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Facts
The revenue filed appeals against the Ld.CIT(A)'s order deleting an addition made by the AO. The addition was made on account of alleged manipulation of JRI Industries Infrastructure Ltd. (JRIIIL) share prices, treating the sale consideration as unexplained cash credit. The assessee had traded these shares and offered the profit, but no long-term capital gains exemption was claimed.
Held
The Tribunal held that the assessee had already accounted for the sale consideration in its Profit & Loss Account, and taxing it again would lead to double taxation. Relying on previous decisions, the Tribunal stated that if sale transactions are treated as bogus, they must be removed from the turnover, potentially resulting in a loss that could be set off, making the exercise tax-neutral.
Key Issues
Whether the addition made by the AO treating sale consideration as unexplained cash credit is justified when the profit was already offered to tax and no capital gains exemption was claimed, especially when similar issues have been held to be tax-neutral.
Sections Cited
250, 143(3), 147, 68, 10(38), 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
This group of appeals is filed by the revenue against the order of theLd. Commissioner of Income-tax (Appeals)-54, Mumbai [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), on 27/11/2024 for Assessment Year 2013-14 and on 03/12/2024 for AYs 2014-15, and 2015-16. The impugned orders were emanated from the order of the Ld. Assistant Commissioner of Income-tax, Central Circle 6(3), Mumbai (in short, ‘the A.O.’) passed under section 143(3)read with section 147 of the Actdated 23/02/2022 for all the assessment years.
All the appeals have same nature of facts and also have common issue. So, (A.Y. 2013-14) is taken as lead case.
ITA No.520/Mum/2025 (A.Y. 2013-14)
“1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that it was established by the Assessing Officer during the assessment proceedings that the scrip of JRI Industries Infrastructure Limited was rigged to increase its volume artificially so as to provide accommodation entry in the form of LTCG to various beneficiaries which also include the assessee and the assessee also accepted that it sold the shares of JRIIII, worth Rs.27,19,277/- during the assessment proceedings?" 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in merely relying upon the decision of the Hon'ble ITAT, Jaipur in the case of DCIT us. Shri Sandeep Chhabra and others (ITA No.42 to 46/JP/2020) without appreciating the fact that the department had not accepted the decision of the Hon'ble ITAT, Jaipur in the above said case, and preferred further appeal before the Hon'ble Jaipur High Court?" 3. "Your appellant craves leave to add, alter or amend any of the Grounds of appeal
.”
3. The brief facts of the case are that the assessee is engaged in real estate dealings and share trading. During the impugned assessment year, the assessee engaged in substantial share trading, amounting to Rs. 22,94,83,142/-. As part of this trading activity, the assessee also traded shares of JRI Industries Infrastructure Ltd. (hereinafter referred to as "JRIIIL") to the extent of Rs.27,19,277/-. The net profit derived from the trading of JRIIIL shares was duly offered to tax in the assessee’s return of income. The Ld. AO, based on information received from the Investigation Wing, treated the said scrip as a penny stock. In response to the show cause notice, the assessee submitted that the total trading in JRIIIL shares was limited to Rs. 27,19,277/- and that the net profit thereon was appropriately disclosed in the return of income. The assessee further contended that no long-term or short-term capital gains had been claimed in respect of the said scrip.The Ld. AO, relying on information received from the Investigation Wing, concluded that the price of JRIIIL shares had been artificially rigged to manipulate share prices and facilitate beneficiaries in claiming exemptions on long-term capital gains. Upon analyzing the financials of JRIIIL, the Ld. AO made an addition of Rs. 27,19,277/-, treating the Aggrieved by this addition, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the assessee’s submissions, observed that the issue was squarely covered by the decision of the ITAT, Jaipur Bench, in DCIT v. Sandeep Chhabra & Others (ITA Nos. 42 to 46/JP/2020), wherein the Co-ordinate Bench upheld the order of the Ld. CIT(A) and deleted the addition made under section 68 of the Act in respect of JRIIIL share transactions.Relying on the decision of the ITAT, the Ld. CIT(A) deleted the addition. Aggrieved by this order, the revenue has now filed the present appeal before us.
The Ld.DR argued vehemently and relied on the order of the revenue authorities.
The Ld. AR advanced arguments and submitted a written submission spanning pages 1 to 7, wherein the balance sheet for the impugned financial year reflects a stock of shares amounting to Rs. 6,69,01,536/- and a turnover of Rs. 22,94,83,142/-. The assessee engaged in share trading, and the net profit from such trading was duly offered to tax in the return of income.The Ld. AR contended that the assessee had already accounted for the sale consideration in the Profit & Loss Account and taxing the same amount again would lead to double taxation. It was further argued that if the entire sale transaction were to be treated as bogus, the corresponding net profit would consequently result in a loss, which would then be adjustable against the addition made. Therefore, the entire exercise would ultimately be tax neutral.
In support of this contention, the Ld. AR respectfully relied on the decision of the ITAT, Mumbai Bench “A” in Aadesh Commodities Pvt. Ltd. v. National Faceless Assessment Centre, Delhi, Order dated 19/08/2024. The relevant paragraphs 9 & 10 are extracted below: - “9. As is evident from the record, the assessee has included the sale consideration of Rs. 29,61,653 from the sale of shares ofM/s ACI Infocom Ltd and sale consideration of Rs.1,03,03,918 from the sale of shares ofNYSSA Corporation Ltd in its profit and loss account for Vijaylaxmi Developers the year under consideration.Further, the assessee has paid the tax on the profit earned from the aforesaid transaction. However, while concluding the assessment, the AO again made an addition of Rs.1,32,65,571 under section 68 read with section 115BBE of the Act. In our considered opinion, even if the total receipt amounting toRs.1,32,65,571 is treated as unexplained cash credit, the AO is required to reduce the said amount from the income side and then proceed further to make an addition under section 68 of the Act. As noted elsewhere, the assessee filed its return of income declaring a total loss of Rs.54,269, and if total profit from sale of shares ofNYSSA Corporation Ltd and M/s ACI Infocom Ltd amounting to Rs.15,08,339 (Rs.9,65,221 + Rs.5,43,118) is reduced on account of reduction of total receipts from the income side, the same will increase the loss of the assessee, which is required to be set off with the addition made under section 68 of the Act. Therefore, resulting in the entire exercise being tax- neutral. This position is supported by the CBDT’s Circular No. 11 of 2019, wherein it was clarified that up to the assessment year 2016-17, the losses can be set off from the additions made under section 68 of the Act. Even the learned CIT(A) has not disputed the same, as is evident from paragraph 6.2 of the impugned order.
Considering the facts of the case from the factual as well as a legal perspective, we do not find any merit in the impugned addition made under section 68 read with section 115BBE of the Act. Accordingly, we are of the considered view that the learned CIT(A) has erred in confirming the same, and therefore, the impugned order is set aside. The AO is directed to delete the impugned addition.”
We have heard the rival submissions and perused the documents available on record. The assessee has engaged in substantial share trading amounting to Rs. 22 crores, out of which only Rs. 27,19,277/- pertains to transactions involving JRIIIL. The assessee has submitted that no benefit of long-term capital gains exemption under section 10(38) of the Act, has been claimed in respect of the profit derived from the alleged shares. Furthermore, there is no evidence on record to establish that the assessee was involved in price rigging.
The Ld. CIT(A), while allowing the appeal, placed reliance on various decisions of different ITAT Benches, particularly the ruling of the ITAT Jaipur Bench in Sandeep Chhabra & Others (supra). Additionally, we respectfully rely on the decision of the Co-ordinate Bench of the ITAT, Mumbai Bench, in Aadesh Commodities Pvt. Ltd(supra). The Co-ordinate Bench, in the said decision, held that if the sale transactions are treated as bogus, they must be removed from the Profit & Loss Account turnover, which would consequently result in a loss. Such a loss would then be Furthermore, once the assessee has duly disclosed the amount in the Profit & Loss Account, it cannot be subjected to double taxation. In view of the foregoing, we find that the impugned appellate order is well-reasoned and does not warrant any interference. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue bearing is dismissed.
The facts and circumstances in these appeals so also the issue are identical to the appeal in ITANo.520/Mum/2025. Therefore, the decision arrived at therein applies mutatis mutandis to these appeals also and both the appeals stand dismissed.
In the result, all the three appeals filed by the revenue are dismissed.