ITO, NASHIK vs. ANKIT NARESH TULSIAN, NASHIK

PER : MANISH BORAD, AM

This appeal at the instance of the Revenue is directed against the order of National Faceless Appeal Centre (NFAC)/
Commissioner of Income Tax (Appeals), Delhi [“CIT(A)”], dated
04/09/2023 passed under section 250 of the Income Tax Act,
1961 (“Act”) which is arising out of assessment order passed u/s. 144 r.w.s. 147 of the Act, dated 28/09/2021 for the Assessment Year (AY) 2014-15. 2. Revenue has raised the following grounds of appeal:-
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)/NFAC has erred in deleting addition of 2
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(Ankit Naresh Tulsian)

21,00,08,500/ on account of long-term capital gains (LTCG) from the sale of 200,000 shares of MISHKAFIN as unexplained money under section 69A of the Income Tax Act, 1961, and taxing it under section 115BBE of the Income Tax Act, 1961. 2. Whether on the facts and circumstances of the case and in law, the Ed. CIT(A) has erred in not appreciating the findings unearthed during enquiries and an action under section 133A and section 132 of the Income Tax Act, 1961, by the DDIT(Inv.)
Kolkata.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating dated
30.03.2015. Shri Anil Kumar Khemka confessed to facilitating accommodation entries through the manipulation of scraps, including MISHKAFIN and outlined the modus operandi where beneficiaries were provided bogus Long Term Capital Gains
(LTCG) entries by inflating share prices through synchronized trading. The assessee in this case is one such beneficiary who allegedly benefited from this operation by selling shares of MISHKAFIN for Rs. 1,00,53,500/-.
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in dismissing the findings from the investigation and ignoring the fact that the entire scheme was a manipulated setup to create bogus LTCG. The accommodation entry provider had confessed to this manipulation, which directly implicates the assessee as a beneficiary.
5. The appellant prays that the order of the National Faceless
Appeal Centre (NFAC) Delhi may please be cancelled and the order of the Assessing Officer may please be restored.
6. The appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when the occasion demands
7. Without prejudice to the above, the order of the Ld. CIT(A) may be vacated and that of the Assessing Officer may be restored.”

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(Ankit Naresh Tulsian) out re-assessment proceedings. Assessee challenged the notice u/s.148 of the Act on the ground that a detailed investigation has been carried out by the department issuing summons u/s.131 of the Act for verifying the exemption claimed u/s. 10(38) of the Act. Subsequently, the assessee was served notice u/s. 148 of the Act, dated 31/03/2019 and assessment u/s. 147 r.w.s. 143(3) of the Act has been framed on 28/11/2019 dropping the re-assessment proceedings.
Assessee submitted that there being no other information available with the Ld.AO about the alleged allegation of bogus long term capital gains (LTCG) and also there being no failure on the part of the assessee to furnish material information with regard to alleged transaction, the issuance of notice u/s.
148 of the Act is invalid. However, Ld.AO after disposing of the objections raised by the assessee carried out re- assessment proceedings and taking note of the report of the Securities and Exchange Board of India (SEBI), dated
17/04/2021 restraining trading of equity shares of MFTL along with other 128 entities from accessing the securities market and also observing steep increase in the share price of the equity share of MFTL not commensurate with the profitability and other financial criteria, concluded that LTCG claimed by the assessee u/s. 10(38) of the Act is bogus and made addition on account of unexplained money u/s. 69A of 4
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(Ankit Naresh Tulsian) the Act at Rs. 1,00,08,500/- and assessed the income at Rs.
1,10,39,810/-
4. Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A) challenging the validity of notice u/s.
148 as well as validity of re-assessment proceedings, and on merits, it claimed that all the conditions required for claiming exemption u/s. 10(38) of the Act has been fulfilled by the assessee and reference made to judicial precedents wherein the Hon'ble Courts as well as Co-ordinate Benches have decided the issue in favour of the assessee holding that long term capital gains from sale of equity share of MFTL is genuine. Ld.CIT(A) after detailed examination of facts and judicial precedents, allowed the assessee’s appeal. Aggrieved by the order of Ld.CIT(A), now Revenue is in appeal before this Tribunal.
5. Ld. Departmental Representative (DR) vehemently argued supporting the order of the Ld.AO.
6. On the other hand, learned counsel for the assessee referring to the written submissions stated that assessee has made a claim of LTCG u/s. 10(38) of the Act for the capital gain earned on sale of equity shares of MFTL. After filing of the return on 31/07/2014, assessee was served with summons u/s. 131 of the Act, dated 09/04/2015, to which reply was filed and again two more notices u/s. 131 were 5
ITA.No.2233/PUN./2024
(Ankit Naresh Tulsian) issued dated 02/06/2015 & 07/08/2015, which were also duly replied and there was no further action from the Revenue’s side against the assessee for the alleged transaction. Subsequently, assessee was again served with notice u/s. 148 of the Act, dated 31/03/2019 and assessee made proper compliance to the same and in the assessment order framed on 28/11/2019 u/s. 143(3) r.w.s 147 of the Act, proceedings initiated u/s. 148 of the Act, were dropped. He further submitted that on the very same reasons, alleged re-assessment proceedings have been initiated by issuing another notice u/s. 148 of the Act on 20/03/2020. Though, assessee has duly made compliance to all the notices issued by the Revenue authorities, it is claimed that in view of the judgment of Hon'ble Supreme Court in the case of CIT v.
Kelvinator of India Ltd. (2010) 320 ITR 561(SC), re-assessment proceedings carried out vide notice u/s.
148, dated
20/03/2020 deserves to be quashed as they are initiated for the issue, which has already been dealt with by the Department in the previous assessment proceedings and the same amounts to tantamount to mere change of opinion, which is not permissible in the eyes of law.
7. So far as merits of the case are concerned, it is submitted that equity shares in question have been purchased by payment through banking channel and were held in the Demat account. Further, after keeping the equity shares in the 6
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(Ankit Naresh Tulsian)

Demat account, they have been sold through registered stock exchange and payment has been received through banking channel after due payment of applicable security transaction tax (STT), thereby fulfilling all the conditions provided u/s.
10(38) of the Act. Reference was further made to the judgment of Hon'ble Gujarat High Court in the case of PCIT vs. M.S.
Gokuldham Enterprise LLP in R/Tax Appeal No. 427 of 2023, dated 28/08/2023 wherein also similar issue regarding the genuineness of LTCG from sale of equity shares of MFTL came for adjudication and the Hon'ble High Court held it to be a genuine LTCG observing that “the final report of SEBI had absolved the scrip (MFTL) of all charges and there was no independent finding on any other aspect casting doubts to show that share prices were manipulated at an unreasonable price when sold”. The decisions relied on by the learned counsel for the assessee are as under:-

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(Ankit Naresh Tulsian)

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(Ankit Naresh Tulsian) has dealt with this legal issue placing reliance on plethora of decisions and his finding reads as under:-
“6.1 I have gone through the order of AO and submission made by the appellant. The Ld. AO has treated share dealing made by the appellant as bogus and thereby added back exempted capital gain to taxable income. The Ld. AO also added back the commission as well. Aggrieved by the order of Ld. AO, the appellant has raised multiple grounds of appeal and the same are disposed off collectively as under.
6.2 The appellant had purchased shares of Mishkafin Finance
Ltd and subsequently these shares were sold for sum of Rs.
1,00,23,500/- The resultant capital gains of Rs.1,00,08,355/- was claimed exempted u/s 10(38). The Ld. AO treated entire capital gain as bogus and add to total income as unexplained money u/s 69A of the Income Tax Act.
6.3 The Ld. AO alleged it to be penny stock and he claimed that the trading in such stock was controlled by few operators and rise in prices of this stock was artificially created. He also gave finding that he re-opened the case based on information received from Director of Income Tax (Inv). He suspected about the same and presumed that the trading was pre-arranged. He finally concluded assessment by assigning following reasons:

 Assessee failed to discharge onus of explaining unusual growth in trading volumes of shares of Mishkafin Finance
Ltd
 Assessee was ignorant about financial health of penny stock company and artificially rigged prices
 The investigations in the fund flow analysed that cash was routed through many layers of companies
 The transaction were entered with pre-conceived series of steps and true nature of transaction was not present and being artificially structured with intent to evade tax.
 Revenue cannot accept this make believe arrangement

 Broker note for sale and purchase of shares
 Bank statement depicting payments made for purchase of shares
 Statement of holding shares
 Statement issued by CDSL confirming shares sold
 Bank statement depicting receipt of money after sale of shares

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(Ankit Naresh Tulsian)

Further, the appellant also asked for cross examination of the material being used against her to claim such capital gain as bogus.
6.5 The appellant also contested that trading was done through online portal wherein she was not aware of the counter party to the transaction and price fluctuation to stock was beyond her control.
6.6 The Ld. AO has made the adjustment by forming opinion on search conducted by some other assessee. He has not performed due diligence in specific to the appellant's case LING
6.7 The Ld. AO has not mentioned any shortcoming in broker notes, bank payments and other supporting documents filed by the appellant. He has also not proved that cash was involved in the appellant's transaction. He passed the order merely under suspicion. Moreover, the Ld. AO has also not provided opportunity of cross examination.
6.8 The Ld. AO alleged that the appellant could not prove why there was surge in volume of stock. Whereas the trading was done through software based platform wherein the trader does not have visibility on counter party buying/selling.
6.9 The above issue has been dealt and adjudicated by many courts as under:
[2021] 130 taxmann.com 177 (SC) AUGUST 2, 2021, SLP dismissed against impugned order of High Court holding that where assessee-individual engaged in trading of shares had discharged his onus of establishing long term capital gains arising out of sale of different shares as fair and transparent by submitting records of purchase bills, sale bills, demat statement etc., same not being earned from bogus companies was eligible for exemption under section 10(38).
454 of 2018 (Bombay HC) -date of order - 12-07-2023
In the aforesaid case, the Hon'ble Bombay High Court upheld the decision of Hon'ble Mumbai Tribunal, wherein the Tribunal had held that since the shares were purchased on the floor of stock exchange and not from broker, payment was made through banking channel, deliverables were taken in DEMAT account where the shares remained for more than one year, contract notes were issued and the shares were also sold on stock exchange, the long-term capital gains claimed as exempt cannot be treated as accommodation entry.
[I.Τ.Α.
Νo.6537/Mum/2018]
"the assessee have filed the best evidence to prove the transaction in question vi z. bills, contract notes, demat

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(Ankit Naresh Tulsian)

Statement and the bank account statements to prove the genuineness of the transaction relating in the purchase of Mis.
Panchshul Marketing Ltd and thereafter sale of shares (after amalgamation] of M/s KAFL which resulted in LTCG claim of Rs.19,51,000/-.
Therefore, by applying the test of preponderance of probability, the LTCG cannot be disallowed without AO pointing out any infirmities in the evidences produced by assessee, which III1fortwlately AO could not point out. So the assessee's claim of LTCG need to be allowed."
Manish Kumar Baid Vs ACIT [ITA 1237/Kol/2017]
"The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the Id AD to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the id AD was not justified in disallowing the assessee's claim of exemption under section 10(38) of !.he Act."
Kiran Kothari Vs ITO [ITA 443/Kol/2017]
“we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions. relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the Id. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence"
M/s. ANDAMAN TIMBER INDUSTRIES V/s CCE CIVIL
APPEAL NO. 4228 OF 2006
Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected

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(Ankit Naresh Tulsian)
Long-term capital gains on sale of "penny" stocks cannot be treated as bogus
&
unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross- examination is a fatal flaw which renders the assessment order a nullity INCOME TAX DEPARTMENT
Kamla Devi S. Doshi V/s. The Income Tax Officer Ward
16(3) (1), Ι.Τ.Α. No.1957/Mum/2015 Assessment Year:
2006-07
Bogus penny stocks capital gain: The s. 131 statement implicating the assesse is not sufficient to draw an adverse inference against the assesse when the documentary evidence in the form of contract notes, bank statements, STT payments etc prove genuine purchase and sale of the penny stock.
Failure to provide cross-examination is a fatal error
Shri Sunil Prakash V/s. ACIT -15(2) Ι.Τ.Α./6494/Mum/
2014, Assessment Year: 2005-06
If the AO relies upon the statement of a third party to make the addition, he is duty bound to provide a copy of the statement to the assesse and afford the opportunity of cross-examination.
Failure to do so vitiates the assessment proceedings A transaction evidenced by payment/receipt of share transaction value through banking channels, transfer of shares in and from the Demat account, etc cannot be treated as a bogus transaction so as to attract s. 68. 6.10 In view of the facts and circumstances of the case and having regard to varied judicial pronouncements including juri ictional High Court and ITAT, I am of the considerate view that the appellant had submitted all the relevant documents before the AO to establish genuineness of purchase and sale of shares
A perusal of assessment order reveals that not a single piece of evidence - direct or circumstantial has been brought on record by the AO which can establish that the appellant or even his broker had indulged in arrangement of accommodation or bogus LTCG or they were in any way involved in price manipulations in any manner. There is no reference to any material whatsoever in the order of assessment in relation to the case of appellant or its broker supporting the allegations levelled by the AO against the appellant. There is no confessional statement referred by the AO either given by the appellant or the broker which may indicate that the aforesaid transaction was undertaken to shift alleged artificial gains to the appellant.

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(Ankit Naresh Tulsian)

I find that the assessee has filed all the evidences comprising summary of sale and purchase of shares, contract notes/broker notes, of Demat account/transaction statement, copies of purchase/sale bills, evidences of payment through banking channels along with bank statements etc. which substantiates the genuineness of the transaction.
Further, there is no evidence on record to establish any cash trail or otherwise which can lead to a conclusion that the appellant colluded with its brokers, companies, its promoters, exit providers to arrange bogus LTCG
Further, the Ld. AO has not carried out investigation of the fact of the case which are specific to the appellant and has also not provided opportunity for cross examination which is against principle of natural justice. The AO has relied on the information given by the Directorate of Income-tax
(Investigation) without appreciating that the same cannot be used against the appellant without providing statements and investigation reports and therefore such documents cannot be used against the appellant. In the present case, the Ld. AO has failed to provide the appellant with the materials and statements allegedly used by him to hold the transactions as sham. Thus, the AO has failed to comply with section 142(3) of the Act as well as the principles of audi alteram partem thereby resulting in gross violation of principles of natural justice.
I also find that the AO in this case has not conducted any independent inquiry to establish the veracity of information received by him from the DDIT and he has mechanically issued the notice u/s. 148 of the Act. The Hon'ble High Court of Bombay in the case of Principal Commissioner of Income-tax-5
v. Shodiman Investments (P.) Ltd. reported in 422 ITR337
holding that reopening notice on the basis of intimation from DDIT (Investigation) about a particular entity entering into suspicious transactions, was clearly in breach of the settled position of law that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction
It is also a common knowledge that when the shares are purchased/sold through online mode, the seller and purchaser are unknown to each other and there is no system through which the seller could decide to whom the shares be transferred. The AO has also not conducted any enquiry as to who is the seller/ purchaser of shares and whether any of them have been held to be engaged in price rigging.
The Ld. AO has also not provided any short coming in the documentation filed by the appellant neither the Ld.AO has provided any finding that there is round tripping of cash in the underlined capital gain.
It is also a settled position of law that addition cannot be made merely on the basis of suspicion, conjectures and surmises. It 13
ITA.No.2233/PUN./2024
(Ankit Naresh Tulsian) is a settled position of law that mere suspicion, howsoever strong, cannot take the place of legal proof. Thus, addition made on the basis of mere suspicion and conjecture is bad in law and deserves to be quashed.
Therefore, the additions made by the Ld. AOfor sum of Rs.
1,00,08,355/- on account of bogus capital gain are deleted.
Accordingly, the appeal made by the appellant is allowed.”

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(Ankit Naresh Tulsian) term capital gain, as long term capital gain is exempt under section 10(38) of the Act.
3.4 The Principal CIT (A) and the Tribunal found that the SEBI report based on which the Assessing Officer had made additions was an interim report and in the final report there was no adverse finding. The SEBI in the f inal report had not made any adverse findings.
4. While reversing the order of the Assessing Officer, the CIT(A) observed as under:
“The final report of SEBI has come out on 05.10.2017 wherein it has clearly stated in Para 7
of their report that:
“Upon completion of investigation by SEBI, it is noted that there are no adverse findings against the 104 entities mentioned at S.No. 1-
104 in Table No. 2 with respect to their role in the price manipulation/prima facie violations for which Interim Order dated April 17, 2015
was passed and subsequently confirmed in the scrip of Mishka.”
A copy of this report was sent to AO as per Rule 46A and remand report dated 22.11.2017 has been received. In para-3 of remand report, the AO has simply mentioned that the share transaction has been skillfully manipulated to claim the exemption u/s. 10(38). In this connection, it is verified that the payment for purchase of shares was made through banking channel, shares were in demat account of the appellant for more than 12
months before they were sold through BOLT of BSE and the proceeds have been received through banking channel, STT has been paid. The main stand of the AO which was picked up from SEBI interim report has also been decimated by the f inal report of the SEBI itself. The relevant portion of para 8 of SEBI report dated
05.10.2017 is reproduced as under::
“8. Considering the fact that there are no adverse findings against the 104 entities mentioned at S.No.1104
in Table No.2 with respect to their role in the price manipulation/ prima facie violations for which interim
Order dated
April
17,
2015
was passed and subsequently confirmed in the scrip of Mishka warranting continuation of action under section 11B and 11(4) of the SEBI Act, I am of the considered view that the directions issued against them vide interim order dated April 17,
2015 which were confirmed vide Orders dated October
12, 2015, October 21, 2015, April 13, 2016, July 05,
2016 and August 26, 2016, are liable to be revoked.”
The perusal of list of entities mentioned therein indicates appellant‟s name at Sr.No.20, hence the appellant has 18
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(Ankit Naresh Tulsian) been absolved of any wrong doing. Consequently, the argument of the AO has fallen flat and there is no other independent finding to fasten the tax liability on the appellant.”
5. Confirming this view of the CIT(A), the Tribunal observed that having gone through the assessment order it was evident that it was based on the interim report. The final report of SEBI had absolved the scrip of all charges. Moreover, there was no independent finding on any other aspect casting doubts to show that share prices were manipulated at an unreasonable price when sold.
6. In view of the concurrent findings of the fact recorded by the Principal CIT and confirmed by the Tribunal, no substantial question of law arises. Appeal is accordingly dismissed with no order as to costs.”

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(Ankit Naresh Tulsian)

10(38) of the Act on sale of equity shares of MFTL. Thus, even on merits of the case, Revenue fails to succeed. Effective grounds of appeal raised by the Revenue are dismissed.
16. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open Court on 28.11.2025. [VINAY BHAMORE]

[MANISH BORAD]

JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated 28th November, 2025

vr/-

Copy to 1. The appellant
2. The respondent
3. The CIT(A), Pune concerned.
4. D.R. ITAT, “A” Bench, Pune.
5. Guard File.

By Order
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