DEPUTY COMMISSIONER OF INCOME TAX, JALGAON vs. TARADEVI RATANLAL BAFNA, JALGAON

Facts of the case, in brief, are that the assessee is an individual and derives income from business profits being partner in the firms M/s. Bafna Builders and Land Developers, Jalgaon and M/s. United Buildcon, Pune. He also derives salary from M/s. R.C. Bafna Jewellers, a proprietary concern of Smt. Taradevi Ratanlal Bafna. A search action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was conducted in the case of the assessee on 10.09.2014. Accordingly notice u/s 153A of the Act was issued to the assessee in response to which the assessee filed his return of income on 23.10.2015 declaring total income of Rs.1,23,93,990/-. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 153B of the Act on 30.11.2016 accepting the income returned.

Aggrieved with such order of the Ld. CIT(A) / NFAC the Revenue is in appeal before the Tribunal by raising the following grounds:

The assessee has also filed the Cross Objections by raising the following grounds:

The Ld. DR strongly objected to the order of the Ld. CIT(A) / NFAC deleting the addition made by the Assessing Officer. He submitted that the case of the assessee was reopened on the basis of information which was received from the Investigation Wing according to which the assessee claimed bogus long term capital gain from sale of shares of a penny stock company namely M/s. PFL Infotech Ltd. Hyderabad. He submitted that this information was backed by statements of various persons involved in the stock market manipulation to rig the prices of PFLIL and converting unaccounted money of the beneficiaries into long term capital gain which is exempt u/s 10(38).

Referring to the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj reported in (2022) 446 ITR 56 (Calcutta), he submitted that the Hon’ble High Court in the said decision has discussed in detail one such action taken by Directorate of Income Tax (Investigation) at Kolkatta which identified 84 BSE listed companies which were used for tax evasion using the penny stock rigging modus operandi. The Hon’ble High Court has noted that as per the report total 84 BSE listed penny stocks were identified after which several search and survey operations were conducted in office premises of more than 32 share broking entities who have accepted that they were actively involved in bogus long term capital gain / short term capital gain scam. He submitted that one such action was carried out in the case of M/s PFLIL, a Hyderabad based company on which survey u/s 133A was carried out by the department and subsequent actions revealed that the shares of the company were manipulated to generate bogus long term capital gain / short term capital gain for various beneficiaries. Referring to the staternents of Shri. P Amresh Kumar, MD of PFLIL, Shri Abhinandan Jain, Director of PFLIL and Shri. Naresh Jain he submitted that as per their statements, the overall scheme of manipulation of company shares was exposed.

Referring to the copy of SEBI order dated 28.11.2022, copy of which is placed at Annexure-2 of the paper book-2, he submitted that as per the said report the prices of PFLIL were rigged through manipulative and fraudulent trades during the period July 1, 2013 to May 19, 2014. SEBI also indicted Shri. P Amresh Kumar, MD of PFLIL and Shri Abhinandan Jain, Director of PFLIL in its order for violation of Section 15HA of the SEBI Act, 1992 for violation of PFUTP Regulations 2003 and section 15A(b) of the SEBI Act, 1992 for non-disclosures under PIT Regulations, 1992. He submitted that the SEBI has also noted that price manipulation in the scrip of M/s PFIL was orchestrated by two connected entities and facilitated by their connected broker. The manipulation involved in these two entities repeatedly placing buy orders at prices substantially higher than the prevailing Last Traded Price (LTP). These orders were often for minuscule quantities, such as 1 to 50 shares. This abnormal trading pattern aimed to artificially inflate the share price, as a rational investor would typically seek to buy at the lowest possible price. Together, these two entities significantly impacted the market, contributing 8.09% to the market's positive LTP during the manipulation period, a considerable deviation from market equilibrium.

Referring to the decision of the Mumbai Bench of the Tribunal in the case of PCIT vs. Shri Naresh Jain vide & 1946 of 2023, dated 31.08.2023, he drew the attention of the Bench to the following observations of the Tribunal: “The facts stated in Assessment orders, several statements extracted by ld AO, extracted statement of assessee, and modus operandi explained in those statements by assessee and others, clearly shows how blatantly and to the extent of several hundred of crores, all these persons have used sock exchange platform through exit providers, connivance with the brokers, directors of suspicious companies, price rigging through synchronized trade a money laundering exercise involving serious violation of Income tax, Securities law, Corporate Laws, banking laws and several other economic law.”

He submitted that the facts of this case should be appreciated in this background. He submitted that the assessee in financial year 2014-15 has sold 1,11,926 shares of M/s PFLIL for a total consideration of Rs.8,21,96,621/- earning Long Term capital gain of Rs.7,68,24,174/-. This is an extraordinary profit earned in a short span of 2-3 years. On being questioned by the Assessing Officer, the assessee has merely stated that he was doing this on the advice of broker and market sentiment.

Referring to the movement of shares price of M/s PFIL, he submitted that the price of this company rose from Rs.14.28 in April 2010 to Rs.825/- in May, 2014 and this meteoric rise in the prices of shares is not matched by the financials of the company. He submitted that the analysis of trade data obtained from BSE shows that the total trade volume between 01.04.2010 to 31.03.2017 is Rs.972/- crores. It has further been found that out of total trade 50 sellers sale volume is 41% and 52% of the sale volume involves only 100 sellers. Similarly, large concentration amongst the buyers has also been found. Around 50 buyers are involved in 52% and 100 buyers are involved in 70% of the pay-out made to the sellers. He submitted that the submission of the assessee that the investment has been made keeping in view the market sentiment, it had transacted through formal banking channels and used Stock exchange mechanism should not be accepted since the legitimate apparatus of stock exchange was abused by the Syndicate led by Shri Naresh Jain to manipulate the share prices by front running of stocks and providing exempt long term capital gain through exit providers.

Referring to the decision of Hon’ble Supreme Court in the case of Sumati Dayal vs. CIT reported in (1995) 80 Taxmann 89 (SC) and the decision of the Delhi Bench of the Tribunal in the case of Suman Poddar vs. ITO reported in (2019) taxmann.com 329 (Delhi) and various other decisions, he submitted that the order of the Ld. CIT(A) / NFAC should be reversed and that of the Assessing Officer be restored.

So far as the observation of the Ld. CIT(A) / NFAC that the Assessing Officer has made the addition on surmises and conjunctures is concerned, he submitted that the Ld. CIT(A) / NFAC has failed to consider the overwhelming evidence in form of income tax and SEBI investigation carried out in the case of the assessee.

Referring to the decision of the Delhi Bench of the Tribunal in the case of Hersh W. Chadha vs. DCIT reported in (2011) 9 taxmann.com 1 (Delhi), he submitted that the Ld. CIT(A) / NFAC has failed to consider the overwhelming circumstantial evidence which is against the assessee.

Referring to the decision of Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), he submitted that the Hon’ble High Court in the said decision has held that where the assessee earned long term capital gain on sale of shares and the Assessing Officer denied said claim and made additions under section 68 on the ground that the assessee invested in shares of penny stock companies which provided bogus long term capital gain, since the assessee failed to establish the genuineness of rise of price of shares within a short period of time that too when general market trend was recessive, additions made under section 68 were justified.

Referring to the decision of the Pune Bench of the Tribunal in the case of Narendra Shrikishan Agarwal Vs. ACIT vide order dated 05.11.2019, he submitted that the Tribunal in the said decision has rejected the assessee’s long term capital gain exemption claim on sale of penny stock of a pharma company (Lifeline Drugs & Pharma Limited -LD&PL) during assessment year 2015-16. The Tribunal in the said decision has held that it is a predetermined action with a specific intention to derive Long Term Capital Gain by dubious method. It also noted that in spite of having no revenue from operations, having no major corporate announcements, the assessee made huge investment of Rs.15 lakhs in LD&PL and held that this could only be possible that the suspected entities and its promoters such as the assessee beneficiary, paper company like LD&PL, exit provider DTPL and the brokers were hand in glove with each other.

Referring to the decision of the Mumbai Bench of the Tribunal in the case of Hitendra C. Ghadia Vs. DCIT reported in TS-189-ITAT-2023 (Mumbai), he submitted that the Tribunal in the said decision has held that where the assessee failed to prove the genuineness of his share dealing transactions and in view of fact that entire transactions were stage managed with object to plough back his unaccounted income in form of fictitious long term capital gain and claim bogus exemption, the Revenue was justified in denying exemption under Section 10(38) and treating such long term capital gain as bogus.

Referring to the decision of Hon’ble AP High Court in the case of M/s. Manidhari Stainless Wire (P.) Ltd. vs. Union of India vide W.P. No.5917 of 2017, order dated 31.10.2017, copy of which is placed in the paper book, he submitted that the Hon’ble High Court in the said decision has held that right to cross- examine is not absolute. If there are factual grounds to show that the denial of cross-examination was based upon sound logic, then the order of adjudication cannot be inferred with. He submitted that the SLP filed against the decision of Hon’ble High Court has been dismissed by the Hon’ble Supreme Court. Therefore, the Ld. CIT(A) / NFAC should not have deleted the addition made by the Assessing Officer on account of violation of principles of natural justice by not granting cross-examination.

Referring to various other decision filed in the paper book compilation, he submitted that since the Ld. CIT(A) / NFAC in the instant case has failed to grasp the factual and legal matrix of the case and erred in allowing the long term capital gain on sale of shares of penny stock company and deleted the consequential addition being the commission paid for acquiring such accommodation entries, therefore, the order of the Ld. CIT(A) / NFAC being not in accordance with law should be set aside and that the order of the Assessing Officer be restored.

The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC deleting the addition made by the Assessing Officer both on merit as well as on account of violation of principles of natural justice by not granting the right to cross examine. He submitted that during the course of assessment proceedings the assessee has submitted all the details of purchase and sale of shares of PFL Infotec Ltd. such as D-Mat account statement, copy of bank statement reflecting the sale and purchase transactions, relevant contract / broker notes showing the on-line transactions relating to the sale and purchase of scrip, details of STT paid, details of trade order, trade name, security quantity etc. The shares were purchased through authorized broker namely SMC Global Security Ltd., who is a member of Bombay Stock Exchange. All the transactions were routed through proper banking channel and the authorized stock broker. Further, the shares of PFL were not acquired through any preferential allotment but were purchased through legitimate means on open market. He submitted that neither the assessee nor his family members have any connection of any nature whatsoever with the promoters of PFL, the company whose share transactions are under consideration. Further, during the course of 153A assessment proceedings the then Assessing Officer had asked about the long term capital gains and short term capital gains and the assessee vide letter dated 21.11.2016, copy of which is placed at pages 62 to 65 of the paper book, had submitted the details and no adverse view was taken. He submitted that the company PFL was incorporated on 22.01.1993 as a public limited company registered with the Registrar of Companies, Hyderabad and is listed on the Bombay Stock Exchange under the scrip code 531769. As of 13.08.2025, the share price of PFL Infotec Ltd. was Rs.13.53 on the BSE. Thus, the shares of PFL Infotec Ltd. remain listed and actively traded on the BSE. Further, the Ld. CIT(A)/ NFAC in para 8.5 of his order has confirmed the trading status of the scrip through an internet search and verified the company’s status thereby allowing the assessee’s appeal on merits. He has acknowledged the fact that D-Mat account statement, copy of bank statement reflecting the sale and purchase transactions of the above scrip, relevant contract / broker notes showing the on-line transactions relating to the sale and purchase of scrip, details of STT paid, audited books of account, statement showing the computation of short / long term capital gain, details of trade order, trade name, security quantity etc were produced before the Assessing Officer as well as before him.

So far as the written submissions filed by the Ld. DR are concerned, the Ld. Counsel for the assessee filed the following written submissions rebutting the contention of the Ld. DR: Sr. No. Para no. and Contention in the para Remark 1 In paragraph 2.1 of the written This case related to submission, the Ld. DR relied on transactions involving decision of the Hon'ble Calcutta High purchases of scrips Court in the case of PCIT vs. Swati Bajaj made either by the [ITAT/6/2022] preferential allotment or through off market. However, the assessee case, both purchases and sales are done on the stock exchange through a registered broker. There are multiple decisions of co ordinate benches of Hon'ble Mumbai ITAT which have categorically distinguished the said judgment. Reliance is placed on Smt. Priyanka Miglani and others (ITA No. 2531/Mum/2021). The assessee would like to submit that there are several decisions of the Hon’ble Jurisdictional High Court of Bombay, which are in favour of the assessee in respect of the issue under consideration. It is a well settled position in law that the decision of the Hon'ble

Referring to the decision of the Pune Bench of the Tribunal in the case of Sonal Ashish Shah vs. ITO vide order dated 03.06.2025 for assessment year 2014-15, the Ld. Counsel for the assessee drew the attention of the Bench to paras 6 to 9 of the said order and submitted that under somewhat identical circumstances, the Tribunal has set aside the order of the Ld. CIT(A) confirming the addition made by the Assessing Officer u/s 68 of the Act on account of sale of equity shares of alleged penny stock company namely Blazon Marbles Limited. The Tribunal while setting aside the order of the Ld. CIT(A) has held that the assessee purchased 16000 equity shares in two parts i.e. 4000 equity shares vide contract note dated 18.12.2012 and 12000 equity shares vide contract dated 04.03.2013. The purchases have been made through registered share broker from recognised stock exchange platform and the shares have been received in the Demat account of the assessee immediately after the purchase. Page 32 of the paper book is the Demat account statement which confirms this fact. After holding the Equity shares in the Demat account for less than a year, assessee sold 6000 Equity shares on 03.10.2012 and 10000 Equity shares on 07.02.2014 which was again through recognised stock exchange and shares transferred through the Demat account. The consideration was received through the stock broker itself and there is no evidence putforth by the Revenue authorities that assessee was having any direct connection with the person purchasing/selling the alleged Equity shares. It is also an admitted fact that when the transactions took place, there was no restriction by the SEBI on the purchase and sale of Equity shares of Blazon Marbles Limited. Accordingly the order of Ld. CIT(A) was set aside and the addition made by the Assessing Officer was deleted.

Referring to the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Narayan Tatu Rane vide & 4716/MUM/2023, order dated 19.09.2024 for assessment years 2011-12 and 2012-13, the Ld. Counsel for the assessee submitted that the Tribunal under somewhat identical circumstances dismissed the appeal filed by the Revenue where the Ld. CIT(A) deleted the addition made by the Assessing Officer on account of short term capital gain on purchase and sale transactions undertaken by the assessee treating the same as bogus in nature and thereby making addition of Rs.80,58,939/-.

He submitted that the above decisions collectively emphasize that the Assessing Officer must conduct independent enquiries and provide specific evidence linking the assessee to any alleged bogus transactions rather than relying solely on generalized investigation reports and third party statements. He submitted that without concrete or corroborative evidence such as adverse statements from stock exchange authorities or proof of assessee’s involvement in price manipulation, additions made by the Assessing Officer are unsustainable and should not be added to income of assessee. He accordingly submitted that the order passed by the Ld. CIT(A) / NFAC being in accordance with law should be upheld and the grounds raised by the Revenue be dismissed.

Referring to the decision of Hon’ble Bombay High Court in the case of Jainam Investments vs. ACIT reported in (2021) 439 ITR 154 (Bom), the Ld. Counsel for the assessee submitted that the Hon’ble High Court in the said decision has held that where the Assessing Officer issued a reopening notice on ground that the assessee had received accommodation entries in form of unsecured loans from various companies, since the assessee had furnished all information regarding said transactions of receiving loan and entities from which loans were taken during original assessment and the Assessing Officer failed to prove that said transactions of receiving loans by assessee were accommodation entries, impugned reopening notice was unjustified. The Hon’ble High Court further held that where the Assessing Officer issued a reopening notice against assessee on ground that Investigation Wing had analyzed trade data of various identified penny stocks and concluded that assessee was involved in trading of one of these penny stocks script and was a beneficiary of bogus short term capital loss, impugned reopening notice issued against assessee merely based on a general and bald statement and without disclosing any tangible material in reasons for reopening was unjustified.

Referring to the decision of Hon’ble Delhi High Court in the case of CNB Finwiz Ltd. vs. DCIT reported in (2025) 174 taxmann.com 918 (Del), the Ld. Counsel for the assessee submitted that the Hon’ble High Court in the said decision has held that where the Assessing Officer issued a reopening notice against assessee on ground that assessee had traded in penny stock company, since information provided by Investigation Wing was of a general nature and it was more in nature to flag trading transactions in listed stock of penny stock company as against credible and definite information that all transactions in shares of penny stock company were sham transactions and there was no indication that this information was applicable or related in any manner to assessee, impugned notice was to be set aside.

Referring to pages 219 to 220 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the reasons recorded by the Assessing Officer where he himself has stated as under: "As per the information in possession of this office, the assessee had sold his investment in penny stocks of M/s PFL Infotech Ltd, Hyderabad (PFLIL) during FY 2014-15. Further it was stated that the company PFLIL is a penny stock company and has facilitated various beneficiaries to claim bogus STCG, STCL or LTCG exempt from tax under section 10(38) of the Act. The assessee is one of the beneficiaries of this penny stock company listed on BSE Script Code 531769. It was stated that this company has been used to facilitate introduction of unaccounted income of members or beneficiaries in the form of exempt capital gain or short Term Capital Loss in their books of accounts. The assessee was one such beneficiary. …. Subsequent to the above information, the online data and old assessment records were analyzed. This led to a conclusion that the assessee was dealing in shares of a penny stock company, namely, PFL Infotech Ltd."

He submitted that in the instant case the assessment u/s 153A of the Act was already completed in assessee’s case for assessment years 2011-12 to 2015-16 and during the said block assessment proceedings the assessee had submitted all the relevant documents as asked by the Assessing Officer which included all the details with regard to the transactions carried out by the assessee in the alleged scrip. When all the relevant details with regard to the transactions done by the assessee in the alleged scrip in respect of sale and purchase of shares as disclosed in the ITR for assessment year 2015-16 were available before the Assessing Officer at the time of original assessment u/s 153A r.w.s. 143(3) of the Act, therefore, in absence of any new tangible material available with the Assessing Officer, he could not have reopened the case for assessment year 2015-16. Thus, the decision to reopen the assessment was a mere change of opinion and nothing else.

Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Omprakash Asaram Mantri and batch of other appeals vide & 141/PUN/2024 & Ors., order dated 17.07.2025, he submitted that under identical circumstances the Tribunal has quashed the re-assessment proceedings on the ground that when in the original assessment completed u/s 143(3) r.w.s. 153A of the Act, the Assessing Officer has raised specific queries on the issue of long term capital gain from sale of shares of NITSL and the assessee had replied to the same, therefore, the reopening the assessment in absence of any tangible material is not in accordance with law.

He accordingly submitted that once an assessment has been completed u/s 153A r.w.s. 143(3) of the Act where the Assessing Officer after raising a query on a particular issue had accepted the assessee's reply to the said query, he has no jurisdiction to reopen the assessment merely because the issue in question is not specifically adverted in the assessment order, unless there is tangible material before the Assessing Officer to come to the conclusion that there is escapement of income. He accordingly submitted that the grounds raised by the assessee in CO be allowed and the appeal filed by the Revenue be dismissed.

The Ld. DR on the other hand submitted that the reopening has been made on the basis of new information received by the Assessing Officer after conclusion of the regular proceedings, therefore, it could not be said to be a change of opinion. He submitted that the theory of change of opinion is applicable only when on same set of facts the re-assessment is initiated. However, in the instant case new facts have emerged due to information received from the Investigation Wing. The Assessing Officer after due application of mind to the information so received and after carrying out his own independent verification from the records of the assessee recorded reasons and thereafter had issued notice u/s 148, therefore, such re- assessment proceedings are in accordance with law.

Referring to the decision of the Hon’ble Delhi High Court in the case of AGR Investment Ltd. vs. Addl.CIT (2011) 333 ITR 146 (Del), he submitted that the Hon’ble High Court in the said decision has held that where the Assessing Officer had specific information from office of DIT (Investigation) as regards transactions entered into by assesses-company with a number of concerns which had made accommodation entries and they were not genuine transactions, it could be said that there was material on basis of which notice under section 148 could be issued.

Referring to the decision of the Hon’ble Gujarat High Court in the case of Aaspas Multimedia Ltd. vs. DCIT (2018) 405 ITR 512 (Guj), he submitted that where reassessment was made on basis of information received from Principal DIT (Investigation) that assessee was beneficiary of accommodation entries by way of share application provided by a third party, same was justified. He accordingly submitted that the re-assessment proceedings initiated by the Assessing Officer being in accordance with law, the same should be upheld and the grounds raised by the assessee should be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has filed his original return of income on 23.10.2015 in response to notice u/s 133A of the Act. The assessment was completed u/s 143(3) r.w.s. 153B of the Act on 30.11.2016 accepting the returned income of Rs.1,23,93,990/-. We find subsequent to the completion of assessment the Assessing Officer, on the basis of information received from the DDIT (Inv), Nashik that the assessee has sold investments in PFL Infotech Ltd., Hyderabad which is a penny stock company and has claimed exemption of bogus long term capital gain u/s 10(38) of the Act, reopened the assessment by recording reasons which have already been reproduced in the preceding paragraphs. We find the Assessing Officer in the order passed u/s 147 r.w.s. 144B of the Act made addition of Rs.7,68,24,174/- by rejecting the claim of long term capital gain u/s 10(38) of the Act treating such sale of shares of PFL as bogus and held that the assessee has brought in his own unaccounted income in the guise of long term capital gain. We find in appeal the Ld. CIT(A) / NFAC allowed the claim of exemption u/s 10(38) on the ground that the assessee has produced adequate evidence in support of his claim before the Assessing Officer and nothing has been brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. He also held that non-granting of cross-examination despite being specifically sought by the assessee and non providing the copies of statements of third parties which were the basis for addition vitiates the entire assessment proceedings being violation of principles of natural justice. The observations of the Ld. CIT(A) / NFAC have already been reproduced in the preceding paragraphs.

It is the submission of the Ld. DR that when the case of the assessee was reopened on the basis of specific information obtained from the Investigation Wing which was backed by the statements of various persons involved in the stock market manipulation to rig the prices of PFL and converting unaccounted money of beneficiaries into long term capital gain claimed as exempt u/s 10(38) of the Act, the Ld. CIT(A) / NFAC should not have deleted the addition. It is also his submission that denial of cross-examination cannot be a ground to delete the addition.

It is the submission of the Ld. Counsel for the assessee that the Ld. CIT(A) / NFAC while deleting addition has relied on the decision of jurisdictional Hon’ble High Court in the case of PCIT vs. Indravadan Jain (supra) and various other decisions and has deleted the addition on the basis of overwhelming documentary evidences produced before the Assessing Officer. Further nothing adverse has been brought on record by the Revenue to negate the various documentary evidences produced. It is also his submission that when the issue has already been dealt with in the order passed u/s 143(3) r.w.s. 153B of the Act on 30.11.2016 accepting the returned income on the basis of various submissions made by the assessee, such reopening cannot be made in absence of any tangible material and on account of change of opinion.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the details furnished by the assessee before the Assessing Officer shows that the shares in question were both purchased and sold online on floor of recognized stock exchange ensuring transparency and compliance with regulatory norms. The payments for purchase of shares and the consideration received for their sale were conducted entirely through proper banking channel ensuring transparency and legitimacy of the transactions. The purchase and sale transactions of shares were executed through a reputed stock broker namely M/s. SMC Global Security Ltd. The assessee has paid security transaction tax on all the transactions in compliance with applicable tax regulations. The shares of PFL were not acquired through any preferential allotment but were purchased through legitimate means on the open market. Nothing has been brought on record that either the assessee or his family members have any connection of any nature whatsoever with the promoters of PFL, the company whose share transactions are under consideration in this case. The transaction was never doubted in the original assessment proceedings. Further the submissions of the Ld. Counsel for the assessee that PFL was incorporated on 22.01.1993 as a public limited company and it has never been delisted by the stock exchange could not be controverted by the Ld. DR. Under these circumstances, when the assessee has produced all the details before the Assessing Officer such as D-Mat account statement, copy of bank statement reflecting the sale and purchase transactions, relevant contract / broker notes showing the on-line transactions relating to the sale and purchase of scrip, details of STT paid, details of trade order, trade name, security quantity etc., therefore, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC deleting the addition made by the Assessing Officer.

So far as the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (supra) relied on by the Ld. DR is concerned, we find the above case is related to the transactions involving purchases of scrips made either by preferential allotment or through off market. However, in the instant case, both purchases and sales are done on the stock exchange through a registered broker. Therefore, the said decision in our opinion is not applicable to the facts of the present case.

So far as the reliance on SEBI Order dated 28.11.2022 by the Ld. DR, according to which the prices of PFL were manipulated through fraudulent trades is concerned, we find in the present case, the SEBI has not issued any notice to the assessee or broker of the assessee in relation to synchronised trades or matched trades. Further, the penalty imposed by the SEBI on its Independent director was set aside by the Securities Appellate Tribunal, Mumbai vide order dated 07.06.2023 vide Appeal no. 129 of 2023 wherein the SAT has dropped the penalty against the independent director of the company. Therefore, the arguments of Ld. DR on the issue of price manipulation cannot be accepted.

So far as the decision of the Mumbai Bench of Tribunal in the case of Naresh Jain (supra) relied on by the Ld. DR is concerned, we find the Hon'ble Bombay High Court vide its order dated 18.10.2023 in Writ Petition (L) No. 27193 of 2023 has quashed and set aside the matter remanding it for fresh de novo adjudication. Subsequent to this we find the Tribunal vide and 240 to 244/Mum/2023 order dated 27.06.2024 for assessment years 2011-12 and 2013- 14 to 2017-18 in the case of Naresh Manakchand Jain has deleted the addition made by the Assessing Officer.

So far as the argument of the Ld. DR that the revenue has presented and reproduced the financial details of PFL attempting to establish a connection between the scrip and Naresh Jain is concerned, we find the assessee has explained the basis on which the shares were purchased by the assessee. Further, the assesse has not only invested in shares of PFL but has also diversified portfolio and has invested in various other concerns. We, therefore, find merit in the arguments of the Ld. Counsel for the assesse that merely because the gains are significant that cannot render the transaction as sham or accommodative in nature.

So far as the decision of the Pune Bench of the Tribunal in the case of Narendra Shrikrishan Agarwal vs. ACIT (supra) relied on by the Ld. DR is concerned, we find in that case shares were bought from a company directly through preferential allotment whereas in the instant case the shares were bought by the assessee from stock exchange through registered stock broker. Similarly in the case Sumati Dayal vs. CIT (supra) the amounts were received from the various Race clubs on basis of Swarna Sukh winning tickets presented by her and the assessee got all the bets correct on the same day which is against human probability. However, in the instant case the facts are different.

So far as the decision of the Delhi Bench of the Tribunal in the case of Hersh W Chadha vs. DCIT (supra) relied on by the Ld. DR is concerned, we find the same relates to the Bofors Scam and is for assessment year 1987-88. The facts are distinct and different from the facts of the present case. Therefore, the same in our opinion, is not applicable to the facts of the instant case. The various other decisions relied on by the Ld. DR are also not applicable to the facts of the present case.

We find the Ld. CIT(A) / NFAC while deleting the addition has relied on the decision of Hon’ble jurisdictional High Court in the case of PCIT vs. Indravadan Jain (supra) and various other decisions. The decision of the Hon’ble jurisdictional High Court is binding on the Tribunal.

We find the Hon’ble Bombay High Court in the case of CIT vs. Shyam R. Pawar (supra) has held that where DMAT account and contract note showed details of share transaction and the Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income under section 68. The relevant observations of the Hon’ble High Court read as under:

It is in that regard that we find that Mr. Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.

We find the Hon’ble Allahabad High Court in the case of PCIT vs. Smt. Renu Agarwal (2023) 153 taxmann.com 578 (Allahabad) while dismissing the appeal filed by the Revenue has held that in absence of adverse comments from stock exchange and the company involved in these transactions and in absence of any material relating to the assessee found in the Investigation Wing Report, addition made by the Assessing Officer had rightly been deleted. The relevant observations of Hon’ble High Court read as under: “3. The basic question involved in the present appeal is with regard to deletion of some amount which was added by the Assessing Officer on the allegation of penny stock. 4. The appeal of the respondent-assessee was allowed against the assessment order. The appeal filed by the assessee was allowed by the CIT (Appeal). Against the appellate order the Revenue had filed the aforesaid Income-tax Appeal which has been dismissed by the ITAT. 5. After detailed discussion, the ITAT has recorded the following findings of fact: "The above findings recorded by Ld. CIT(A) are quite exhaustive whereby he has discussed the basis on which the Assessing Officer had made the additions. While allowing relief to the assessee, the ld. CIT(A) has specifically held that there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions and he held that Assessing Officer only quoted facts pertaining to various completely unrelated persons whose statement were recorded and on the basis of unfounded presumptions. He further held that the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the investigation Wing. The ld. CIT(A) relying on various orders of Lucknow Benches and other Benches has allowed relief to the assessee by placing reliance on the evidences filed by the assessee before Assessing Officer. I do not find any adversity in the order of ld. CIT(A) specifically keeping in view the fact that Lucknow Benches in a number of cases after relying on the judgment of Hon'ble Delhi High Court in the case of Krishna Devi and others had allowed relief to various assessees." 6. The concurrent findings of fact has been recorded by the first appellate authority and the ITAT. Thus, no substantial question of law is involved in the present appeal. The matter is concluded by findings of fact. 7. For the reasons aforestated, we do not find any good reason to entertain this appeal. Consequently, it is dismissed.”

We find the SLP filed by the Revenue has been dismissed by the Hon’ble Supreme Court as reported in 456 ITR 249 (SC).

We find Hon’ble Bombay High Court in the case of PCIT vs. Indravadan Jain (supra) while deciding an identical issue has dismissed the appeal filed by the Revenue where the Tribunal has upheld the order of the Ld. CIT(A) deleting the addition made on account of sale proceeds of shares as unexplained cash credit under section 68 on the ground that since shares were purchased by the assessee on floor of stock exchange and not from broker, payment was made through banking channel, deliverables were taken in DEMAT account where shares remained for more than one year, contract notes were issued and shares were also sold on stock exchange, the Tribunal had rightly deleted impugned addition. The relevant observations of Hon’ble High Court read as under: “2. It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act. 3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was A.O.’s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent’s case was reopened under Section 148 of the Act.

The A.O. did not accept respondent’s claim of long term capital gain and added the same in respondent’s income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. 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 CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] 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 bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. 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 ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.

Since the Ld. CIT(A) / NFAC while deciding the issue has relied on the decision of Hon’ble Bombay High Court apart from various other decisions and since the assessee during the course of assessment proceedings has furnished all the relevant documentary evidence which was not controverted by the Assessing Officer and the addition was made mainly based on the Investigation Wing report, therefore, in view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A) / NFAC on this issue, we do not find any infirmity in his order deleting the addition made by the Assessing Officer by rejecting the claim of long term capital gain as exempt u/s 10(38) of the Act.

Even otherwise also, we find during the 153A assessment proceedings the Assessing Officer had specifically asked regarding the exempt long term capital gain to which the assessee has replied and thereafter the Assessing Officer has passed the order u/s 143(3) r.w.s. 153B of the Act accepting such exempt long term capital gain. Therefore, the assessment in our opinion could not have been reopened u/s 148 of the Act for the same transaction in absence of any fresh tangible material.

We find an identical issue had come up before the Tribunal in the case of ITO vs. Omprakash Asaram Mantri and batch of other appeals (supra) where the Tribunal dismissed the appeals filed by the Revenue against the order of the Ld. CIT(A) quashing the re-assessment proceedings by observing as under: “29. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the original assessment in the instant case for the assessment year 2011- 12 was completed u/s 143(3) r.w.s. 153A of the Act on 22.03.2016 determining the total income of the assessee at Rs.16,79,230/- as against the returned income of Rs.15,08,324/-. The Assessing Officer in the said order has allowed the claim of long term capital gain of Rs.1,44,35,387/- claimed as exempt u/s 10(38) of the Act after considering the reply of the assessee to the specific queries put by him. We find on the basis of information obtained from the Investigation wing that the assessee has sold his investments in penny stock company NITSL, reopened the assessment after recording the reasons. The reasons recorded for reopening of the assessment read as under: OFFICE OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, AAYAKAR BHAVAN, NEAR HOLY CROSS ENGLISH SCHOOL, CANTONMENT, AURANGABAD (Ph. 0240-2373001) No.ABD/ACIT/CC-1/147-Reasons/2018-19/63 Date: 10.05.2018 To Ashish Omprakash Mantri, Abhay Oil Industries, New Mandha Jalna 431 203 Email:sgbhakkad@gmail.com Mo. No. 9422219414 Ph. No.248 2230539 Sir, Sub: Reasons for proceedings u/s 147 of the Income-tax Act, 1961-reg Ref: Your request letter dated 21.04.2016 received in this office on 23.04.2018 Please refer to the above mentioned subject and reference. As per your request, the reasons recorded for initiating proceedings u/s 147 in your case for AY 2011-12 is as under: "The assessee is an individual having income from salary, house property, business and profession and other sources. A search action u/s 132 was conducted in the card of the assessee on 02.05.2013 and accordingly a notice u/s 153A was issued to the assessee in response to which the assessee filed his return of income on 28.02.2014 declaring total income of Rs.15,00,324/-. Thereafter, assessment under section u/s 143(3) r.w.s 153A wat completed on 22.03.2016 assessing total income at Rs.16,79,227/-. The office has received information from the office of the DDIT (Inv), Unit 8(3), Mumbai on 23.03.2018. As per the information received, the assessee has sold his investment in penny stock of M/s Nivyah Infrastructure & Telecom Services Ltd amounting to Rs.1,60,30,716.35/- during the AY under consideration. Further, it is stated that the company M/s Nivyah Infrastructure & Telecom Services Ltd. is a penny stock company and has facilitated various beneficiaries to claim LTCG exempt from tax under section 10(38) of the Act. The assessee is one of the beneficiaries of this penny stock company listed on BSE Script Code 517534. Also, it is stated that this company has been used to facilitate introduction of unaccounted income of members or beneficiaries in the farm of exempt capital gain or short Term Capital Loss in their books of accounts. The assessee Shri Ashish Omprakash Mantri is one such beneficiary and the amount involved in his case is Rs.1,60,30,716.35/-.

The assessee has received an amount of Rs.1,60,30,716.35/- as LTCG via purchase and sale of stock of M/s Nivya Infrastructure & Telecom Services Ltd which is a penny stock company. However, the same has not been offered for taxation this LTCG is not real. It is evident from the above facts that the assessee had not fully and truly disclosed material facts necessary for his assessment for the year under consideration thereby necessitating re-opening u/s 147 of the Act. It is true that the assesses has filed a copy of annual report and audited profit and balance sheet along with return of income where various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced book of accounts, annual report, audited profit and loss account and balance sheet or other evidence at mentioned above, the requisite material Facts of the case, in brief, are that the assessee as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be disclosed by the AO and could have been discovered with due diligence accordingly attracting provisions of explanation 1 of section 147 of the Act. For aforestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction / approval to issue notice u/s 148 has been obtained from the Pr. Commissioner of Income-tax (Central), Nagpur as per the provisions of section 151 of the Act". Yours faithfully, Sd/- (Dr. Shushan Patil) Asstt. Commissioner of Income tax, Central Circle-1, Aurangabad”

We do not find any infirmity in the order of the Ld. CIT(A) on this issue. Admittedly the original assessment was completed u/s 143(3) r.w.s. 153A of the Act. It is also an admitted fact that during the course of assessment proceedings the Assessing Officer has raised specific queries on the issue of long term capital gain from sale of shares of NITSL and the assessee had replied to the same, the details of which are already reproduced in the preceding paragraphs. We find the Assessing Officer, after considering the various submissions filed by the assessee from time to time, has completed the assessment.

We find an identical issue had come up before the Hon’ble Bombay High Court in the case of South Yarra Holdings vs. ITO (supra). In that case also the assessee had sold the shares of M/s. S V Electrical Limited which has subsequently been changed to NITSL and the order was passed u/s 143(3) of the Act on 01.11.2013. The Assessing Officer received information from the DDIT (Inv) Wing on 23.03.2018 which is the same date in case of the assessee also. The reasons were recorded in March, 2018 and the notice was issued to that assessee on 29.03.2018. (In the case of the assessee the date of notice is 28.03.2018). There also the Assessing Officer rejected the objections made by the Assessing Officer and the additions were made for alleged penny stock. When the assessee challenged the validity of re-assessment proceedings, the Hon’ble High Court quashed the re-assessment proceedings by observing as under: “3. For the Assessment Year 2011-12 the petitioner filed its return of income on 29.9.2012 declaring an income of Rs.12.52 lacs (rounded off). The return was taken up for scrutiny assessment by the Assessing Officer. On 1.11.2013 the Assessing Officer passed an order under section 143 (3) of the Act enhancing the petitioner's income to Rs.20.14 lacs.

Notice u/s 148 was issued with prior approval of Pr.Commissioner of Income Tax-6 Mumbai." 5. On receipt of above reasons on 9.8.2018, the petitioner filed its objections to the reasons in support of the impugned notice and in particular pointed out that the assessee had dealt with a company called "S.V.Electricals Ltd" and not with M/s Nivyah Infrastructure & Telecom Services Ltd. The name of company "S.V.Electricals Ltd" had subsequently changed on 14.2.2012 to M/s Nivyah Infrastructure and Telecom Ltd. It had also pointed out in its objection that during the regular assessment proceedings, details of the petitioner's dealing in scrip namely "S.V.Electricals Ltd" had been submitted during the regular assessment proceedings. The objections primarily proceeds on the basis, that the reasons as recorded, display total non-application of mind while forming reason to believe, this as during the relevant time, there was no company by the name "M/s Nivyah Infrastructure and Telecom Services Ltd" in which the petitioner could have dealt. The petitioner's objections were rejected by the Assessing Officer by passing an order on 28.9.2018. The order on objections, does not deal with the petitioner's primary contentions that the petitioner had not dealt with any company by name "M/s Nivyah Infrastructure and Telecom Services Ltd" during the period relevant to the subject assessment. This order dated 28.9.2018 disposing of the objections is completely silent on the above objections while rejecting the petitioner's objections. 6. The respondent's Assessing Officer has filed an affidavit-in reply dated 5.2.2019 of the Assessing Officer. However, the reply does not deal with this objection taken in the petition. Nevertheless, Mr.Suresh Kumar the learned counsel for the revenue submits that all these issues will be subject of consideration during the re-assessment proceedings. Thus, this Court should not interfere at this stage.

It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer to issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re-opening notice is to be issued.

In the above circumstances, the impugned notice is un- sustainable in law and therefore, is quashed and set aside.

Accordingly, Petition allowed.”

In view of the settled legal position and considering the facts of the present case, we pass the following order- i. The impugned notice dated 26th March 2021 issued by Respondent No.2 for AY 2014 15 are quashed and set aside and all action in furtherance thereto is prohibited: ii. Rule made absolute in above terms. No costs.”

We find when the Revenue challenged the order of the Hon’ble High Court, the Hon’ble Supreme Court dismissed the SLP filed by the Revenue as reported in (2023) 456 ITR 249 (SC).

The various other decisions relied on by the Ld. Counsel for the assessee also support his case to the proposition that where addition based on penny stock transaction had already been considered while making scrutiny assessment under section 143(3), notice for reopening under section 148 for same transaction could not be issued in absence of any fresh tangible material.

Since in the instant case, the Assessing Officer in the order passed u/s 143(3)/153A has allowed the claim of expenditure u/s 10(38) on account of profit from sale of shares of the alleged penny stock company, after considering the reply in response to the queries raised him, therefore, in absence of any fresh tangible material, we hold that the re-assessment proceedings initiated for the same transaction are not in accordance with law.

Since the facts of the instant case are identical to the facts of the case decided by the Tribunal, therefore, we hold that such reopening of assessment in absence of any fresh tangible material is not in accordance with law and has to be quashed. We, therefore, allow the grounds raised by the assessee in CO challenging the validity of re-assessment. Thus, the appeal filed by the Revenue is dismissed and the ground raised by the assessee in the CO are partly allowed.

Identical grounds have been raised by the Revenue in 1560, 1565/PUN/2024 and CO Nos.5, 3 and 2/PUN/2025 for assessment years 2013-14, 2014-15 and 2018-19 respectively. Since we have already decided the issue and the grounds raised by the Revenue have been dismissed and the COs filed by the assessee have been partly allowed, therefore, following similar reasonings, the appeals filed by the Revenue are dismissed and the COs filed by the assessee are partly allowed.

After hearing both sides, we find the grounds raised by the Revenue are identical to the grounds raised in ITA No.1561/PUN/2024. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following similar reasonings, the grounds raised by the Revenue are dismissed. The appeals filed by the Revenue vide & 498/PUN/2025 are accordingly dismissed.

In the result, all the above 6 appeals filed by the Revenue are dismissed and the 4 COs filed by the assessee are partly allowed.