MR. DURGESH RAMASHANKAR RAI ,MUMBAI vs. ITO WARD 41(1)(1), MUMBAI

In the facts and circumstances of the case and in law it is submitted that the learned CIT (A) erred in confirming the impugned addition of Rs. 5,42,69,856 made u/s 69 without considering that: a The said addition is based on only surmises and suspicions b There was no link at all between the Appellant and Mr. Naresh Jain c. All the transactions in reference were in the nature of day trading transactions and hence funds involved cannot compute to Rs. 5,42,69,856 but only to profit made/loss incurred in such transactions d. No opportunity to cross Mr. Naresh Jain or to rebut the adverse statements relied on by the learned AO was given. E Provisions of section 69 had no application F Provisions of section 115BBE had no application

Without prejudice to the above, in the facts of the case the quantum, of addition of Rs. 5,42,69,856 is grossly arbitrary and on extremely higher side and the same is clearly untenable as the said addition represents only the gross sales value and no deduction is granted for corresponding purchase value 1,80,62,80,957

The assessee is an individual filed the return of income for AY 2015-16 on 19.07.2021 declaring a total income of Rs. 3,75,160/-. There was a search operation in the case of Shri Naresh Jain wherein it was found that Shri Naresh Jain and his Mr. Durgesh Ramashankar Rai Associates were involved in providing accommodation entries in the form of Long Term Capital Gain / Loss (LTCG/LTCL) and the Short Term Capital Gain / Loss (STCG/STCL) from the purchase and sale of various fictitious entities. The AO based on the information received from the DDIT (Inv.) issued a notice under section 148 to the assessee stating that the assessee has traded in the two of the alleged penny stock companies to the tune of Rs. 5,42,69,856/-. The AO called on the assessee to furnish details pertaining to the impugned transactions. The assessee in response submitted that he is not aware of the impugned transactions and that the transactions have been carried out by his broker M/s Amrapali Aadya Trading and Investment Pvt. Ltd. The assessee also submitted the broker's statements containing the impugned transactions to substantiate that the broker has entered into the day trading and that the assessee has received neither the scrip nor the amount. The assessee without prejudice submitted that the impugned transaction resulted in a meagre profit of Rs. 36,765/- which can be added to the income of the assessee. The AO however did not accept the submissions of the assessee and added the entire sale proceeds of Rs. 5,42,69,856/- to the income of the assessee. On further appeal, the CIT(A) confirmed the addition. The assessee is in appeal before the Tribunal against the order of the CIT(A).

The ld. AR submitted that the assessee is a salaried person and has paid a deposit of Rs. 50,000/- to the broker for entering into transactions in shares. The assessee is not aware of the day trading entered into by the broker since in a day trading the delivery of the scrips does not happen and the money towards purchase and sales also are not passed through the banking channel. The ld. AR in this regard submitted the statement of one of the day tradings carried out by the broker (page 1 to 192 of PB). The ld. AR further submitted the bank statement of the assessee (page 3 to 25 of PB-2) in support of the claim that the alleged trading in penny stock is not Mr. Durgesh Ramashankar Rai routed through the bank account of the assessee. The ld. AR also submitted that the AO while making the addition has not recorded any finding adverse against the assessee and that there is no finding that the assessee is involved in the price manipulation. Accordingly, the ld. AR argued that the mere fact that the assessee's broker has entered into day trading in the alleged penny stock cannot be the basis for making the entire turnover as an addition in the hands of the assessee.

The ld. DR on the other hand argued that the assessee has not filed the return of income and while filing the return of income in response to notice under section 148 of the Act did not include the LTCG. The ld. DR further argued that the claim of the assessee that the broker has carried out the transactions without his knowledge is an afterthought and that the broker would not have carried out the transactions without assessee's knowledge. The ld. DR also argued that the impugned transactions of the bogus scrips are carried out for the purpose of price manipulation and accordingly the lower authorities have correctly made the addition.

We heard the parties and perused the material on record. The AO has received information from DDIT (Inv.) that the assessee has entered into huge transaction in the scrips of bogus entities. Accordingly, the AO reopened the assessment. The AO did not accept the submissions of the assessee that the broker has used the assessee's account to carry out the day trading and that the assessee is not aware of the impugned transaction. Accordingly, the entire sale proceeds were added to the income of the assessee. From the perusal of the record, we notice that the assessee is a salaried employee and the gains or losses from the alleged bogus transactions are not routed through the bank account of the assessee. We further notice from the broker's statement the purchase and sale of the impugned scrips has happened on the Mr. Durgesh Ramashankar Rai same day and that the entire transactions resulted in a meagre profit of Rs. 36,776/-. We also notice that the only reason for making the addition in the hands of the assessee is that the huge transactions carried out by the broker are in the scrips of bogus companies and that the AO has nor recorded any finding linking the assessee to the price rigging. We also notice that the AO has not recorded any adverse findings regarding the broker's statement or the other documentary evidences filed by the assessee. From the perusal of records we notice that the assessee has filed an affidavit dated 22.05.2025 stating that the broker has used the assessee's account without his knowledge to carry out day trading and that the assessee has closed the Demat A/c in 2016. The assessee has further mentioned that he is not aware of the transactions carried out by the broker and that he has no connection either with Mr. Naresh Jain or the bogus entities. Considering the facts and circumstances as enumerated hereinabove, we see merit in the contention of the ld. AR that the impugned transaction carried out by the broker are done behind assessee's back since the bank account of the assessee substantiates the fact that the neither the sale nor the sale proceeds are routed through assessee's bank account. Accordingly we hold that AO is not correct in making the addition merely based on the fact that the broker has carried out day trading in the alleged penny stock in the name of the assessee and without recording any adverse findings linking the assessee in anyway to the impugned transactions. Accordingly, we direct the AO to delete the addition made in this regard.

In result, the appeal of the assessee is allowed.