INCOME TAX OFFICER, PIRAMAL CHAMBERS vs. KETAN DILIP SHAH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL
“SMC” BENCH, MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER
(Hybrid hearing)
Income Tax Officer
Room No. 613, 6th Floor,
Piramal Chambers,
Maharashtra-400012. Vs
Ketan Dilip Shah
A- 151, Grand Paradi Apartments,
August Kranti Marg, Cumballa Hill,
Maharashtra-400026. [PAN: AAEPS3824N]
Appellant / Revenue
Respondent / Assessee
Assessee by Sh. Hitesh P. Shah, CA (Virtually)
Revenue by Sh. Surendra Mohan, Sr. DR
Date of institution of appeal
Date of hearing
29.03.3025
15.07.2025
Date of pronouncement
15.07.2025
Order under section 254(1) of Income Tax Act
PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of Ld. CIT(A)/ADDL/JCIT(A) dated 24.01.2025 for assessment year (AY) 2015-16. The revenue has raised following grounds of appeal: 1. "Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred in deleting the disallowance of Rs. 6,06,430/ being claimed as Long Term Capital Gain u/s 10(38) of the LT. Act on sale of penny stock scrip Rajlaxmi Industries Ltd?"
Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred deleting the disallowance of Rs 3032/- being commission u/s 690 of the Act, for arranging bogus capital pain transactions on sale of penny stock scrip M/s. Rajlaxmi Industries Ltd ?"
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 6,06,430/-claimed as LTCG, without appreciating the fact that the assessee's case was re-opened, on the basis of the information received from DDIT(Investigation & Mumbai that assessee was one of the beneficiaries of the scheme, which hatched by promoter/brokers/operators, all have in collusion rigged the prices of M/s Rajlaxmi Industries Ltd." for commission and that the capital gains arisen on Ketan Dilip Shah 2
sale of this scrip was an arranged transaction and was executed to obtain accommodation entries of bogus LTCG to the beneficiary after routing unaccounted money?"
4. Whether on the facts and circumstances of the case and in law, Lt. CITIA) has erred in deleting the disallowance claimed, as exemption of LTCG, without appreciating the facts that the assessee has entered into penny stock transaction, which was arranged transaction, which involve the series of preconceived steps and lack of commercial content and totally an artificially structured transaction entered into with the sole intent to evade taxes?"
Whether on the facts and circumstances of the case and in law, the Ld.
CIT(A) has erred in deleting the disallowance claimed as LTCG, without appreciating the order of SEBI, Dated. 11.04.2022, who has conducted an enquiry of 13 entities (promoters/ brokers/operators) in the matter of price manipulation in the penny stock M/s. Rajlaxmi Industries Ltd" and the SEBI has penalised all the 13 entities who have involved in manipulated the price of the scrip by trading in small quantities and trading among themselves and provided an exit platform to the connected amalgamation allotters, who sold the substantial shares at the inflated price and made substantial and wrongful gain?".
Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in deleting the disallowance claimed, as exemption of LTCG without appreciating the nature of the transactions by accepting the documentation presented by the assessee at face value, without adequately considering the underlying fraudulent intent and the orchestrated steps taken to present these transactions as genuine. The assessment of the true character and intent behind these transactions was crucial and has been overlooked?"
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that the direct and circumstantial evidences in view of the decision of Durga Prasad More (1971) 82 ITR 540 (8C) and SumatiDayal [1995] 80 Taxmann. 89(SC) [1995] 2014 ITR 801 (SC)/ [1995) 125 CTR 124(SC), rendered by the Supreme Court, where it was held that Hon'ble Court and Tribunal have to judge the evidences before it by applying the test of probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer ?"
Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred in deleting the entire disallowance claimed as exemption of LTCO, by ignoring the fact that in such cases, where there was a suspicious or bogus trade, the onus is on the assessee to establish the genuineness of price hike and also to prove that the price of penny stock in which was Ketan Dilip Shah 3
traded to claimed LTCG/STCG or loses was not manipulated. The reliance is placed on judgment of Hon'ble Calcutta High Court's decision in the case of Pr. CIT Vs Swati Bajaj (I. A. No. GA/2/2022) in ITAT No 6 of 2022, Dated.
14.06.2022. 9. Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in deleting disallowance claimed, as exemption of LTCO, without appreciating the facts that on the similar issue of LTCO, the Hon'ble ITAT,
Kolkata in the case of Manoj Jain (HUF) in ITA No.1782/KOL/2018, treated the penny stock transaction as income from other sources instead of LTCG, and the same was upheld by the Hon'ble High Court Calcutta (2024) 164
taxmann.com 133 (Calcutta), which has been confirmed by the Hon'ble
Supreme Court by dismissing SLP in SLP (c) of 21636/2024 Dated.
20.09.2024. 10. The tax effect involved in this case is Rs. 1,88,324/, which is below the prescribed limit mentioned in the CBDT's Circular F.No.279/Mise 142/2007-
ITJ(Pt) amended vide No. 09/2024 dated. 17.09.2024 and this case also falls under one of the exceptions specified in the of the CBDT's Circular No 05/2024 Dated, 15.03.2024, wherein it is stated that in cases involving
"Organized Tax Evasion" including cases of accommodation entry of penny stocks the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit 4
The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.”
Rival submissions of both the parties have been heard and record perused. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue submits that assessee is beneficiary of long term capital gain availed on sale of penny scrips of Rajlaxmi Industries Ltd. Rajlaxmi Industries Ltd. is a penny scrip company as has been proved in the investment carried out by Investigation Wing. The assessing officer in the assessment order recorded the modus operandi of entry provider. The said company was not having sound financial, despite such facts the assessee have purchased share of such penny stock company. The assessee has shown transaction of share by managing a back dating of purchases and have shown long holding period. Ketan Dilip Shah 4
The ld. CIT(A) allowed relief to the assessee on the basis of submission of assessee. The ld. Sr. DR for the revenue submits that ld. CIT(A) while allowing relief ignored the human probabilities and has not considered the material brought on record by assessing officer.
3. On the other hand, learned Authorised Representative (ld. AR) of the assessee submits that assessee has purchased 2,000 shares of Rajlaxmi
Mercantile Company Limited (Rajlaxmi Industries) for total of Rs. 25,000/-.
The assessee purchased a share of face value of Rs. 10/- at a premium of Rs.
2.50 per share that is @ 12.50 per share. The assessee made payment of purchase consideration by way of cheque in 1994. Such transaction is confirmed by successor of Rajlaxmi i.e. Gini Silk Mills. Physical share was received in 1994. The shares were dematerialised when it was made compulsory for dematerialisation of shares of listed public company in 2013
200 ITD 389/149 taxmann.com 479 (Delhi – Trib.).
4. I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that assessing officer at the time of assessment noted that assessee has claimed long term capital gain on the sale of share of Rajlaxmi Mercantile Company Limited which is claimed as exempt under section 10(38) of Income Tax Act. The assessee was asked to furnish details of transaction of shares. In response to such notice, the assessee furnished details of purchase of shares and cost of acquisition as has been recorded in para 5 of assessment order. The assessing officer instead of making any verification of facts made adverse remark and straightway recorded that assessee is involved in penny stock shares. The assessing officer recorded modus operandi of penny stock operators from page no. 2 and hold that profits on shares is beyond human probabilities. The assessing officer referred financial of impugned shares
Scrips Company. The assessing officer extracted the financial of Rajlaxmi from which is based from research on “Dion Global Solution Ltd.”. I further find that assessee was called for recording his statement. The statement of assessee was recorded by ITO / assessing officer in detail as has been Ketan Dilip Shah
6
recorded at page no. 10 to 14. The assessing officer asked about 49
questions to assessee. The assessee in response to various questions firmly remained on his stand that he purchased share in 1994 by making cheque payment and sold after more than 19 years. The assessee explained that there is no question of accommodation entry. The assessee also stated that he has sold such share before the alleged statement of entry provider recorded by Investigation Wing. The share was sold through recognised broker of stock exchange. He does not know who is the buyer of shares. His purchase and sale of shares are genuine, bona fide and beyond any doubt.
The assessee in response to question no. 49 also stated that he also given
10% dividend in year 1997 which is shown in his return of income for A.Y.
1997-98. The assessee also furnished extract from the