\ncannot proceed on suspicion without any\nmaterial evidence to controvert or disprove the\nevidence produced by the assesse\n29. Navneet Agarwal vs. ITO\n(ITAT Kolkata)\nBogus Capital Gains From Penny Stocks: In\norder to treat the capital gains from penny\nstocks as bogus, the Dept has to show that\nthere is a scam and that the assesse is part of\nthe scam. The chain of events and the live link\nof assesses action giving her involvement in the\nscam should be established. The Dept cannot\nrely on alleged modus operandi & human\nbehavior and disregard the evidence produced\nby the assesse. All imp judgements referred\n30. ACIT vs. Vineet\nSureshchandra Agarwal\n(ITAT Ahmedabad)\nBogus capital gains from penny stocks: The fact\nthat the Stock Exchanges disclaimed the\ntransaction is irrelevant because purchase and\nsale of shares outside the floor of Stock\nExchange is not an unlawful activity. Off-\nmarket transactions are not illegal. It is always\npossible for the parties to enter into\ntransactions even without the help of brokers.\nTherefore, it is not possible to hold that the\ntransactions reported by the assesse were sham\nor bogus\n31. Meenu Goel vs. ITO (ITAT\nDelhi)\nBogus Capital gains from penny stocks: Capital\ngains from penny stocks cannot be assessed as\nunexplained cash credit u/s 68 if the assesse\nhas produced documentary evidence to prove\nthe source, identity and genuineness of the\ntransaction and the AO has not found any fault\nwith it. The fact that the investigation dept has\nalleged that there is a modus operandi of bogus\nLTCG scheme is not relevant if the same is not\nsubstantiated\n32. Dipesh Vardhan and others\nVS DCIT-Central\nCircle\nΙ.Τ.Α. No.7648,\n7650,\n7651\n7662/Mum/2019\nand\nS. 10(38)/68: Bogus Capital Gains from\nPenny Stocks: The AO has not discharged\nthe onus of controverting the documentary\nevidences furnished by the assessee and by\nbringing on record any cogent material to\nsustain the addition. The allegation of price\nrigging / manipulation has been levied\nwithout establishing the vital link between\nthe assessee and other entities. The whole\nbasis of making additions is third party\nstatement and no opportunity of cross-\nexamination has been provided to the\nassessee to confront the said party. As\nagainst this, the assessee's position that\nthe transactions were genuine and duly\nsupported by various documentary\nevidences, could not be disturbed by the\nrevenue\nPara 6 of the order states as follows:-The\nperusal of record would reveal that the\nassessee purchased certain shares of an entity\nnamely M/s STL as early as September, 2011.\nThe shares were converted into demat form in\nassessee's account during the month of March,\n2012. The transactions took place through\nbanking channels. The investments were duly\nreflected by the assessee in financial\nstatements of respective years. The copies of\nfinancial statements of M/s STL for FYs 2009-\n10 & 2010-11 which led to investment by the\nassessee in that entity was also furnished\nduring the course of assessment proceedings.\nSubsequently, M/s STL got merged with\nanother entity viz. M/s SAL(Sunrise Asian Ltd.)\npursuant to scheme of amalgamation u/s 391\nto 394 of The Companies Act, 1956. The\nScheme was duly approved by Hon'ble Bombay\nHigh Court vide order dated 22/03/2013, a\ncopy of which is on record. Consequently, the\nshares of M/s STL held by the assessee got\nswapped with the shares of M/s SAL and new\nshares were allotted to the assessee during\nJune, 2013 pursuant to the approved scheme\nof amalgamation. M/s SAL is stated to be\nlisted public company Group 'A' shares\nsignifying high trades with high liquidity. The\nassessee has sold these shares through its\nstock broker namely M/s Unique Stockbro\nPrivate Limited in online platform of the\nrecognised stock exchange during the month of\nMarch, 2014. The selling price was in the\nrange of Rs.489/- to Rs.491/- per share. The\ntransactions took place through online\nmechanism after complying with all the\nformalities and procedure including payment\nof STT. The delivery of the shares was through\nclearing mechanism of the stock exchange and\nsale consideration was received through\nbanking channels. The transactions are duly\nevidenced by contract notes, demat\nstatements, bank statements and other\ndocumentary evidences. The key person of\nassessee group, in his statement, maintained\nthe position that trading transactions were\ngenuine transactions carried out through stock\nexchange following all process and legal\nprocedures. The assessee also filed trading\nvolume data and price range of the scrip for a\nperiod of more than 2 years i.e. from Jan, 2013\nto July, 2015.The shares reflected healthy\ntrading volume and the price range reflected\ntherein was in the range of Rs.360/- to\nRs.600/- per share. The price range was stated\nto be in the same range for 15 months after the\nperiod of sale of shares by the assessee, which\nhas not been disputed by the revenue. On the\nbasis of all these facts, it could be gathered\nthat the assessee had duly discharged the\nonus casted upon him to prove the\ngenuniness of the stated transactions and\nthe onus had shifted on revenue to rebut\nthe same. Resultantly, the addition on\naccount of alleged Long-Term Capital Gains as\nwell as estimated commission against the\nsame, stands deleted. The grounds of appeal,\nto that extent, stand allowed.\n17 Although in the order of assessment, the AO had also\nrelied upon the decision in the case of Mc. Dowell and Co.\nVs. СТО, 164 ITR 148 but the decision of the said case is\ndifferent from the facts of the present case as in the case of\nMc. Dowell and Co. Vs. СТО, 164 ITR 148. Wherein it was\nalso held as under:\n\"Tax planning may be legitimate provided it is within the framework of\nlaw. Colourable devices cannot be part of tax planning and it is wrong to\nencourage or entertain the belief that it is honourable to avoid the\npayment of tax by resorting to dubious method. It is obligation of every\ncitizen to pay the taxes honestly without resorting to subterfuges.\"\n18 However, in the case of assessee the fact remains that\nthe assessee has duly placed on record the relevant contract\nnotes, share certificate(s), detailed\ncorroborative\ndocumentary evidence indicating purchase / sale of shares\nthrough registered brokers by banking channel, D-mat\nstatements etc., The AO's only case as per its pleadings and\nunanimously conclusion that there is very strong\ncircumstantial evidence against the assessee suggesting\nbogus LTCG accommodation entries. We find that there are\nno circumstances or documents placed on record by the\nrevenue to pin-point with cogent evidence that the assessee\nhas connived with any penny stocks / share to earn long\nterm capital gain thus Ld. CIT(A) had rightly held the sale of\nshares in question and treated the same as genuine and\nallowed the exemption u/s 10(38) of the Act.\n19. Although the AO had also relied upon the decision in\nthe case of Sumati Vs. CIT 1995 414 ITR 801, wherein it\nwas held as under:\n\"the principle of human probabilities and applying it in that\ncase, held that whether apparent is real is to be decided on the\nbasis of incriminating circumstances. The supreme court even\ntook note of the scheme of converting black money into white\nthrough the route of lottery winnings ete by stating that \"In this\ncontext it would be relevant to mention that in order to give\neffect to the recommendations of the Direct Taxes Enquiry\nCommittee funder the Chairmanship of Justice K.N, Wanchoo,\nretired Chief Justice of India) the definition of \"income\" in\nsection 2(24) of the Act was amended with effect from April\n61.1972 by the Finance Act, 1972 so as to include within its\nambit, winnings from the lotteries, cross word puzzles, races\nincluding horse races, card games and other games of any sort\nor from, gambling or betting of any form or nature whatsoever. The reason underluing the said amendment was that\nexemption from tax that was enjoyed in respect of such winnings had\nprovided scope for conversion of \"black\" money into \"white\"\nincome.\" The apex court concluded that \"There is no dispute that\nthe amounts were received by the appellant from various race\nclubs on the basis of winning tickets presented by her. What is\ndisputed is that they were really the winnings of the appellant\nfrom the races. This raises the question whether the apparent\ncan be considered as real. As laid down by this Court, apparent\nmust be considered real until it is shown that there are reasons\nto believe that the apparent is not the real and that the taxing\nauthorities are entitled to look into the surrounding\ncircumstances to find out the reality and the matter has to be\nconsidered by applying the test of human probabilities.\"\n20. However as per the facts of the present case, as has\nbeen discussed by above, the modus operandi, preponderance\nof probability and human behavior. It can be noticed that the\nAO had rejected all evidences filed by the assessee by\nreferring to 'Modus Operandi\" of persons for earning long\nterm capital gains which is exempt from Income tax under\nsection 10(38) of the Act. In our view, all these observations\nare general in nature and are applied across the board to all\nincluding the assessee. Specific evidences produced by the\nassessee were not controverted by the revenue authorities.\nNo evidence collected by the AO from the third parties was\nconfronted to assessee. Even no opportunity of cross-\nexamination of persons, on whose statements the revenue\nrelies to make the addition, was provided to the assessee.\nTherefore the addition in the present case were made on the\ngeneral report from the investigation wing. The case laws\nrelied by AO are distinguished by placing reliance on the\ndecision of Hon'ble Supreme Court in the case of Omar\nSalay Mohamed Sait v. CIT [1959]

37. ITR 151 (SC)\nwherein it was held that ‘no addition can be made on the\nbasis of surmises, suspicion and conjectures'. In the case of\nCIT v. Daulat Ram Rawatmull [1973]

87. ITR 349 (SC) the\nHon'ble Supreme Court held that, ‘the onus to prove that the\napparent is not real is on the party who claims it to be so. The\nburden of proving a transaction to be bogus has to be strictly\ndischarged by adducing legal evidences, which would directly\nprove the fact of bogusness or establish circumstance\nunerringly and reasonably raising interference to that effect'.\nThe Hon'ble Supreme Court in the case of Umacharan Shaw\n& Bros. v. CIT (1959) [1959]

37. ITR 271 (SC) held that\n‘suspicion however strong, cannot take the place of evidence.\nCourts of law are bound to go by evidence'.\n21. Thus in this way the decision in the case of Sumati Vs\nCIT (supra) is not applicable to the facts of the present case.\n22. No new facts or circumstances have been placed on\nrecord in order to controvert or rebut the findings so\nrecorded by Ld. CIT(A). Therefore, we see no reasons to\ninterfere into or to deviate from the lawful findings so\nrecorded by Ld. CIT(A). Hence, these grounds raised by the\nrevenue stands dismissed.\n23. In the result the appeal filed by the revenue stands\ndismissed.\nOrder pronounced in the open court on 06.08.2025\nSd/-\nSd/-\n(GIRISH AGRAWAL)\nACCOUNTANT MEMBER\n(SANDEEP GOSAIN)\nJUDICIAL MEMBER\nMumbai, Dated 06/08/2025\nKRK, PS\nआदेश की प्रतिलिपि अग्रेषित/