INCOME TAX OFFICER, MUMBAI vs. PRITI NILESH JAIN DAGA, MUMBAI

8. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the revenue authorities and also relied upon the written submissions the same as reproduced here in below:

& 4616/Mum/2024 Priti Nilesh Jain Daga 1. Assessee, an individual, filed her return of income u/s. 139(1)of the Act,on 16-07- 2014, declaring total income of Rs. 6,41,170/-.vide E-filing Acknowledgement Number 229935290160714.

10. Finally, We would like to refer to the decision delivered in case of H.R. Mehta v/s Assistant Commissioner of Income-tax, Mumbai 72 taxmann.com 110 (Bombay) delivered by the Hon'ble Bombay High Court and the same reads as under. In the light of the fact that the money was advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the Assessing Officer should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against him in arriving before passing the order of assessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment and, therefore, renders the orders passed by the Commissioner (Appeals) and the Tribunal vulnerable. The assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents whose statements were relied upon by him. Despite the request seeking an opportunity to cross examine the deponents and furnish the assessee with copies of statements and disclose material, these were denied to him.

11. As the Ld. A.O. did not supply the copy of any statement to appellant as well as the opportunity to cross examination the person whose statement were used against her, therefore considering we would like to request your honours to quash the assessment proceedings.

& 4616/Mum/2024 Priti Nilesh Jain Daga 12. On the Merit of the case, it is submitted She is a regular investor. (Page 63 to 71 of P.B.) 13. She had purchased 10,000 shares of Ravinay Trading Co.(RTC) @ Rs. 150.25 Each on 25.04.2012 for Rs.15,04,652/-. Payment for the same was made through banking channel and same is reflecting in Axis bank statement. The shares were purchased through registered stock broker-The Hornic Investment Pvt. Ltd. (Page 16 of Paper Book) 14. The Hornic Investment Pvt. Ltd. (BSE) issued contact notice for purchases of share on 23.04.2012 and assesse has paid Service Tax, Securities Transaction Tax, Stampt Duty, Turnover Tax and Sebi Turnover Tax and the payments of same are reflected in Purchase contact notice. (Page 09 of Paper Book) 15. 10,000 share of Ravinay Trading Company Limited was received in her Demat Account maintained in Central Depository Services (I) Ltd on 25.04.2012 vide ISIN: INE812K01019. (Page 13 of Paper Book) 16. She sold share on following dates. 11.07.2013 1000 shares @ 696.35 15.07.2013 1000 shares @ 770 25.07.2013 1000 shares @ 771.25 12.08.2013 500 shares @ 880 27.08.2013 1500 shares @ 1100 Total Shares 5000 shares

18. The Sales contact note clearly reveals about the sale of Price per share, Quantity of Shares sold time of share sold. The appellant had paid Service Tax, Securities Transaction Tax, Stampt Duty, Turnover Tax and Sebi Turnover Tax, as required by the law. (Page 17-46 of P.B.) 19. During the re-assessment proceedings, the appellant submitted that she was maintaining a demat account with Hornic Investment Pvt. Ltd(HIPL)a registered broker of BSE Ltd. and NSE Ltd, that she had purchased the shares through her broker from stock exchange. 20. However, the Id. AO held that information received from Investigation wing proved that NLC was a penny stock company, that the shares of the said company were manipulated by brokers to give bogus entries of LTCG/LTCL, that the Appellant was one of the beneficiaries of the non- genuine LTCG. It was also alleged that one Naresh Jain was behind all the manipulations. 21. It was submitted before the Id.AO that the she was not related with the Company or its Directors or Naresh Jain, that she had not made any transactions directly or indirectly with the Company or its Directors or Naresh Jain, that it was not allotted any preferential shares of the said company through any private individual or legal entity, that had purchased the shares of RTC through a registered member of BSE and NSE which were duly recognized Stock Exchange, that had not indulged directly or indirectly in Trading in Penny Stock i.e. NCL,that was not involved in price rigging. It was further added that the Appellant was a genuine and regular investor and that the share transaction was a genuine transaction. 22. Referring to the Supreme Court judgment in the case of "Union of India & Ors. Vs Ashish Agarwal" (Civil Appeal No. 3005/2022, dated 04.05.2022) it was argued that the ld.AO had not shared the material relied upon for issuing notice. A request was made to the Id.AO to provide the relevant material evidence against my transactions with the said person as specified in your notice .It was stated & 4616/Mum/2024 Priti Nilesh Jain Daga "A mere mentioning of the name "Naresh Jain" does not suffice the material relied upon by the Revenue as specified in the Hon'ble Supreme Court Order."

24. As on today i.e. 18.02.2025 shares of said company is regularly traded on Stock Exchange.

26. It was submitted before the ld. AO. that SEBI or any other regulatory authority had not passed any order against Appellant.

27. But, the ld.AO without considering the above arguments, held that the profit arising out of sale of shares was not genuine and made an addition of Rs.1.07 crores to the income of the assessee.

31. The shareholding pattern of the company is more than 73% public pattern on a continuous basis. The last Financial Year Low-High of Nyssa Corporation is Rs.3.62- 9.13 per share respectively of Rs. 1 paid up capital which means Rs. 36-91 of Rs. 10 paid up capital.

& 4616/Mum/2024 Priti Nilesh Jain Daga Section 28(i) of the Income-Tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2015-16 Assessee was engaged in trading penny stocks, specifically shares of AIGL and KPL, during relevant period Assessing Officer alleged that purchases were made at artificially high prices and sold at significantly lower rates to create business losses, possibly to offset profits from commodities transactions Despite transactions occurring on recognized stock exchanges, Assessing Officer disallowed claimed losses However, both Commissioner (Appeals) and Tribunal overturned Assessing Officer's decision, concluding that assessee had demonstrated authenticity of transactions They found evidence on online trading platforms indicating that assessee had no control over share prices and had genuinely incurred losses, particularly with AIGL shares where only a portion were sold, and rest were held into subsequent assessment year Regarding shares of KPL, Tribunal reasoned that market rate being lower justified business loss, even though shares were not sold - Whether in view of above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, appeal, being devoid of any merits, was to be dismissed - Held, yes [Paras 8 and 9] [In favour of assessee] 41. Hon'ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) whereas held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus loss Sale of shares) - Assessment year 2011-12 - An information was received from Deputy Director (Inv.) wherein, it was intimated that VIL was a pennystock which was used to provide accommodation entry of bogus LTCG/loss to beneficiaries It was further intimated that assessee was one of beneficiaries/member of this accommodation entry syndicate On basis of same, addition was made to income of assessee on account of bogus loss on sale of scrip of VIL by it - It was noted that Commissioner (Appeals) and Tribunal had observed that as per SEBI report, script VIL was not blacklisted and was not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed & 4616/Mum/2024 Priti Nilesh Jain Daga out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commissioner (Appeals) in deleting addition on account of bogus loss on sale of scrip of VIL - Whether there were concurrent findings of fact by Commissioner (Appeals) and Tribunal, and thus, no substantial question of law arose against same Held, yes [Para 4] [In favour of assessee] 42. Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal Revenue submitted that order of Tribunal was ex-facie erroneous, illegal and perverse because Tribunal deleted additions without appreciating that transaction was pre-arranged as well as sham and was carried out through penny scrip company - However, Tribunal had observed in impugned order that assessee was continuously dealing in share trading of various shares/scrips and said fact was not disputed - Further, Tribunal had observed that scrip of VAS was not black listed by SEBI at relevant point of time Tribunal had also considered order passed by SEBI and nowhere in said order, scrip of VAS was blacklisted or was pennystock or sham and bogus scrips/shares Tribunal had also observed that entire transaction of purchase and sale of scrips was through Stock Exchanges, through authorized brokers and payments made to brokers were reflected in bank account - Tribunal had therefore opined that merely on conjecture and surmises, Assessing Officer could not make disallowance - Whether in view of above observations made by Tribunal, issue involved was purely a question of fact, and no question of law, much less, substantial question of law for consideration was found - Held, yes [Paras 5 to 7] [In favour of assessee] 43. We would like to refer the decision Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Mamta Rajivkumar Agarwal reported in [2023] 155 taxmann.com 549 (Gujarat) whereas held as under.

& 4616/Mum/2024 Priti Nilesh Jain Daga Section 10(38) of the Income-tax Act, 1961 Capital gains - Income arising from transfer of long term securities (Share dealings) - Assessment year 2013- 14- Assessee had sold shares of SNCFL and earned long-term capital gains - Assessing Officer issued a show cause notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker account copies, bills for sales, and bank statements and held that purchases were made through a recognized broker via cheque, establishing their genuineness and, thus, he directed Assessing Officer to delete addition of LTCG claimed as exempt under section 10(38) Tribunal upheld Commissioner (Appeals) decision stating that there was no evidence implicating assessee or broker in any wrongdoing related to SNCFL script - Whether in view of concurrent findings of fact that there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [In favour of assessee] 44. Hon'ble Mumbai tribunal in case of Ramprasad Agarwal reported in [2018] 100 taxmann.com 172 (Mumbai - Trib.) whereas held as under. Section 68, read with section 10(38) of the Income-tax Act, 1961 - Cash credit (Share Transaction) - Assessment year 2014-15- On basis of information from DGIT (Inv.), Kolkata that some companies were engaged in business of issuing pennystocks for which there were large number of beneficiaries claiming bogus long-term capital gain/short-term capital loss/business loss/speculation loss, Assessing Officer found that assessee was one of beneficiaries of said racket and had earned profit on sale of investments in equity shares of a company, (Rutron) and claimed same as exempt under section 10(38) Assessee had produced relevant records to show allotment of shares by company on payment of consideration by cheque and he dematerialized shares in D-mat account which was also an independent material and said evidence could not be manipulated Further, Assessing Officer had not brought any & 4616/Mum/2024 Priti Nilesh Jain Daga material on record to show that assessee had paid over and above purchase consideration - Whether in absence of any evidence, it could not be held that assessee had introduced his own unaccounted money by way of bogus long-term capital gain - Held, yes [Paras 9 and 10] [In favour of assessee] 45.Pavankumar Bachhraj Chandan reported in [2024] 161 taxmann.com 674 (Mumbai Trib.) whereas held as under. Section 68, read with section 10(38), of the Income-Tax Act, 1961 - Cash credits (Share dealings) Assessment year 2014-15 Assessee had claimed long-term capital gain on sale of shares of STL - Assessing Officer observing that financials of STL were weak and that shares of STL had been used for providing bogus accommodation entry in form of LTCG/STCG, disallowed claim of long-term capital gain and added entire sale proceed of shares under section 68 Whether since all transactions were carried out through regular bank accounts of assessee, allotment of shares and then holding of shares were proved by demat statement and sale of shares was made through BSE after remitting STT, assessee had discharged burden to prove purchase and sale of shares Held, yes Whether therefore, addition made by Assessing Officer was to be deleted and exemption claimed by assessee under section 10(38) was to be allowed - Held, yes [Paras 7 and 15] [In favour of assessee] 46. Sheriar Jehani reported in [2024] 159 taxmann.com 9 (Mumbai Trib.) whereas held as under. Section 68 of the Income-tax Act, 1961 Cash credit (Bogus LTCG on sale of shares) - Assessment year 2014-15 Assessee had sold shares of a company held by it and claimed exemption under section 10(38) on account of long- term capital gain (LTCG) arose on such sale of shares Assessing Officer, being of view that said trading transactions of purchase and sale of shares were not been effected for commercial purpose but to create artificial gains with a view to evade taxes, made an addition under section 68 It was observed that assessee had purchased shares from open market, D-mated scrips and subsequently sold same in stock exchange Further, there was no discrepancies in documents filed by assessee claiming deductions under section 10(38) and revenue had not brought on record any materials linking assessee in any dubious transactions relating to entry, price rigging or exit providers & 4616/Mum/2024 Priti Nilesh Jain Daga Even in SEBI report, there was no mention or reference to involvement of assessee Whether, therefore, impugned addition was to be deleted - Held, yes [Para 16] [In favour of assessee] 47. Gopal Nihchaldas Pariani reported in [2023] 152 taxmann.com 252 (Mumbai - Trib.) held as under. Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credits (Share transactions) Assessment years 2014-15 and 2015-16 Assessee had sold shares of 'P'ltd and earned a Long Term Capital Gain therein which was claimed as exempt in relevant assessment years - Assessing Officer noted that statement of some persons were recorded by DDIT, Kolkata to show that 'P' ltd was a company engaged in providing bogus accommodation entries Assessing Officer held that long term capital Gain earned by assessee was bogus for reason that there was an unusual rise in price of script and further investigation wing had investigated trading of this company and found that accommodation entry providers were rigging price - Accordingly, he made addition under section 68 Whether since assessee had submitted details of purchase of shares, payment for purchase of shares through banking channel, and had produced order of SEBI where assessee along with others had been exonerated in any manipulation, it clearly proved genuineness of transaction Held, yes Whether further since Assessing Officer had not made any inquiry about genuineness of these transaction on documents submitted by assessee and relied only on evidences collected by DDIT Kolkata which were good only for reopening of assessment and for making an addition holding that transaction were bogus, Assessing Officer should have made inquiries on documents submitted by assessee - Held, yes - Whether thus, in view of categorical finding of regulator SEBI exonerating assessee, and absence of any inquiry by Assessing Officer, impugned addition deserved to be deleted - Held, yes [Paras 33, 34 and 36] [In favour of assessee] 48. Considering the above, it is requested that addition made by Ld. Assessing officer may kindly be deleted and the appeal filed by the Appellant may be allowed.

12. The said registered broker i.e Hornick Investment Private Limited had also issued contract notes for purchase of shares and the assessee had also paid STT, service tax, stamp, duty, turnover, tax, SEBI turnover, tax and the payment of all these are reflected in purchase contract notice 13 It is pertinent to mention that all the 10,000 shares were received in Demat account maintained in Central Depository Services India Limited. The shares were sold by the assessee on the following dates.

11.07.2013 1000 shares @ 696.35 15.07.2013 1000 shares @ 770 25.07.2013 1000 shares @ 771.25 12.08.2013 500 shares @ 880 27.08.2013 1500 shares @ 1100

14. Thereafter the said script was split into 1:5 shares. Consequently the assessee received 50,000 shares, which were sold on different dates as mentioned below:

18.09.2013 1500 Shares @ 135.95 31.10.2013 8000 Shares @ 131.10 08.11.2013 1200 Shares @ 132 25.11.2013 4000 Shares @ 120 28.11.2013 11000 Shares @ 122.50 15.07.2013 1000 17.07.2013 1000 29.07.2013 1000 14.08.2013 500 27.08.2013 1500 18.09.2013 5000

15. In this way, the Sales contact note clearly reveals about the sale of price per share, Quantity of Shares sold time of share sold. The assessee had paid Service Tax, Securities Transaction Tax, Stamp Duty, Turnover Tax and Sebi Turnover Tax, as required by the law.

& 4616/Mum/2024 Priti Nilesh Jain Daga 17. From the records, we also noticed that during the course of assessment, the assessee was not provided with the statement of said Naresh Jain or any other material used by the AO against the assessee. Even in spite of specific request in this regard made by the assessee, which in our considered view is against the principles of natural justice as the assessee should have been provided fair chance to defend his case. Reliance in this regard is placed on the decision of Hon’ble Apex Court in the case of Tin Box Company 218 of 249 ITR wherein it was held that “assessment orders must be made after the assessee has been given a reasonable opportunity of setting out his case”. And in the case title Dhananjaykumar Singh (402 ITR 91) wherein the Hon'ble Patna High Court has held that:

It is a cardinal principle of law that if relevant materials and objections are produced before a quasi-judicial authority, the quasi-judicial authority is duty- bound, under law, to advert to them, discuss them and then reject them by recording reasons.

In the light of the fact that the money was advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the Assessing Officer should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against him in arriving before passing the order of assessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment and, therefore, renders the orders passed by the Commissioner (Appeals) and the Tribunal vulnerable. The assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents whose statements were relied upon by him. Despite the request seeking an opportunity to cross examine the deponents and furnish the assessee with copies of statements and disclose material, these were denied to him.

& 4616/Mum/2024 Priti Nilesh Jain Daga 22. Even nothing has been placed on record to show or point out that assessee was related in any manner whatsoever with the company or its director Naresh Jain. Even from the records, we noticed that no preferential shares of the company were granted, whereas the assessee had purchased the shares of M/s Ravinary Trading Corporation Ltd (Now known as Nyssa Corp Ltd) RTC through registered broker. Hence, it can safely be concluded that the assessee was a genuine and regular investor and the share transactions are genuine. Reliance in this regard is placed on the decision of the Supreme Court judgment in the case of "Union of India & Ors. Vs Ashish Agarwal" (Civil Appeal No. 3005/2022, dated 04.05.2022) wherein it was held that A mere mentioning of the name "Naresh Jain" does not suffice the material relied upon by the Revenue.

23. Even we further found that NLC (Nyssa Corporation Ltd) was listed in the exchange since long time, and it was regularly filing documents with ROC and Exchanges. Even SEBI or Exchange did not initiate any action against the said company. And Even as on today shares of the said company are regularly traded on Stock Exchange. Therefore from the above said factual data it is clear that NLC was neither penny or a shell company nor were the transactions fictitious, as the assessee had solely purchased the shares for the purpose of investment on the basis of fundamentals and valuation of the company. It was also brought to the notice of the AO that no & 4616/Mum/2024 Priti Nilesh Jain Daga "information" existed on which the assessment was reopened under section 147 of the Act. Even No material has been placed on record to demonstrate that SEBI or any other regulatory authority had even passed any order against the assessee. But, even then the AO without considering the above facts had held that the profit arising out of sale of shares was not genuine and consequently made addition of Rs.1.07 crores to the income of the assessee.

Quarter Revenue from Net Profit (in EPS Operati0n (In Lakhs) lakhs) June 2012 1205.79 215.85 7.19 Sep 2012 1123.43 167.99 5.60 Dec 2012 532.24 69.01 2.30 Mar 2013 307.97 -60.55 -2.02

29. And the annual results of M/s. Ravinary Trading co. Ltd (Nyssa Corporation Ltd) are as under: F.Y Revenue from Net Profit (in EPS Operati0n (In Lakhs) lakhs) 2011-12 954.43 23.68 .79 39.08 2012-13 3253.90 366.23 12.21 51.30

25. From the above financial results, it is clearly noticeable that the company had an EPS of Rs. 0.79 on 31.03.2012 which improved to Rs. 12.21 as on 31.03.2013.

& 4616/Mum/2024 Priti Nilesh Jain Daga Besides this the above company is constantly listed in BSE and was never delisted anytime and the daily average traded volume of the shares is more than 1 lac shares on the stock exchange as per the submissions made by the assessee.

Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 - Capital gains Income arising from transfer of long term securities (Illustrations) Assessment year 2014-15 Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' - On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing & 4616/Mum/2024 Priti Nilesh Jain Daga Officer's reliance on statements from 'entry operators' to support additions under sections 68 and 69 as those statements were recorded in unrelated proceedings before survey on assessee, and assessee was not afforded an opportunity to challenge or cross-examine providers of those statements On revenue's appeal, High Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed Held, yes [Para 3] [In favour of assessee] 28. Further the Hon'ble jurisdictional high court in case of Principal Commissioner of Income-tax v/s. Indravadan Jain, HUF reported in [2023] 156 taxmann.com 605 (Bombay) held as under.

While allowing the appeal filed by respondent, the Commissioner (Appeals) deleted the addition made under section 68. The Commissioner (Appeals) has observed that the Assessing Officer himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The Commissioner (Appeals) also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The Commissioner (Appeals) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes-cum-bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's & 4616/Mum/2024 Priti Nilesh Jain Daga bank account. In view thereof, the Commissioner (Appeals) found there was no reason to add the capital gains as unexplained cash credit under section 68. The Tribunal while dismissing the appeals filed by the revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The Tribunal therefore had rightly concluded that there was no merit in the appeal. [Para 4] 29. Hon'ble Bombay High Court in the case of Commissioner of Income-tax-13 V/s. Shyam R. Pawar reported in [2015] 54 taxmann.com 108 (Bombay) held as under.

Section 68 of the Income-tax Act, 1961 Cash credit (Share dealings) Assessment years 2003-04 to 2006-07 - Assessee declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assessee to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted Held, yes [Para 7] [In favour of assessee] 30. In the case of PCIT vs. Smt Krishna Devi [2021] 126 taxmann.com 80, the Hon'ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere

Section 28(i) of the Income-Tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2015-16 Assessee was engaged in trading penny stocks, specifically shares of AIGL and KPL, during relevant period Assessing Officer alleged that purchases were made at artificially high prices and sold at significantly lower rates to create business losses, possibly to offset profits from commodities transactions Despite transactions occurring on recognized stock exchanges, Assessing Officer disallowed claimed losses However, both Commissioner (Appeals) and Tribunal overturned Assessing Officer's decision, concluding that assessee had demonstrated authenticity of transactions They found evidence on online trading platforms indicating that assessee had no control over share prices and had genuinely incurred losses, particularly with AIGL shares where only a portion were sold, and rest were held into subsequent assessment year Regarding shares of KPL, Tribunal reasoned that market rate being lower justified business loss, even though shares were not sold - Whether in view of above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, appeal, being devoid of any merits, was to be dismissed - Held, yes [Paras 8 and 9] [In favour of assessee] 32. Hon'ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) held as under.

& 4616/Mum/2024 Priti Nilesh Jain Daga Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus loss Sale of shares) - Assessment year 2011-12 - An information was received from Deputy Director (Inv.) wherein, it was intimated that VIL was a pennystock which was used to provide accommodation entry of bogus LTCG/loss to beneficiaries It was further intimated that assessee was one of beneficiaries/member of this accommodation entry syndicate On basis of same, addition was made to income of assessee on account of bogus loss on sale of scrip of VIL by it - It was noted that Commissioner (Appeals) and Tribunal had observed that as per SEBI report, script VIL was not blacklisted and was not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commissioner (Appeals) in deleting addition on account of bogus loss on sale of scrip of VIL - Whether there were concurrent findings of fact by Commissioner (Appeals) and Tribunal, and thus, no substantial question of law arose against same Held, yes [Para 4] [In favour of assessee] 33. Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under.

Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal Revenue submitted that order of Tribunal was ex-facie erroneous, illegal and perverse because Tribunal deleted additions without appreciating that transaction was pre-arranged as well as sham and was carried out through penny scrip company - However, Tribunal had observed in impugned order that assessee was continuously dealing in share trading of various shares/scrips and said fact was not disputed - Further, Tribunal had observed that scrip of VAS & 4616/Mum/2024 Priti Nilesh Jain Daga was not black listed by SEBI at relevant point of time Tribunal had also considered order passed by SEBI and nowhere in said order, scrip of VAS was blacklisted or was pennystock or sham and bogus scrips/shares Tribunal had also observed that entire transaction of purchase and sale of scrips was through Stock Exchanges, through authorized brokers and payments made to brokers were reflected in bank account - Tribunal had therefore opined that merely on conjecture and surmises, Assessing Officer could not make disallowance - Whether in view of above observations made by Tribunal, issue involved was purely a question of fact, and no question of law, much less, substantial question of law for consideration was found - Held, yes [Paras 5 to 7] [In favour of assessee] 34. In another decision of Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Mamta Rajivkumar Agarwal reported in [2023] 155 taxmann.com 549 (Gujarat) whereas held as under.

Section 10(38) of the Income-tax Act, 1961 Capital gains - Income arising from transfer of long term securities (Share dealings) - Assessment year 2013- 14- Assessee had sold shares of SNCFL and earned long-term capital gains - Assessing Officer issued a show cause notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker account copies, bills for sales, and bank statements and held that purchases were made through a recognized broker via cheque, establishing their genuineness and, thus, he directed Assessing Officer to delete addition of LTCG claimed as exempt under section 10(38) Tribunal upheld Commissioner (Appeals) decision stating that there was no evidence implicating assessee or broker in any wrongdoing related to SNCFL script - Whether in view of concurrent findings of fact that there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section & 4616/Mum/2024 Priti Nilesh Jain Daga 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [In favour of assessee] 35. Hon'ble Mumbai tribunal in case of Ramprasad Agarwal reported in [2018] 100 taxmann.com 172 (Mumbai - Trib.) whereas held as under.

Section 68, read with section 10(38) of the Income-tax Act, 1961 - Cash credit (Share Transaction) - Assessment year 2014-15- On basis of information from DGIT (Inv.), Kolkata that some companies were engaged in business of issuing pennystocks for which there were large number of beneficiaries claiming bogus long-term capital gain/short-term capital loss/business loss/speculation loss, Assessing Officer found that assessee was one of beneficiaries of said racket and had earned profit on sale of investments in equity shares of a company, (Rutron) and claimed same as exempt under section 10(38) Assessee had produced relevant records to show allotment of shares by company on payment of consideration by cheque and he dematerialized shares in D-mat account which was also an independent material and said evidence could not be manipulated Further, Assessing Officer had not brought any material on record to show that assessee had paid over and above purchase consideration - Whether in absence of any evidence, it could not be held that assessee had introduced his own unaccounted money by way of bogus long-term capital gain - Held, yes [Paras 9 and 10] [In favour of assessee] 36. In the case of Pavankumar Bachhraj Chandan reported in [2024] 161 taxmann.com 674 (Mumbai Trib.) held as under.

Section 68, read with section 10(38), of the Income-Tax Act, 1961 - Cash credits (Share dealings) Assessment year 2014-15 Assessee had claimed long-term capital gain on sale of shares of STL - Assessing Officer observing that financials of STL were weak and that shares of STL had been used for providing bogus accommodation entry in form of LTCG/STCG, disallowed claim of long-term capital gain and added entire sale proceed of shares under section 68 Whether since all transactions were carried out through regular bank accounts of assessee, & 4616/Mum/2024 Priti Nilesh Jain Daga allotment of shares and then holding of shares were proved by demat statement and sale of shares was made through BSE after remitting STT, assessee had discharged burden to prove purchase and sale of shares Held, yes Whether therefore, addition made by Assessing Officer was to be deleted and exemption claimed by assessee under section 10(38) was to be allowed - Held, yes [Paras 7 and 15] [In favour of assessee] 37 In the case of Sheriar Jehani reported in [2024] 159 taxmann.com 9 (Mumbai Trib.) held as under.

Section 68 of the Income-tax Act, 1961 Cash credit (Bogus LTCG on sale of shares) - Assessment year 2014-15 Assessee had sold shares of a company held by it and claimed exemption under section 10(38) on account of long- term capital gain (LTCG) arose on such sale of shares Assessing Officer, being of view that said trading transactions of purchase and sale of shares were not been effected for commercial purpose but to create artificial gains with a view to evade taxes, made an addition under section 68 It was observed that assessee had purchased shares from open market, D-mated scrips and subsequently sold same in stock exchange Further, there was no discrepancies in documents filed by assessee claiming deductions under section 10(38) and revenue had not brought on record any materials linking assessee in any dubious transactions relating to entry, price rigging or exit providers Even in SEBI report, there was no mention or reference to involvement of assessee Whether, therefore, impugned addition was to be deleted - Held, yes [Para 16] [In favour of assessee] 38. In the case of Gopal Nihchaldas Pariani reported in [2023] 152 taxmann.com 252 (Mumbai - Trib.) held as under.

Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credits (Share transactions) Assessment years 2014-15 and 2015-16 Assessee had sold shares of 'P'ltd and earned a Long Term Capital Gain therein which was claimed as exempt in relevant assessment years - Assessing Officer noted that statement of some persons were recorded by DDIT, Kolkata to show that 'P' ltd was a company engaged in providing bogus & 4616/Mum/2024 Priti Nilesh Jain Daga accommodation entries Assessing Officer held that long term capital Gain earned by assessee was bogus for reason that there was an unusual rise in price of script and further investigation wing had investigated trading of this company and found that accommodation entry providers were rigging price - Accordingly, he made addition under section 68 Whether since assessee had submitted details of purchase of shares, payment for purchase of shares through banking channel, and had produced order of SEBI where assessee along with others had been exonerated in any manipulation, it clearly proved genuineness of transaction Held, yes Whether further since Assessing Officer had not made any inquiry about genuineness of these transaction on documents submitted by assessee and relied only on evidences collected by DDIT Kolkata which were good only for reopening of assessment and for making an addition holding that transaction were bogus, Assessing Officer should have made inquiries on documents submitted by assessee - Held, yes - Whether thus, in view of categorical finding of regulator SEBI exonerating assessee, and absence of any inquiry by Assessing Officer, impugned addition deserved to be deleted - Held, yes [Paras 33, 34 and 36] [In favour of assessee] 39. It is important to mention here that assessee had relied upon the decision of Coordinate Bench of ITAT in in the case of RNR Trading Pvt Ltd Vs. ITO, wherein the ‘same script’ has been considered and dealt with and ultimately additions were deleted. The operative portion of the coordinate Bench in the above mentioned case is reproduced herein below:

11. We heard the parties and perused the record. We notice that the AO has made addition of Rs. 1.32 crores as bogus Long Term Capital Gain generated by the assessee, by rejecting the exemption u/s 10(38) of the Act claimed by the assessee. It appears that the AO has taken the above said figure from the report given by the Investigation Wing. However, the details furnished by the assessee would show that the assessee has claimed exemption of Long Term Capital Gain u/s. 10(38) of the Act only to the extent of Rs. 1,30,46,297/-.

"1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,04,652/- holding as investment pertaining to F.Y. 2012- 13 and sustaining the additions to Rs. 92,68,701/- holding as bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,04,652/- holding as investment pertaining to P.Y. 2012- 13 and sustaining the additions to Rs. 92,68,701/- holding as bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961, by ignoring the fact that assessee has total bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961 amounting to Rs. 1,07,91,711/-?" 3. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in deleting the addition of Rs. 15,04,652/- holding that the amount of investment made in F.Y. 2012-13, ignoring the fact that assessee has brought on record credit entries totalling to Rs. 1,07,91,771/, out of which Rs. 92,68,701/- sustained by the Ld.CIT(A) as bogus cash credit entries u/s.

4. Whether on the facts and circumstances of the cuse and in law, the CIT(A) has erred in deleting the entire addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/- made u/s. 68 of LT. Act, without considering the fact that Assessing Officer's action was relied on the discreet report of DGII(Inv.) Mumbai, prepared after conducting Search & Survey action on Shri. Naresh Jain & his syndicates /Groups, who were involved in & 4616/Mum/2024 Priti Nilesh Jain Daga colluding to execute managed transactions on the stock exchange, thereby generating fraudulent LTCG/STCG and business losses for various beneficiaries and the assessee was found to be one of such beneficiaries, who have involved in such transactions by trading in a Penny stock script, M/s NYSAA Corporation Ltd (formerly Ravınay Trading Co. Ltd)?" 5. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/- made u/s. 68 of 1.T. Act, in not appreciating the fact that, during the Search operations of DGIT(Inv.) Mumbai on Shri. Naresh Jain in this statement on oath has admitted that their syndicates/associates have managed, controlled several scripts and also they have acted as conduit for funneling of fund through the stock market transactions in a large number of cases and also revealed that entry/exit providers accounts were used as conduit account for transit of funds to beneficiaries in providing accommodation entries in the form of Long Term Capital Gain/Long Term Capital Loss in several scrips including penny scrip of M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) to the assessee?" 6. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/-made u/s. 68 of I.T. Act, in not appreciating the fact that investigation wing of the income Tax Department, on the basis of gathered evidences, has revealed that Mr.Naresh Jain and his Groups has manipulated stock prices of various scrips including of M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) 'a penny stock to provide false entries of capital gains and losses and that established collusion among Mr. Naresh Jain, stock Promotors, brokers and intermediaries to facilitate these Sham Transactions and found that assessee was one of the beneficiary by transacting in sham transactions in the scrip M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) 'a penny stock?" 7."Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/-made u/s. 68 of LT. Act, in not appreciating the fact that there was huge price jump in the script of M/s NYSAA Corporation Ltd (formerly Ravinay & 4616/Mum/2024 Priti Nilesh Jain Daga Trading Co. Ltd)" without any economic rationale which was an arrangement for converting the unaccounted mcome of the beneficiaries into legitimate income under the garb of exempt LTCG/STCI, without paying any taxes and assessee was one of such beneficiary of such transactions ? * Whether on the facts and circumstances of the case and in law, the order of the CIT(A) ignored the direct and circumstantial evidences in view of the decisions in. Durga Prasad More (1971) 82 ITR 540(SC) and SumatiDayal [1995] 80 Taxmann 89(SC) [1995] 2014 ITR 801(SC) [1995] 125 CTR 124(SC) rendered by the Hon'ble Supreme Court, where under it was held that the Court and Tribunal have to judge the evidence before it by applying the test of human probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer?" 9. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/-made u/s. 68 of LT. Act, 1961, sustaining the addition to the extent of Rs. 92,68,701/-, relying the Calcutta High Court decision in the case of Swati Bajaj &Ors, reported in 139 taxmann.com 352 (LA no. GA/2/2022 in ITAT No. 6 of 2022, dated 14.06.2022), holding as squarely applicable in the case of the assessee, wherein the Hon'ble High Court of Calcutta arrived at a conclusion which is proper conclusion and in the absence of any satisfactory explanation by the assessee, the AO were bound to make addition u/s. 68 of the Act. ?"

10. In the instant case, the appeal is being filed before Hon'ble ITAT. The tax effect involved in the instant case is Rs 4,96,535/-, which is below the prescribed limit as per CBDT's revised Circular No. 5/2024 dated 15.03.2024, however, this case falls under one of the exceptions specified in paragraph 3.1 (h) of the above stated Circular, wherein it is stated that in cases involving Organized Tax Evasion, including cases of bogus Capital gain/loss through penny stocks the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. 11. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary "y & 4616/Mum/2024 Priti Nilesh Jain Daga 42. All the grounds raised by the revenue are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the additions of Rs. 15,04,652/-. Therefore we have decided to take up all the grounds together and adjudicated the same through the present consolidated order.

However, on the quantum of addition, it is stated that the amount of investment of Rs. 15,04,652/- made in FY 2012-13, relevant to the AY 2013-14, was made out of the balance sheet of the assessee and therefore, only the amount of Gain of Rs. 92,68,701/- should be treated as income u/s. 68, being Unexplained Cash Credit and not the entire consideration received by her for Rs. 107,91,771/-. Therefore, the assessee gets relief of Rs. 15,04,652/-. The AO is directed to modify his addition accordingly.