INCOME TAX OFFICER-28(3)(1), MUMBAI, VASHI vs. SHEKHAR SHIVAJI DESAI, NAVI MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI “G” BENCH : MUMBAI

BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER
Assessment Year : 2014-15

Income Tax Officer-28(3)(1),
Sector-20, Nerul Gaon,
Navi Mumbai.
PAN : AJIPD4083F
(Appellant)

(Respondent)

Assessee by : Shri Prakash Jhunjhunwala
Revenue by : Shri Pushkaraj Bhangepatil, Addl.CIT

Date of Hearing
:

12/12/2024
Date of Pronouncement :
10/01/2025

PER B.R. BASKARAN, A.M :

The Revenue has filed this appeal challenging the order dated
13-06-2024 passed by the Ld.CIT(A), NFAC, Delhi and it relates to the Assessment Year (AY.) 2014-15. The Revenue is aggrieved by the decision of the Ld.CIT(A) in deleting the addition of Rs.7.76 crores relating to alleged bogus capital gains.
2. The facts relating to the issue are discussed in brief. The assessee is engaged in the business of intraday trading and speculative trading in shares. The original assessment proceeding was completed by the AO u/s 2
143(3) r.w.s 147 of the Act on 18-12-2017, wherein the AO did not accept the claim of capital gains/profit earned on sale of shares. Accordingly, the AO had assessed entire credits found in the bank account of the assessee aggregating to Rs.25,78,360/- as income of the assessee. The Ld A.R submitted that the assessee had settled the above said dispute under the earlier Vivad Se Vishwas Scheme in the year 2021. 3. Subsequently, the AO received information from the Investigation
Wing that it had searched Shri Naresh Jain group and it was noticed that they were manipulating the prices of shares of certain penny stock companies. Accordingly, they have issued accommodation entries in the form of bogus capital gains. It was reported by the Investigation Wing that the assessee is one of the beneficiaries of such accommodation entries. It was reported that the assessee has earned Long term capital gains on sale of shares of following companies:- a) Sale consideration on sale of shares of M/s ACI Infocom Ltd.
Rs. 7,75,46,071/- b) Sale consideration on sale of shares of M/s Atlanta Infra & Finance Ltd. Rs. 63,345/-

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Total

Rs. 7,76,09,416/-

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Based on the above said information, the AO reopened the assessment again by issuing notice u/s.148 of the Act. In response thereto, the assessee filed the return of income declaring a loss of Rs.1,38,736/-. The assessee did not furnish the details relating to the above said transactions before the AO. Hence, the AO assessed the above said amount of Rs.7.76
crores as income of the assessee u/s.68 of the Act in the assessment order passed u/s.144 of the Act. In this regard, the AO completely placed reliance on the report prepared by the investigation wing with regard to the two scrips mentioned above.

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4. Before the Ld.CIT(A), the assessee submitted that it did not declare any long term capital gains in the above said shares nor did he claim any exemption u/s.10(38) of the Act. He submitted that he is a day trader and the profit earned thereon has already been disclosed in his books of accounts. He submitted that the AO had assessed entire credits in his bank account as income of the assessee and further the assessee had settled the said dispute under VSV Scheme, 2020. It was submitted that the books of account does not disclose the above said long term capital gains and hence the question of assessing a non-existing cash credit does not arise. Accordingly, it was contended that the AO was wrong in assessing long term capital gains, which the assessee had not earned at all.

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Thereafter, ITO, Ward-28(3)(2), Mumbai passed the original reassessment order u/s.143(3) r.w.s.147 on 18/12/2017 on making the addition of entire credit entries reflected in appellant's bank account of Rs.25,78,360/-. The relevant finding of the ITO, Ward-28(3)(2), Mumbai is reproduced as under:-

“As per the above discussion, the trading by the assessee in penny stock scrips remains suspicious. Further, the trading activities in the penny stock scrips used for providing accommodation entries of LTCG to beneficiaries is highly synchronized and entry of any unknown person into their cartel is highly improbable. The assessee also failed to furnish even the source of investment through which he has done the share trading activities including trading in penny stock scrips, therefore, it is construed that the assessee activities of share trading is not completely genuine and the unexplained credit entries in the assessee's bank account indeed represents the commission earned by him for indulging in trading in penny stock scrips. The assessee in his statement recorded on oath on 08/11/2017 has stated that various credit entries amounting to Rs.25,78,360/- represents loans taken from friends. In respect of the same, the assessee has been asked to furnish loan confirmation along with documentary evidence for identity, creditworthiness of loan creditors and genuineness of transactions including copy of ITR, P&L a/c.,
Balance sheet and bank statement…………. All the above facts indeed establish that the assessee's trading in the penny stock scrips is not result of genuine transactions and the unexplained credits in the assessee are commission earned by him by felicitating trading thorough his account in penny stock. Further, despite providing repeated opportunities, the assessee also failed to furnish valid explanation is respect of credit entries used for trading in shares including penny stock shares.
Therefore, it is held that credit entries of Rs. 25,78,360/- which the assessee claimed loans from friends represents unexplained money in his hands and the explanation given by the assessee is not found acceptable as per above discussion, therefore, the same is added u/s 69A of the Act. Accordingly, addition of Rs.
25,78,360 is made in the hands of the assessee u/s 69A of the Act. Penalty proceedings u/s 271(l)(c) are initiated separately for concealment of income."

The appellant disputed the above stated addition on filing an appeal and thereafter settled the tax arrears under 'Vivad-se-Vishwas' Scheme on 27/08/2021. 6.4 It is observed that AO, in impugned re-assessment order, had made the addition u/s.68 of Rs.7,76,09,416/- on holding that the exemption claimed by appellant u/s.10(38) on sale of shares of M/s. ACI Infocom Ltd are non- genuine and premediated transactions arranged through Shri Naresh Jain and his associates involved in providing accommodation entries. However,

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it is observed that appellant had not claimed any exemption u/s.10(38) in the return of income filed u/s 148 on 22/10/2016 and 05/05/2021. The original reassessment order passed u/s.143(3) r.w.s.147 dated 18/12/2017 does not make any reference of long term capital gain claimed by the appellant. The ITO, Ward-28(3)(2),
Mumbai, in original assessment order dated 18/12/2017, had already made the addition of entire credit entries reflected in appellant's bank account of Rs.25,78,360/- and such issue had been settled under 'Vivad-se-
Vishwas' Scheme. The appellant contended that he had not entered into any transactions of sale of shares of M/s. ACI Infocom Ltd during the year and had not received the sale consideration thereon. The appellant also contended that he had entered into speculative (intra-day) transactions on purchase and sale of shares of M/s. Atlanta Infrastructure & Finance Ltd and had earned the speculation profit of Rs.8,255/- and had not received any other consideration in respect of such shares. The copies of ledger account of stock broker M/s. Stellant Stock Broking Pvt. Ltd, Global report, Contract notes and Bank statements for the entire year filed by theappellant does not disclose any transaction of sale of shares of M/s. ACI Infocom Ltd during the year. Also, bank statement of the appellant does not disclose the receipt of disputed sum of Rs.7,76,09,416/-. There is force in arguments of the appellant that the provision of Sec.68 shall apply only in a case where the sum is found credited in the books of accounts, whose nature and source thereon is not explained. However, in impugned case, the appellant had not received the disputed sum of Rs.7,76,09,416/- and no contrary material or evidence is brought on record to justify that such sum is credited in appellant's books of accounts. The AO merely relied on the Investigation report disclosing the transactions entered by Shri Naresh Jain and his associates of manipulative transactions entered to facilitate the beneficiaries to claim bogus long term capital gain or short term capital loss.
It is observed that ITO, Ward- 28(3)(2), Mumbai vide order u/s.143(3) r.w.s.147 dated 18/12/2017 had already made the addition of entire

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credits reflected in appellant's bank account of Rs.25,78,360/- and the appellant had settled the tax arrears under 'Vivad-seVishwas' Scheme. It seems that AO, relying on Investigation report, had incorrectly considered the transactions of Shri Naresh Jain and his associates as belonging to the appellant and without verifying the transactions entered by the appellant, had made the addition in hands of the appellant. The Ld. AO had not brought any evidence on record to establish that appellant had received the disputed sum of Rs.7,76,09,416/- in his bank account and also had not brought any contrary material to establish that appellant had claimed the exemption u/s.10(38) of Rs.7,76,09,416/-.
Further, the original reassessment order passed u/s.143(3) r.w.s.147 dated 18/12/2017 does not make any reference of exemption claimed by appellant u/s.10(38) of I.T.
Act, 1961 and AO is not correct in making the disallowance of unclaimed exemption u/s. 10(38) of I.T Act, 1961 and therefore, the addition made in assessment cannot be sustained. Accordingly, I direct the AO to delete the addition made of Rs.7,76,09,416/-. As a result, the Grounds No.3 to 6 are 'Allowed'.”

(a)
Global report for FY 2012-13 and 2013-14. (b)
Ledger account for AY 2013-14

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The share broker had also reported that the assessee has closed his trading account with them on 08-01-2014 and the share broker had also closed business by surrendering the membership license on 31-07-2015. The AO had also examined the ledger account copies and global reports in the first reassessment proceedings. The AO had also examined the bank accounts of the assessee and assessed the entire credits found in the bank account, which was Rs.25,78,360/- only. Thus, it is clear that the AO did not find any transaction in the above mentioned shares resulting in long term capital gain of Rs.7.76 crores either in the documents collected by him from the share broker or in the bank account of the assessee. In view of the above, the fact would remain that the report given by the Investigation wing did not match with the books of the assessee or with other records collected by the AO in the first round. In this kind of situation, it would be imperative for the AO to seek clarifications from the Investigation wing in respect of information supplied by them. However, the AO has treated the information given by the Investigation wing as correct and has proceeded to make the impugned addition.

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the AO has failed to bring any corroborative material on record in support of the addition made by him u/s.68 of the Act. Hence, the impugned addition was rightly deleted by the Ld.CIT(A).

Order pronounced in the open court on 10-01-2025 [RAJ KUMAR CHAUHAN]

[B.R. BASKARAN]
JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai,
Dated: 10-01-2025

TNMM

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Copy to :

1)
The Appellant
2)
The Respondent
3)
The CIT concerned
4)
The D.R, “G” Bench, Mumbai
5)
Guard file

By Order

Dy./Asst.