PRAMILA AGARWAL,JAIPUR vs. THE INCOME TAX OFFICER WARD-2(5), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR

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BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 531/JPR/2025
fu/kZkj.k o"kZ@Assessment Years : 2011-12
Ward-2(5),
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADNPA3346F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Tarun Mittal, C.A.
jktLo dh vksj ls@ Revenue by :Shri Gorav Avasthi, JCIT a lquokbZ dh rkjh[k@ Date of Hearing : 15/07/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 10/10/2025

vkns'k@ ORDER

PER DR. S. SEETHALAKSHMI, J.M.

This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre(NFAC) [ for short CIT(A) dated
15.10.2024 for assessment year 2011-12. The said order of the ld.
CIT(A) arises as against the order passed u/s. 147 r.w.s. 143(3) dated
27.12.2017 passed by the ITO, Ward-2(5), Jaipur. [for short ‘AO’].
2. In this appeal, the assessee has raised the following grounds:-
“1. The ld. CIT(A) erred in stating that a notice was issued, requiring submission of documents or explanation by 31.03.2023, whereas no such Pramila Agarwal, Jaipur.
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notice was ever issued (as is evident from the e-proceedings tab at Income Tax
Portal) andserved upon the appellant, thus observations of ld. CIT(A) are contrary to the facts.
1.1 The ld. CIT(A) has further erred in deciding the appeal without affording adequate opportunity of being heard, as the last valid notice of hearing was issued on 24.12.2020, requiring submissions to be made by 07.01.2021 (which was during COVID period and when offices were not functioning regularly and thus in response to the same, adjournment was filed by assessee), after which, no further notice was issued to the appellant before passing the final order. Appellant prays that appeal was decided after a lapse of approx. 4 years from the date of notice lastly issued, without issuing any fresh notice prior to disposal of appeal, which is contrary to the principles of procedural fairness, as upheld by various judicial precedents.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in confirming the actions of ld. AO in issuing notice u/s 148 of the Income Tax Act, 1961 merely on the basis of information received from DDIT
(Inv) in the case of some third person, and no link/nexus thereof with the assessee has been established before reopening the assessment and without independent application of mind. Thus, the action of the Ld. AO in reopening the assessment u/s 148 and the consequent reassessment order so passed deserves to be held bad in law;
3.1 That, the Ld. CIT(A) has further erred in upholding the impugned reassessment order passed by ld. AO u/s 147 of the Act, without recording any subjective belief as to escapement of income and has merely acted upon suspicion by completely ignoring the prerequisite condition for reopening of assessment which can be done only on the basis of a subjective belief of escapement of income on the basis of reasons to be recorded in writing and that suspicion cannot take place of belief. Thus, the impugned reassessment order deserves to be held bad in law.
3.2 That, the Ld. CIT(A) has further erred in confirming the actions of ld. AO in reopening the assessment whereas, in the reasons recorded for reopening, there is no allegation whatsoever of not truly and fully disclosing the material necessary for assessment, more particularly when all the details were filed alongwith return of income. Thus, the reassessment proceedings are bad in law and void ab initio.
3.3 That, the Ld. CIT(A) has further erred in justifying the reopening of assessment without establishing a nexus between the material in his possession
Pramila Agarwal, Jaipur.
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and the belief, and therefore, the impugned reassessment order deserves to be quashed.
Without prejudice to above and in the alternative -

“8. On the facts and in the circumstances of the case and in law, ld. CIT(A) grossly erred in confirming the action of Ld. AO in reopening the assessment u/s 147 of the Income Tax Act, 1961, instead of issuing notice u/s 153C of the Act, when the sole basis of reopening assessment is information unearthed by the DDIT (Inv) during the course of search in the case of some unrelated person. Thus, the action of the Ld. AO in reopening the assessment u/s 148 is in violation to the provision of IT Act and therefore consequent reassessment order so passed deserves to be held bad in law.”
Pramila Agarwal, Jaipur.
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2.2
As regards admission of additional ground so taken by assessee is concerned, the ld. AR of the assessee has submitted that though legal ground against order passed u/s 147 has been taken requesting it to consider as bad in law, however, for the sake of clarity, additional ground of appeal has been filed which is purely legal in nature and which also does not require any thorough investigation. In view of the above, it was requested to allow to raise the additional ground of appeal in the interest of justice.
We have considered the request of assessee and also perused the additional ground so taken. It is seen that same is legal in nature and goes to the root of the matter. In view of the decision of Hon’ble Apex Court in the case of NTPC Ltd. reported in 229 ITR 383, additional ground taken by the assessee is allowed.
3. We find that the appeal filed by the assessee is delayed by 108
days. The assessee has filed an application submitting therein the reasons for delay in filing the appeal and prayed for condonation of delay. In support of the application, the assessee has also filed an Affidavit for condonation of delay, which is being reproduced hereunder:-
“In the aforesaid context, it is humbly submitted that order u/s 250 was passed by Ld.CIT(A) in the case of assessee on 15.10.2024, which stood served on the e-portal of the assessee. Against the order so passed, appeal could have been filed within 60 days, from the service of the order. However, the appeal
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got delayed by 168days,as the appeal was filed on 01.04.2025for the reasons as explained below:

In the circumstances of the matter it is humbly prayed to your goodself to please accept the application / prayer of the condonation of delay which is merely of 168
days and to please be kind enough to direct the listing of the appeal for disposal on the merits.”

From perusal of above, it is crystal clear that information, based on which notice u/s 148 is issued in the case of assessee, was found during the course of search in case of a third person. Thus in such scenario, the proper course of action is that instead of invoking the provisions of section 148 of the Act, ld.AO should have invoked the provisions of u/s 153C of the Act.
At this juncture, kind attention of your goodself is invited to section 153C, which reads as under:
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153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having juri iction over such other person [and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A]
From perusal of above, it is evident that legislation has clearly provided that if any documents found during search, pertain to a person other than the person searched, such documents shall be handed over to the Assessing officer having juri iction over such third person, who shall complete assessment in accordance with section 153C of the Act.
In support of submission made above, reliance is placed on decision of The Juri ictional High Court, in the case of Sh. Shyam Sunder KhandelwalVs.
ACIT, Jaipur (D.B.Civil Writ Petition No. 18363/2019) vs ACIT & others dated
19.03.2024 has decided the issue as under:
Section 153C, read with sections 148 and 153C, of the Income-tax Act, 1961 - Search and seizure - Assessment of any other person (Section 153C vis-a-vis section 148) -
Assessment year 2014-15 - Whether on satisfaction of twin condition for proceedings under section 153C, Assessing Officer has to proceed in accordance with section 153A, however, it is not obligatory on Assessing Officer to make assessment for all years - Held, yes - Whether provisions of sections 153A to 153D have prevalence over the regular provisions for assessment or reassessment under sections 143 &
147/148 - Held, yes - Whether once there is incriminating material seized or requisitioned belonging or relatable to person other than on whom search was conducted, section 153C is to be resorted to - Held, yes - Whether provisions of sections 153A to 153D have prevalence over regular provisions for assessment or reassessment under sections 148 & 147/148 - Held, yes - Whether therefore, where
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basis for initiation of section 148 proceedings in case of assessee was material seized relating to or belonging to assessee during search conducted on ‘M’ Group, notices issued under section 148 and impugned orders rejecting objections filed to issuance of notice were to be quashed and set aside - Held, yes [Paras 30, 32 and 40] [In favour of assessee]
Further The Hon’ble Juri ictional High Court, very recently in the case of Tirupati Construction Company Vs. ITO (D.B. Civil Writ Petition No. 17651 &
17523/2022) dated 21.03.2024 has decided the issue as under:
Section 148A, read with sections 147, 148, 153A and 153C, of the Income-tax Act,
1961 - Income escaping assessment - Conducting inquiry, providing opportunity before issue of notice under section 148 (Scope of provision) - Assessment years
2016-17 and 2017-18 - Assessing Officer issued on assessee a notice under section 148A(b) seeking to reopen assessment for assessment year 2016-17 - Assessee in response filed a reply raising serious objection to maintainability of proceedings on ground that entire basis for reassessment was incriminating material and information collected during search carried out in year 2016 and prior to 31-3-2021 in premises of another assessee and nothing more and, therefore, no proceedings for reassessment could be drawn under section 148A - Assessing Officer did not find merit in reply of assessee and passed an order under section 148A(d) - Whether since entire basis for reopening assessment was nothing but material and information collected during search conducted in year 2016 in premises of another assessee, only legally permissible course of action was one provided under section 153C and not under section 148 - Held, yes - Whether impugned order passed under section 148A(d) deserved to be set aside - Held, yes [Paras 14, 16 and 17] [In favour of assessee]
The Hon’ble ITAT Jaipur bench in the identical case in ITA No. 425/JP/2017 in the case of Sh. Navrattan Kothari Vs. ACIT, Jaipur vide order dt. 13.12.2017 has held as under:
“….Therefore, in conjoint reading of provisions of section 153A, 153C and 147/148
of the Act as well as a consistent view taken by this Tribunal in a series of decision cited (supra) we hold that the assessment or reassessment of income of the person other than search persons based on seized material can be only be made u/s 153C r.w.s. 153A and the provisions of section 147/148 of the Act are not applicable in such cases. No contrary decision has been brought to our notice. Accordingly, we hold that initiation of proceedings u/s 147/148 by the AO to reassess the income is illegal being without juri iction and consequently the reassessment order passed u/s 147 r.w.s. 143(3) is also illegal and void abinitio and is liable to be quashed.”
Further reliance is placed on the following case laws:
-
Ashok Kumar BatwaniTalwandi ITA No. 204/2004 dated 10.01.2017 (Raj.)
Pramila Agarwal, Jaipur.
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- 140 TTJ 249 ITO vs. Arum Kumar Kapoor (ITAT, Amritsar Bench)
- 64 taxmann.com 159 G. Koteswara Rao v/s DCIT (ITAT, Visakhapatnam)
- Rajat Shubra Chatterji vs. ACIT in ITA no. 2403/Del/2015 (ITAT, Delhi)
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Prakash Chand Kothari in ITA No. 1190/JP/2019 (ITAT, Jaipur)
It is thus submitted that the consequent re-assessment order passed u/s 147 is without juri iction and deserves to be quashed.
Ground of Appeal No.1 to 1.1
Under these grounds of appeal, appellant has challenged the actions of ld. CIT(A) in passing an ex-parte order without affording adequate opportunity of being heard.
At this juncture, kind attention of your honours is invited to the fact that ld.CIT(A) completed first appeal proceedings without affording adequate opportunity of being heard. It is submitted that in all 4 notices were issued during appellate proceedings, dated 07.11.2019, 09.01.2020, 11.03.2020 & 24.12.2020, which could not be complied with due to offices of counsels being partly functioning due to COVID.
Thereafter, on 01.11.2022, a notice for enablement was received and subsequently ld.
CIT(A), without issuing any further notice for approximately 3.5 years, passed an order dated 15.10.2024. It is thus evident that no notice of hearing was issued after
COVID and order was passed. However, as is evident from the appellate order passed by ld.CIT(A), order has been passed after due consideration of all the facts on record.
It is therefore requested before your honours that since all the facts relevant to the appeal under consideration were already filed before ld.AO, appeal may please be decided on merits of the case instead of restoring the same to the file of Ld. CIT(A) as it will cause genuine hardship and only postpone the proceedings. It is therefore submitted that order so passed without properly appreciating the documentary evidences available on record, and without affording adequate opportunity of being heard, is not in accordance with law and deserves to be set aside.
Reliance is placed on the following case laws:
Hon’ble Gujrat High Court in the case of ‘Saurashtra Packaging (P.) Ltd v.
Commissioner of Income-tax [1993] 204 ITR 443 (GUJ.)’
Section 254, read with section 41(1) of the Income-tax Act, 1961 - Appellate
Tribunal – Order of – Assessment year 1984-85 – Assessee-company took over running business of a firm in which it was a partner – During relevant accounting period assessee received refund of sales-tax – ITO held that said refund was assessable as income of assessee – On appeal, Commissioner (Appeals) held that since deduction was allowed to partnership firm, section 41(1) was not applicable and amount was not assessable as income of assessee – Tribunal observed that Pramila Agarwal, Jaipur.
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deed of dissolution was not on record and that it would be necessary to examine relevant provisions of State Sales Tax Act and Rules to know as to who would be entitled to refund – Accordingly, Tribunal remanded matter to Commissioner
(Appeals) – However, a copy of dissolution deed was on record, which provided rights and liabilities of assessee – Whether Tribunal could have easily looked into relevant provisions of State Act and Rules, if that was found necessary, and decided appeals – Held, yes – Whether, therefore, Tribunal was not justified in setting aside order of Commissioner (Appeals) and sending matter back to him for a fresh decision holding that it was unable to decide point in controversy finally in absence of relevant materials – Held, yes
Zuari Leasing & Finance Corporation Ltd. Vs ITO, 18(4), Delhi (2008) 112
ITD 205 (Del) (Trib.)
"10. It is clear from above that primary power, rather obligation of the Tribunal, is to dispose of the appeal on merits. The incidental power to remand, is only an exception and should be sparingly used when it is not possible to dispose of the appeal for want of relevant evidence, lack of finding or investigation warranted by the circumstances of the case. Remand in a casual manner and for the sake of remand only or as a short cut, is totally prohibited. …………. Having regard to aforesaid principle, it is necessary to look into records to see whether there is sufficient material on record to dispose of the issue on merit and there is no need to remand the issue to provide a fresh inning to the Revenue."
"10. It is true that remand of a matter is discretionary but such discretion is required to be shown to be exercised in a judicial manner In the case of Saurashtra Packaging (P) Ltd vs CIT (1996) 131 CTR (Guj) 40 (1993) 204
ITR 443 (Guj), their Lordships of Gujarat High Court have observed that where matter can be disposed of by the Tribunal on the basis of material already on record, a remand should not be resorted to. It is always necessary to avoid multiplicity of proceeding and to save time."
Ground of Appeal No. 2 to 3.3
Under these grounds the assessee has challenged the validity of reopening done by issue of notice u/s 148 of the Act solely on the basis of information received from the investigation wing, and the consequent order passed u/s 147/ 143(3) of the Act.
From perusal of reasons recorded,as cited supra (at WS page 2), it is evident that the case was reopened solely on the basis of information received from Directorate of Investigation (‘DIT’).The belief has been formed on the basis of presumptions drawn
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by the DIT, that too in the case of some other persons including some brokers, who were supposedly engaged in providing fictitious/ accommodation entries. Such brokers/ persons are in no way connected with assessee in any manner.Also, no transactions have been entered into by assessee with such brokers. Thus, the reasons were recorded without independent application of mind and further without arriving at the objective conclusion drawn after examining the so-called information / evidences gathered.
Further, it is submitted that the Ld. AO ought to have considered the issue objectively and not on the so called information received from some other official, therefore, the action of the ld. AO in reopening the completed assessment without independent application of mind deserves to be held bad in law.
Further the Hon’ble Gujrat High Court in the case of Seth Brothers Vs. CIT reported in 169 CTR 519 has laid down following principles for the re-opening of the assessment u/s 148 of the Income Tax Act, 1961: (Reproduced in 28 TW 57,79)
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(a)
There must be material for belief
(b)
Circumstances must exist and cannot be deemed to exist for arriving at an opinion.
(c)
Reason to believe must be honest and not based on suspicion, gossip, rumour or conjuncture.
(d)
Reasons referred must disclose the process of reasoning by which he holds
‘reasons to believe’ and change of opinion does not confer juri iction to reassess.

(e)
There must be nexus between material and belief.

(f)
The reasons referred must show application of mind by the assessing officer.
The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the officer at the point of time of issue of notice u/s 148
and cannot be sought to be substantiated by reference to material that may have come to light subsequently in the course of reassessment proceedings.
In the light of what is stated above, we hold that there was no material with the AO for having reasons to believe that the income as chargeable to tax, has escaped assessment. We are unable to hold that the juri iction assumed u/s 147/148 was legal and valid.”
It is further submitted that the validity of initiation of reassessment proceedings has to be judged with regard to the material available with the assessing officer and that too by framing the opinion strictly based on the documents and information in possession,
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that certain income has escaped assessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be held illegal. In this regard reliance is placed on the decision of hon’ble Delhi High court in case of Sarthak
Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under:
Reassessment – Notice – Condition precedent – Formation of belief that income escaped assessment – Assessing Officer treating share application money as bogus accommodation entries – Payments through banking channel and companies investing money genuine – No independent application of mind by Assessing Officer but acting under information from investigation wing – Notice to be quashed –
Income Tax Act, 1961, ss. 147, 148. [2025] 175 taxmann.com 384 (Delhi) Sanjay Kaulv. Income-tax Officer *
Section 68, read with section 147, of the Income-tax Act, 1961 - Cash credit
(Reassessment) -Assessment year 2014-15 - Assessee had traded in shares of two companies, namely, IISL and SRK - An information was received by Assessing
Officer from Investigation Wing that shares of IISL was a penny stock and it was being rigged to provide bogus accommodation entry to beneficiaries - Further,
Assessing Officer found that SRK was flagged as one of BSE listed penny stock companies in Investigation Report circulated from Principle DIT (Inv.) – On basis of same, a reopening notice was issued on ground that assessee had claimed bogus short- term capital loss on penny stocks to evade tax liability - It was noted that information on basis of which reassessment notice was issued was general in nature and did not point towards involvement of assessee in arrangement of providing accommodation entry by contriving bogus short-term capital loss - Further, there was nothing to show that information produced above was applicable to assessee - Materials based on which said report was prepared had also not been placed on record by revenue -
Conclusion arrived at by Assessing Officer was based on suspicion created by information that shares of IISL and SRK were penny stocks - Whether, on facts, impugned reassessment notice issued against assessee was unjustified and same was to be set aside - Held, yes [Paras 27, 29 and 30] [In favour of assessee]

[2025] 174 taxmann.com 918 (Delhi)CNB Finwiz Ltd. v. Deputy Commissioner of Income-tax*
Section 68, read with section 147 of the Income-tax Act, 1961 - Cash credit (share transactions) - Assessment year 2011-12 - Assessee-company was engaged in business of trading in shares, securities, equity and currency derivatives, mutual funds, etc. – Assessee filed its return of income which was accepted and an Pramila Agarwal, Jaipur.
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assessment order was passed -Subsequently, Assessing Officer issued a reopening notice against assessee on ground that assessee had traded in penny stock company and said transactions were sham transactions done only to create an adjustment or a set off in books of account and same was assessee's own money which was routed through closely held penny stock and assessee had entered into these transactions to evade payment of due taxes - It was noted that information provided by Investigation
Wing was of a general nature and it was more in nature to flagtrading 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 -Further, there was no indication that this information was applicable or related in any manner to assessee - There was also no indication of range of sharp increase in price or movement of price of shares of penny stock company during relevant period –
Information did not disclose period during which share prices of penny stock company were stated to have widely fluctuated - Further, information clearly furnished no reason for Assessing Officer to believe that assessee's income for relevant assessment year had escaped assessment - Whether, on facts, impugned order and notice were to be set aside - Held, yes[Paras 33, 35, 43 and 44] [In favour of assessee]
[2025] 173 taxmann.com 834 (Delhi)Abha Guptav.Income-tax Officer*
Section 148, read with section 147, of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for (Reassessment) - Assessment year 2013-14 –
Assessing Officer issued notice under section 148 on basis of information received from Investigation Wing relating to certain share transactions alleging that sell trades exceeded buy trades and assessee was beneficiary of bogus LTCG - Objections raised by assessee to initiation of reassessment proceedings were rejected - Whether, since reasons recorded for reopening were based solely on transactions of third party and failed to allude to any material implicating assessee in alleged manipulation of penny scrips, reassessment notice undersection 148 and order disposing objections were to be quashed - Held, yes [Paras 14 and 15][In favour of assesse]
[2024] 168 taxmann.com 219 (Delhi - Trib.)Archit Gupta v. ACIT*
Section 10(38), read with section 148, of the Income-tax Act, 1961 - Capital gains -
Income arising from transfer of long term securities (Penny stock) - Assessment years
2012-13 and2013-14 - Assessee purchased shares of a company and earned long-term capital gain(LTCG) on sale of same - He claimed exemption of LTCG under section 10(38) - Assessing Officer opined that assessee had made huge profit out of said investment because of this, it made script as suspicious and penny stock -
Accordingly, he reopened assessment on ground that assessee had earned LTCG on sale of shares of said company through accommodation entries - It was noted that assessee had purchased shares directly from company and through share transfer from other party and subsequently, sold same in stock exchange - However, there were no Pramila Agarwal, Jaipur.
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discrepancies in documents filed by assessee claiming deductions under section 10(38) - Further, even though all characteristics of penny stock existed in present case, still revenue had not brought on record any materials linking assessee in any of dubious transactions relating to entry, price rigging or exit providers -Even in SEBI report, there was no mention or reference to involvement of assessee -Whether, on facts, impugned reopening of assessment was unjustified and LTCG claimed by assessee was legitimate - Held, yes [Paras 8 and 10] [In favour of assessee]
Reliance is further placed on the following decisions:
130 TTJ 42 Sheth Akshay Pushpavadan Vs. Dy. CIT (Ahd ‘A’) (UO)
Payment of on-money vis-à-vis seizure of diary from third party – Whether there is no incriminating evidence available against the assessee on record, addition for so called on-money could not be made on suspicion and surmises – Presumption under section 132(4A) is not available when the seized paper is recovered from third party and not from the assessee.
In the circumstances it is submitted that since ld. AO had not applied his mind independently while issuing notice u/s 148 and simply proceeded on borrowed satisfaction reached by some other officials on the basis of statements recorded in the case of third parties not related to the assessee in any manner, the same has no evidentiary value, therefore, the entire proceedings initiated u/s 148 deserves to be held bad in law.
Without prejudice to above and in the alternate;
Ground of Appeal Nos.4 to 4.3& 6:
Under these grounds of appeal, assessee has collectively challenged the addition made u/s 68 by holding the LTCG of Rs.1,37,83,051/- as bogus and addition of Rs.
8,51,610/-made u/s 69C on allegation of Commission payment therefore, the same are canvassed together for the sake of convenience.
Brief facts pertaining to these grounds of appeal are that during the year under appeal assessee had earned LTCG of Rs.1,37,83,051/- from the sale of shares of a public limited company listed on BSE namely M/s Splash Media & Infra Ltd(SMIL, in short) and claimed the same as exempt u/s 10(38) of the Act. The shares being sold after holding for a period of more than one year from purchase and paid STT at the time of sale on online portal of BSE thus has fulfilled all the conditions for claiming the profit earned thereon as exempt u/s 10(38) of the Act. These shares were bought through online system of the BSE and the payment was duly made as per the account maintained with the broker M/s Maverick Share Brokers Pvt. Ltd. (MSBPL, in short), a registered member broker through whom assessee has made all the transactions of purchases and sale of shares and derivatives on regular basis since past
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many years and even today. These shares were credited into the DMAT account of the assessee and stood sold via transaction executed in Bombay stock exchange through
M/s MSBPL(APB 6-13), after payment of STT (Securities Transaction Tax) and other incidental charges. However, in the impugned assessment order the Ld. AO based on searches conducted by Investigation Wing of the department at various places and statements recorded, wherein various persons allegedly accepted the M/s Splash
Media & Infra ltd. is a penny stock company and that they were indulged in providing accommodation entries to various beneficiaries. Ld.AO, accordingly, based on such so-called information had concluded that assessee had introduced his undisclosed income in the guise of LTCG and claimed the same as exempt from tax in terms of the provisions of section 10(38).
In this regard, at the outset, following facts are submitted for kind perusal and the sake of convenience:
The Transaction:
As stated above, assessee had bought 155000 shares of this company online which were duly credited in the D-mat account and the payment was made as per the account maintained with the broker MSBPL. All of these 155000 shares were sold via contract notes at APB 06-13 by the assessee during the year under appeal and LTCG earned shares was claimed exempt u/s 10(38). Since the shares were purchased online and are duly appearing in the D-mat statement of the assessee and after holding the same for a period of more than one year, the profit on sale of same after payment of STT (APB
06-13) was claimed as LTCG by the assessee which is in accordance with the provisions of section 10(38) of the Act.
The allegation:
As is evident from the assessment order and as stated by the Ld. AO, searches were conducted by Investigation Wing of the Department at various places throughout the country and statements of Stake holders/Brokers confirming the modus operandi providing such accommodation entries were recorded. It is relevant to note that the information about the statements being recorded were neither provided to assessee nor an opportunity to cross examine was made available to the assessee.

Further nothing in the information referred by ld.AO suggest that the name of the assessee appeared as beneficiary of bogus LTCG as alleged, in any such investigation proceedings. It was alleged that these persons whose statements were recorded were involved in providing LTCG through a number of shell companies commonly known as penny stock companies. At this juncture, kind attention of hon’ble bench is invited to the fact that the assessee had neither made transactions of purchases and nor any Pramila Agarwal, Jaipur.
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transaction of sale of the impugned shares through any of these companies. On the other hand the assessee had made transaction of purchase and also sale of impugned shares of SMIL on the on-line portal of BSE through his regular broker MSBPL i.e.
the broker with whom she had made all her transactions of purchases and sale of scripts. Since transactions of purchase or sale of impugned shares by assessee has not been done through the company of these person, therefore their statements for so called manipulation through their company cannot at all be applied in the case of the assessee. Apart from the so called information received from Investigation Wing of the Department, there was no material available with the Ld. AO or referred to by him in the assessment order found as a result or gathered during the course of assessment proceedings in support of the impugned addition made by him.
Moreover, during the course of assessment proceedings a specific request was made vide letter dated 28.11.2017(APB 20-24) for cross examination of all such person, however such request was turned down by Ld. AO in summary manner, though before relying upon the same against the assessee opportunity of cross examination should have been allowed in the interest of natural justice.
It is worthwhile to note that no reference of the assessee was made in any manner in any of the statements, that assessee has approached them for providing accommodation entry. Further the persons had not stated the name of the broker M/s
MSBPL as allegedly involved in providing bogus LTCG through whom the assessee has sold the scrips. It is a matter of fact that the broking firm MSBPL is never found involved in any such type of activity by any authority like SEBI etc. However, relying upon the uncorroborated statements of such persons that too recorded in some other case, by some other authority and behind the back of the assessee, Ld. AO incorrectly presumed that long term capital gain earned by assessee was merely an accommodation entry (even though assessee has neither purchased nor sold the shares through any of these broking firm ).
The Ld. AO further relied upon the conclusion drawn by SEBI in respect of these transactions where the SEBI had made enquiries in respect of unexpected fluctuations
/ gains in the price of shares of few companies. The ld.AO at page 5 and 6 of the order has referred to the interim order of SEBI. Firstly it submitted that this order is passed in the case of M/s First Financials Services Ltd and some other scrips, but not SMIL, and has no relation with the assessee. It is pertinent to note here that such order has no bearing in the case of the assessee.
It is further submitted that the General Manager, Investigation Department of SEBI had forwarded a report to the Investigation Wing, Kolkata dated 11.10.2017 stating that after thorough investigation the transaction of purchase and sale in the scrip namely SMIL as not involved in any kind of price rigging. Thus when the SEBI has Pramila Agarwal, Jaipur.
23
not doubted the company SMIL, there is no reason to doubt the genuine transaction claimed by the assessee.
In the backdrop of above facts and circumstances, following submission is made:
The Assessment Order is per se illegal and bad in law on facts:
It is submitted that these shares of SMIL were purchased on online portal of BSE which is clearly evident from purchases invoices of the broker MSBPL where all the necessary rules and regulations prescribed by SEBI had been followed. The said order is illegal in as much as it is solely based on the so called statements of third parties who are completely unknown and unrelated to the assessee. It must be noted that the statements of the said third parties were not recorded by the ld. Assessing Officer of assessee during the course of assessment proceedings, but were recorded in some investigation proceedings carried out by the Investigation Wing, Kolkata, that too behind the back of the assessee. As a matter of fact, and as can be seen from the assessment order itself that no corroborative material was found in the case of the assessee, nor any material was brought on record by the Ld. AO during the course of assessment proceedings in support of the conclusion drawn by him that the assessee had earned bogus LTCG. Similarly, all the plausible evidences of sale of such shares, which was made online on the Bombay Stock Exchange and through recognized stock exchange broker namely M/s Maverick Share Brokers (P) Ltd were also filed(APB
06-17). However all these evidences were deliberately ignored and ld. AO has even failed to rebut these evidences by bringing on record any contrary material before making such a huge addition.In the case of assessee, no any material was found which could support the allegation of the Ld. AO that assessee has converted his undisclosed money in the guise of LTCG. In view of these facts, it is submitted that the impugned addition being solely based upon such uncorroborated statements of third parties is clearly bad in law.
At this juncture, attention of the Hon’ble Bench is invited to the recent judgement of Hon’ble juri ictional High Court in the case of Principal Commissioner of Income-tax v. Gaurav Bagaria [2023] 152 taxmann.com 249 (Rajasthan)wherein it was held as under:
Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credit (Share transactions) - Assessment year 2014-15 - Assessing Officer treated LTCG disclosed by assessee on sale of shares as unexplained cash credit on basis that assessee had introduced his own unaccounted money by way of bogus LTCG - Tribunal held that since assessee had produced all relevant documentary evidence to establish genuineness of share transaction such as purchase bill, payment consideration through bank, etc., and there was no contrary evidence to doubt correctness of such evidences produced, treating transaction of sale and purchase of shares as sham was not justified
Pramila Agarwal, Jaipur.
24
- Held, yes – Whether order of Tribunal did not require any interference - Held, yes
[In favour of assessee]
Further Hon’ble juri ictional High Court in the case of Principal Commissioner of Income-tax-Iv.Ritu Agarwal Shreeram Bhawan[2023] 152 taxmann.com 181
(Rajasthan) held as under:
Section 10(38), read with section 260A, of the Income-tax Act, 1961 - Capital gains –
Income arising from transfer of long term securities (Conditions precedent) -
Assessment year 2014-15 - For relevant year, assessee filed her return claiming exemption under section 10(38) in respect of capital gains arising from sale of shares -
Both lower authorities had disallowed assessee's claim for exemption on basis of evidence received from Investigation Wing as purchase and sale were found to be bogus - Whether where Tribunal, after considering entire facts, had given a categorical finding that assessee had produced all documentary evidence to establish genuineness of transaction such as bank statement, demat account, books of account, etc., and Assessing Officer had failed to produce any contrary material to rebut said claim, then claim for manipulation and treating said transaction as sham and bogus was untenable - Held, yes - Whether since no gross violation of principles of natural justice had crept in and conclusion had been arrived at after considering all material and relevant facts, no substantial question of law arose - Held, yes [Paras, 3, 8 and 9]
[In favour of assessee]
Moreover Hon’ble juri ictional High Court in the case of CIT vs Pooja Agrawal, wherein it has been categorically held by Hon’ble Court that so far as assessee has furnished all the supporting documents in the shape of copy of contract notes regarding purchase and sale of shares, copy of D-mat account etc, the fact of transaction entered into cannot be denied simply on the ground that in his statements appellant denied having made any transactions. Further as payments and receipts were made through account payee cheques and transactions were routed through Kolkata
Stock Exchange and there was no evidence that the cash has gone back in appellant’s account, it was held by the Court that simply mentioning that findings were on the basis of appraisal report prepared by Investigation wing after considering all the material facts available on record is not sufficient. It was thus observed by the Hon’ble Court that “The AO has failed to prove through any independent enquiry or relying on some material that the transactions made by the appellant through share
P.K. Agrawal were non genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit.”
In view of above, it is submitted that reliance placed by the ld.AO on the so called statements of list of persons mentioned at page 11 and 12 of assessment order without making any direct and independent inquiry is not in accordance with law laid down by Hon’ble Rajasthan High Court and the juri ictional Income tax appellate tribunal.
Pramila Agarwal, Jaipur.
25
The view of Hon’ble Juri ictional High Court has further been confirmed by the Hon’ble ITAT, Jaipur bench in the decision in the case of Shri MeghRaj Singh
Shekhawat Vs. DCIT in ITA No. 443 & 444/JP/2017 dt. 07.03.2018whereinit is observed by the hon’ble bench at page 28 in last paraof the order as under:
“.....the transaction is established from the evidence and record which-cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain.Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account.”
Reliance is also placed on judgement delivered by Hon’ble Punjab and Haryana
High Courtin the case of The Pr. CIT vs Sh. Hitesh Gandhi in ITA No. 18 of 2017(O&M), wherein it has been observed that when:
 shares were actually purchased as these were reflecting in D-mat accounts;
 AO rejected the contention of purchase on the basis of suspicion arising out of reckless/ casual replies given by assessee during assessment proceedings;
 No post search enquiries were conducted in the form of recording statements of broker so as to bring on record any evidence of the said transaction being an accommodation entry;
 STT has been on sale of shares and shares had been sold through National Stock
Exchange ; and  Payment for sale of shares was received through banking channels.
Thus, when all the documentary evidences filed before the Ld. AO were in favour of assessee, solely on the basis of some casual replies given by assessee, transactions cannot be held as sham.
It is pertinent to note here that in the case before Hon’ble Punjab and Haryana High
Court, shares were purchased for cash, still the transaction was held as genuine as all the documents were in place, which duly suggested that the transaction by the assessee was most genuine. It is submitted that the instant case of assessee is far better as payment for purchase of such shares was made by account payee cheques.
As has been submitted that the statements relied upon by ld.AO were recorded behind the back of assessee, therefore vide reply dated 28.11.2017, a specific request was Pramila Agarwal, Jaipur.
26
made before the Ld. AO that such person be confronted and assessee may be allowed to cross-examine him so as to verify the veracity / truthfulness of the statements made by them (APB 20-24). However, in spite of the dire necessity of cross-examination in the circumstances of the case, the assessee’s request for cross-examination was turned down in an arbitrary manner, without specifying any justifiable reason. The Ld. AO merely stated that he was not bound by the technical rules of evidence and therefore, was not under any obligation to provide cross-examination of the person whose statements are being relied upon by him. The Ld. AO further stated that there is no provision for permitting cross-examination and also that right to cross-examination is not necessarily a part of reasonable opportunity. Such observation of the ld.AO is unjust and against the settled principles and provisions of natural justice. In this regard Reliance is placed on the decision of the Hon’ble Apex court in the case of CCE Vs. Andaman Timber Industries, (324) ELT 641wherein it has been held as under:
“6. According to us, 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. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating
Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee.
However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.
7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of Pramila Agarwal, Jaipur.
27
cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above.”
In this regard, it is submitted that:
i.
Impugned addition have been made on the basis of statements of third parties who were completely unknown and unrelated to the assessee. There is no corroborative evidence found or brought on record by the AO during the course of assessment proceedings by making any independent enquiry; ii. The said statements were not even recorded by Assessing Officer himself, but were recorded by some other authority. Thus, such statements could not have been simply used against assessee without at least examining such person by AO himself during the course of assessment proceedings.
iii. Statements of various persons relied upon by ld.AO were recorded behind the back of assessee by some other officer and opportunity of cross examination of both was not allowed to the assessee in spite of the specific request made by assessee and request was turned down in arbitrary manner.
iv. Purchases of shares in case of SMIL was made through online portal of BSE thus in no case there could be any involvement of any middleman in the transaction of purchases as alleged by the ld. AO. Therefore no doubts could be raised on the purchases of shares of these companies as wrongly alleged by ld. AO.
v.
Transactions of sale are routed through recognized stock exchange where trading is done on online system and it is impossible for a person to have the knowledge about the buyer who can be any person of this planet.
vi. The requirement of allowing cross-examination of witnesses, whose statements are sought to be used against the assessee, is a sine qua none for validity of adjudication proceedings. The Ld. AO has unlawfully tried to dispense with this requirement by stating that he is not bound by the Technical
Rules of Evidence Act. In this regard, it is submitted that such requirement is not a technical rules of evidence, but is one of the principles of natural justice which the Assessing Officer being a quasi-judicial authority is bound by law to follow. In the present case however, the impugned assessment order has been passed in violation of the principles of natural justice and therefore, is bad in law.
Hon’ble Jaipur Bench of tribunal in the case of Sh. Pramod Jain vs. DCIT in ITA
NO. 368/JP/17has relied upon the view taken by Hon’ble Apex Court in Andaman
Timbers and held that the statements of witness cannot be made sole basis of making assessment without giving an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.
Pramila Agarwal, Jaipur.
28
Hon’ble Ahmedabad bench of ITAT also in the case of Smt. Sunita Jain vs ITO quashed the assessment order by placing reliance on Apex Court judgement in the case of Andaman Timber (cited supra) as entire assessment was based upon the statements of Sh. Mukesh Choksi, which were neither supplied to assessee nor was opportunity of cross examination was provided.
In fact, Hon’ble Mumbai ITAT in the case of Mukesh R. Marolia vs Addl. CIThas held that since purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity, it is not possible to hold that transactions reported by assessee as sham. Such transactions were later approved as genuine by Hon’ble Bombay High
Court also.
Thus, in light of the above, it is submitted that the impugned assessment order is clearly bad in law and deserves to be set aside.
The facts of assessee’s case are identical to the case of Shri Pramod Jain and Shri
Megh Raj Singh Shekawat (supra). The assessee has duly bought shares through banking channels, payment for which stood debited in the bank account of the assessee, got them credited` in D-mat in case of SMIL the purchase was online thus the shares were credited directly in Dmat account, shares stood credited in the D-mat account of the assessee before the sale and subsequently sold gradually on different dates through online portal of Bombay Stock Exchange after due payment of STT, sale consideration of which has also been received via banking channels. Thus, purchase and also the subsequent sale are duly evidenced with proper records. The decision of Hon’ble Jaipur Bench of ITAT in the case of Shri Pramod Jain and of MeghRaj Singh Shekhawat (supra) fully supports and squarely applies in the instant case of the appellant, as the facts of these cases are very similar to the case of the assessee.

Further, ld.AO has failed to substantiate his case by conducting any independent enquiry or by bringing any material on record to prove that assessee has received her money back. Thus doubts regarding genuineness of transaction are nothing more than suspicion on the basis of so called statements of a third parties not related to the assessee in any manner.

The ld. AO has made the said transaction as non-genuine relying upon various judgements on “preponderance of human probabilities”. In this regard, it is submitted that such cases cannot at all be relied upon to draw adverse inference in the case of assessee as assessee’s transaction is supported by all the requisite documentary evidences.
In this regard, reliance is placed on decision of Hon’ble Special bench of Mumbai
ITAT in the case of ITO Vs. M/s. GTC Industries Limited where the Hon’ble
Pramila Agarwal, Jaipur.
29
Special Bench of ITAT after considering all the aspects of “preponderance of human probabilities” and other issues has held that :
“46. …..It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.”
The aforesaid judgement of Hon’ble Special Bench was followed by Hon’ble
Kolkatta ITAT in the case of Mahendra Kumar Baid Vs. ACIT dated 18.08.2017. In case of Dhakeswari Cotton Mills Ltd. Vs. CIT 26 ITR 775 Hon’ble Supreme
Court held that there must be something more than bare suspicion to support the assessment u/s 23(3). Ld. AO relied upon the judgment of Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. Vs. CIT, 26 ITR 775. As per AO, Hon’ble
Court has held that AO can make enquiries behind the back of assessee and they assumed quasi-judicial character only after issuance of notice of assessment. However in the same judgment Hon’ble Apex Court has directed the Tribunal to provide proper opportunity to assessee before applying any material in possession of AO and proposed to be used against the assessee and thus Hon’ble Court has explained and also directed to apply the “principal of natural justice”. Thus this decision of Hon’ble
Supreme Court referred by AO is rather favorable to assessee.

The other decisions referred by AO are in relation to the ‘evidences’. However, it is submitted that these decisions are also more or less favorable to assessee, as the AO has not produced any evidence in support of its allegation of LTCG earned by assessee as Sham transaction, except the uncorroborated statement of third parties that too recorded behind the back of assessee, by some other authority and in some other case.
Moreover as per these decisions the various documentary evidences furnished by the assessee should be taken cognizance of by AO or AO should have rebutted them by furnishing counter evidence, which AO have failed to do so.
The other decisions referred by AO are to the effect that AO is not bound by technical rule of evidence. There is no doubt about this proposition. But using the statement of Pramila Agarwal, Jaipur.
30
third party against the assessee without providing opportunity of cross examination to assessee is against the settled principle of natural justice and is bad in law.
Moreover the AO has referred other cases to the effect that test of human probabilities is to be applied in certain cases. However facts of these cited cases are quite different than that of instant case of assessee and therefore the ratio of these cases is not applicable.
Further ld. CIT(A) placed reliance on the PCIT vs. Swati Bajaj decided by Hon’ble
High Court of Calcutta[2022] 139 taxmann.com 352, in this regard, a detailed distinguishing note in enclosed herewith along with submission at WS Page 24-31. SEBI enquiry cannot be a basis for addition:
Another reason of treating the transaction as bogus is the enquiry made by SEBI that these companies are involved in price rigging and thereby helping others in purchasing the capital gain. This cannot be considered as conclusive evidence to hold the assessee as liable for making addition in the income tax proceedings.

In this regard, it is submitted that enquiry was conducted by SEBI in 2014, i.e. almost four years after assessee purchased shares, thus assessee was not at all aware about any such controversy regarding trading in shares of such company. Moreover, when the transaction were carried out by the assessee, they were executed in the recognized stock exchange which had followed all the conditions laid down by the SEBI.

Here it is pertinent to mention that the General Manager, Investigation Department of SEBI had forwarded a report to the Investigation Wing, Kolkata dated 11.10.2017
stating that after thorough investigation the transaction of purchase and sale in the scrip namely SMIL as not involved in any kind of price rigging.

It is also worthy to mention here that recently Hon’ble Income Tax Appellate
Tribunal, Mumbai in the case of Varshaben Laherikant Bhadra vs. ITO –
25(3)(1) decided on 19.05.2025, relying on the abovementioned report of the SEBI dated 11.10.2017, held as under:
“8. We have heard the rival submissions and also perused the relevant findings in the impugned orders. Apart from the fact that the shares were purchased and sold only on electronic platform of Bombay Stock Exchange through registered stockbroker from SEBI after paying STT, it has been brought on record by the Ld. Counsel that husband of the assessee was a regular trader and investor in shares and assessee had also made investments in several other shares. Thus assessee was also a regular investor in shares. During the course of hearing we had enquired from the assessee whether there is any investigation or finding of the SEBI on the scrip of M/s. Splash Media &
Infra Ltd., now known as Luharuka Media & Infra Ltd. It has been brought on record
Pramila Agarwal, Jaipur.
31
that on 31.10.2017 the department had sent a letter along with the report of Director of Income Tax, Investigation, Kolkata with regard to investigation of the scrip of M/s.
Splash Media & Infra Ltd. The General Manager, Investigation Department of SEBI vide report dated11.10.2017 have submitted the report of the Investigation Wing and also to the ACIT, Central Circle -4(4), Mumbai that the investigation of SEBI did not find violation of provisions of the SEBI Act, 1992 and SEBI (PFUTP) Regulations.
Along with the letter there is a confidential report given to Pr.DIT
(Investigation),Kolkata which had sought for the information regarding the alleged manipulation in market price of shares of certain companies including M/s. Splash
Media & Infra Ltd. The SEBI in his report has analysed the volume and price of the trading of the M/s. Splash Media & Infra Ltd. for various patch starting from 15.09.2009 onwards. In their exhaustive report they categorically stated that there was no manipulation pattern observed in the trading of M/s. Splash Media & Infra
Ltd. and therefore no adverse inference is drawn. The report deals with all the buyers and the sellers of the scrip in the Stock Exchange in various periods and after detailed examination and inquiry, in the report it is categorically stated that in none of the period there was no specific instance or manipulative pattern which can show that price was rigged or scrip was manipulated to provide any accommodation entry. Thus it was reported that there was no manipulation and no adverse has been drawn. Since it is an exhaustive report, therefore the contents of the same cannot be reproduced. This SEBI report itself clarifies the doubts of the ld. AO and also Director, Investigation Wing, Kolkata who had specifically referred this matter that it should be further investigated by the SEBI. SEBI did not find any manipulation in the prices or that the prices were rigged by some entities either by the buyers or by the sellers and no adverse inference have been drawn even with regard to the exit providers. Thus, the SEBI report itself absolves the case of the assessee.
9. Moreover, the entire premise of the ld. AO is based on that the DIT (inv.) Report which itself has been clarified by the SEBI to the Investigation Wing to whom specific information was shared by the Pr.DIT, Investigation, Kolkata. Once in the investigation it has been held that there was no manipulation in the scrip of M/s.
Splash Media & Infra Ltd., and the trading at Bombay Stock Exchange was genuine and the prices quoted in the Stock Exchange over the time were in accordance with the SEBI Rules and Regulations, no adverse can be drawn in the case of assessee.
Accordingly, in view of the documents submitted by the assessee as well as the report of the SEBI specifically with regard to the M/s. Splash Media & Infra Ltd., the transaction of purchase and sale of shares online through Bombay Stock Exchange cannot be held to be bogus or nongenuine and accordingly, addition of Rs.1,00,99,878/- made u/s. 68 of the Act is deleted. Consequentially, the adhoc commission made @3% is also deleted.”
Since, SEBI in its report shared with DIT Investigation has clearly held that the trading in the script of SMIL through Bombay Stock Exchange was genuine. Adverse
Pramila Agarwal, Jaipur.
32
inference drawn by ld. AO in the case of assessee on the basis of generalised information is not correct.

Therefore, in the circumstances, it is humbly submitted that the assessee had entered into a genuine transaction of purchases and sales of shares routed through the recognized stock exchange and the funds have been transacted through banking channels and the shares were kept by the assessee in D-mat account and the sales were subject to STT. Thus, all the conditions enumerated in section 10(38) for holding the profit from the sale of shares as exempt have duly been fulfilled by the assessee, thus in no circumstances it could be held as bogus or sham transaction more particularly when no corroborative evidence was brought on record by the department to hold that assessee had introduced his undisclosed income in the garb of long term capital gain and the statements of third party relied upon by the department stood retracted by such person himself which fact had not been considered at all by the ld.AO.
Reliance is also placed on the following decisions:
Vivek Agarwal Vs. ITO ITAT Jaipur in ITA No. 282/JP/2017, Dated 06.04.2018
addition made by the AO based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt,therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account.
Pr. CIT Vs.Jatin Investment Pvt. Ltd. (Delhi High Court) S 68 Bogus Capital
Gains: A transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found. The AO has to exercise his powers u/s 131 & 133(6) to verify the genuineness of the claim and cannot proceed on surmises.”
Surya Prakash Toshniwal HUF Vs. ITO (ITAT Kolkata) Bogus capital gains from penny stocks: Long Term capital gains claimed exempt u/s 10(38) cannot be treated as bogus unexplained income if the paper work is in order. The fact that the company whose shares were sold has violated SEBI norms is not traceable does not mean that the assessee is at fault.
Farrah Marker Vs. ITO (ITAT MumbaiS. 10(38)/68: 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 fatal flaw which renders the assessment order a nullity.
Pramila Agarwal, Jaipur.
33
.Dolarrai HemaniVs. ITO (ITAT Kolkata)
Penny Stocks: The fact that the stock is thinly traded and there is unusually high gain is not sufficient to treat the long term capital gains as bogus when all the paper work is in order. The revenue has to bring material on record to support its finding that there has been collusion/ connivance between the broker and the assessee for the introduction of its unaccounted money.
Identical issue has been decided in favour of assessee in the following cases:
i. Mahesh Mundra Mumbai vs ITO 21(1)ITA No. 1176/Mum/2012
ii. ITO ward 20(1) vs Naveen Gupta in ITA No 696 (Delhi) SOT 2006 94 Delhi iii. Mayur M Shah HUF Mumbai vs ITO 25(3) ITA No.2390/Mum/2013
iv. ITO v SmtKusumlata in ITA No. 387 105 TTJ (2006) 265 Jodhpur v. ChandrakantBabulal Shah vs ITO 16(2)(4) ITA No.6108/Mum/2009
vi. Dalpat Singh Choudhary vs ACIT (2012) 143 TTJ 500 (Jodhpur Trib) vii. ACIT v Shri Ravindra Kumar ToshnivallTA No. 5302/Mum/2008
viii. Jafferali K Rallonse v DCIT Central 5 in ITA No. 68/Mum/2009
ix. MrsRajinidevi A. Chowdhary v ITO ITA No. 6455/M/07 dated 30/04/2008
x. DCIT v Shri Pinakir L Shok in ITA No. 3030 & 3453/M/08 Dated 14/0712009
xi. CIT Vs. Shyam R. Pawarreported in [2015] 54 taxmann.com 108 (Bom) xii. ITO Vs. M/s Indravadan Jain, HUF, ITA No. 4861 & 5168 / Mum / 2014

Therefore, in light of the submissions made above and case laws cited, it is prayed that the addition of Rs.1,37,83,051/- made by treating the Long Term Capital Gain declared by assessee as bogus may please be directed to be deleted.
Ground of Appeal No. 5:
Under this ground of appeal, assessee has challenged action of ld.CIT(A in confirming the addition of Rs.8,51,610/- made by ld.AO by alleging that assessee has paid commission at the rate of 6% of the alleged bogus capital gain (both LTCG and STCL) to the entry provider.

In this regard, it is submitted that while holding the capital gain declared by assessee as bogus merely on the basis of statements of a third parties, the Ld. AO has further presumed that a commission of the above mentioned amount @ 6% might have been paid by assessee as a consideration for arranging such accommodation entry.
It is submitted that firstly, the transaction entered into by the assessee and the LTCG arising therefrom is completely genuine as has been submitted above in detail in grounds of appeal above. Thus, in view of the same there arises no question of any commission payment.
Pramila Agarwal, Jaipur.
34
Secondly, this addition also is solely based upon the statements of third parties which are absolutely uncorroborated in much as there is no material available on record to show any such payment. No such material has been referred by the Ld. AO and merely on the basis of assumptions and presumptions; the impugned addition has been made.
Therefore, when the capital gain has already been established as most genuine which was treated as bogus by Ld. AO solely on the basis of uncorroborated statements of third parties, no further addition could have been made solely on the basis of such statements on assumptions and presumptions. Hence, it is prayed that the addition of Rs.8,51,610/- be deleted.”

a.
Copy of Contract Note for sale of share
06-13

b.
Copy of Ledger account of assessee in the books of Broker M/s
Maverick Share Brokers Ltd.
14

c.
Copy of Bank Accounts of Karnataka Bank Ltd. depicting receipts from sale of shares.
15-17
3. Copy of Show cause notice dated 21.11.2017. 18-19
4. Copy of reply dated 28.11.2017 in response to show cause notice dated
21.11.2017. 20-24

S.
No.
Particulars
Page
Nos.
1. Copy of decision of the Hon'ble High Court of Rajasthan in the case of Principal Commissioner of Income Tax vs. Gaurav
Bagaria [2023] 152 taxmann.com 249 (Rajasthan) decided on 09.05.2022. 1-3
2. Copy of decision of the Hon'ble High Court of Rajasthan in the 4-6
Agarwal Shreeram Bhawan [2023] 152 taxmann.com 181
(Rajasthan) decided on 10.05.2022. 3. Copy of decision of the Hon'ble High Court of Delhi in the case of Sanjay Kaul v. Income Tax Officer [2025] 175 taxmann.com
384 (Delhi) decided on 30.05.2025
7-14
4. Copy of decision of the Hon'ble High Court of Delhi in the case of CNB Finwiz Ltd. v. Deputy Commissioner of Income Tax
[2025] 174 taxmann.com 918 (Delhi) decided on 20.05.2025
15-26
5. Copy of decision of the Hon'ble High Court of Delhi in the case of Abha Gupta v. Income Tax Officer [2025] 173 taxmann.com
834 (Delhi) decided on 10.03.2025
27-31
6. Copy of decision of the Hon'ble Income Appellate Tribunal,
Delhi Bench in the case of Archit Gupta v. ACIT [2024] 168
taxmann.com 219 (Delhi-Trib.) decided on 06.11.2024
32-42
7. Copy of decision of the Hon'ble Income Appellate Tribunal,
Mumbai Bench in the case of Varshaben Laherikant Bhadra v.
ITO-25(3)(1) in ITA No. 1665/Mum/2024 decided on 19.05.2025. 43-49
7. Per contra, Ld. DR relied upon the orders of ld. CIT(A) and also filed written submission and placed reliance upon the judgement of Hon’ble Supreme Court in the case of Suman Poddar v/s ITO 112
Taxmann.com 330, Hon’ble High Court of Calcutta in the case of PCIT
V/s Swati Bajaj 446 ITR 56 and also of ITAT, Jaipur Bench in the case of Chandra Prakash Jain v/s DCIT ITA 66/JPR/25, Karuna Jain v/s ITO ITA
190/JPR/25, ITAT Mumbai Bench in the case of ITO v/s Kailash
Chandra Gupta HUF 172 Taxmann.com 774. The ld. DR has also filed note of distinguishing facts of the case as under:
Pramila Agarwal, Jaipur.
36
Pramila Agarwal, Jaipur.
37
Pramila Agarwal, Jaipur.
38

It was submitted before the Hon’ble Court that the Tribunal erred in holding that the information and statements recorded by Investigation Wing could not be taken into consideration while making assessment as such material was not disclosed nor an opportunity was accorded for cross-examination of the assessee.
It was submitted before the Hon’ble Court that Tribunal did not examine the case on touchstone of human probability. However,
Hon’ble High Court upheld the order of the Tribunal. It was considered that prejudice was caused to the assessee as he should have been allowed an opportunity of being heard and of rebutting the evidences against him. It was also impliedly held that direct evidences weigh more than circumstantial evidences and human probabilities. The relevant extract of order is as under:
“..The Tribunal by impugned order has categorically held that the material information received by the Assessing Officer from the investigation wing alongwith certain statements recorded by DBIT Investigation, Calcutta could not be taken into consideration as that material was not disclosed nor an opportunity was accorded for cross-examination of the Assessee.
This finding recorded by the Tribunal cannot be said to be perverse or suffering from any patent illegality. Learned counsel for the Revenue could not satisfy us with reference to any judgment on this aspect that even without disclosing any material to the Assessee and without allowing him proper cross- examination, such undisclosed and unverified material could be taken into consideration for the purposes of addition…” …

“..Learned counsel for the Revenue relying upon the judgment passed by the Supreme Court in the case of Sumati Dayal Versus
Commissioner of Income Tax, Bangalore reported in AIR 1995
Pramila Agarwal, Jaipur.
40
SC 2109 would submit that the Tribunal has not examined the case on the touchstone of human probability…”

“..In view of the above consideration, we are of the view that this appeal does not involve any substantial question of law and is, therefore, dismissed…”

In the instant case specific request was made for copy of report as well as copies of statements recorded of different persons.

Sl.
No.
Facts in ITAT, Jaipur decision in the case of Chandra Prakash Jain
Facts of Assessee
1. In this case, hon’ble bench relied on the judgements of the hon’ble Supreme Court in the case of Suman
Poddar and hon’ble
High Court of Calcutta in the case of Swati
Bajaj.
A distinguishing note regarding the case of Swati Bajaj passed by Hon’ble High Court of Calcutta is furnished before the hon’ble bench at the time of hearing i.e.
on 15.07.2025. Further distinguishing note regarding the case of Suman
Poddar is furnished above in this submission.

It is therefore submitted that decision of hon’ble Supreme Court in the case of Smt. Suman Poddar and hon’ble ITAT, Jaipur Bench in the case of Sh. Chandra Prakash Jain is delivered in an entirely different set of facts and is thus not applicable to the case of assessee.
Pramila Agarwal, Jaipur.
49
Furthermore, Hon’ble Income Tax Appellate Tribunal, Mumbai
Bench in the case of Varshaben Laherikant Bhadra vs. ITO –
25(3)(1) in ITA No. 1665/Mum/2024 decided on 19.05.2025 has observed in its order at Para 8 that The General Manager, Investigation
Department of SEBI vide report dated 11.10.2017 has stated that the script M/s Splash Media & Infra Limited was not involved in any price manipulation and no adverse inference was drawn. The relevant extract of Para 8 of the order is re-produced below for our ready reference:
“8. ………… During the course of hearing we had enquired from the assessee whether there is any investigation or finding of the SEBI on the scrip of M/s. Splash Media & Infra Ltd., now known as Luharuka Media
& Infra Ltd. It has been brought on record that on 31.10.2017 the department had sent a letter along with the report of Director of Income
Tax, Investigation, Kolkata with regard to investigation of the scrip of M/s. Splash Media & Infra Ltd. The General Manager, Investigation
Department of SEBI vide report dated 11.10.2017 have submitted the report of the Investigation Wing and also to the ACIT, Central
Circle -4(4), Mumbai that the investigation of SEBI did not find violation of provisions of the SEBI Act, 1992 and SEBI (PFUTP)
Regulations. Along with the letter there is a confidential report given to Pr.DIT (Investigation), Kolkata which had sought for the information regarding the alleged manipulation in market price of shares of certain companies including M/s. Splash Media & Infra Ltd. The SEBI in his report has analysed the volume and price of the trading of the M/s.
Splash Media & Infra Ltd. for various patch starting from 15.09.2009 onwards. In their exhaustive report they categorically stated that there was no manipulation pattern observed in the trading of M/s. Splash Media & Infra Ltd. and therefore no adverse inference is drawn. The report deals with all the buyers and the sellers of the scrip in the Stock Exchange in various periods and after detailed examination and inquiry, in the report it is categorically stated that in none of the period there was no specific instance or manipulative pattern which can show that price was rigged or scrip was manipulated to provide any accommodation entry. Thus it was reported that there was no manipulation and no adverse has been drawn. Since it is an exhaustive report, therefore the contents of the same cannot be reproduced. This SEBI report itself clarifies the doubts of the ld. AO and also Director,
Investigation Wing, Kolkata who had specifically referred this matter that it should be further investigated by the SEBI. SEBI did not find any manipulation in the prices or that the prices were rigged by some entities either by the buyers or by the sellers and no adverse inference have been drawn even with regard to the exit
Pramila Agarwal, Jaipur.
50
providers. Thus, the SEBI report itself absolves the case of the assessee.”

Therefore, the transaction done by assessee in the script M/s Splash
Media & Infra Limited is genuine without any doubt in consideration of the evidences furnished in the shape of purchase and sales contract notes,
D-Mat account and bank statements from payment and receipt along with other documents and also in consideration of the order of Hon’ble
ITAT, Mumbai Bench.

■
Special procedure is prescribed under sections 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of sections 153A to 153D have prevalence over the regular provisions for assessment or reassessment under sections 143 &
147/148. [Para 26]

■
Sections 153A and 153C starts with non-obstante clause. The procedure for assessment/reassessment in sections 153A, 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under sections 139, 147, 148, 149, 151 & 153. [Para 27]

■
The language of Explanation 2 to new section 148 is akin to section 153A and section 153C. Corollary being that after seizing of operational period of sections
153A to 153D, the cases being dealt there under were circumscribed in the scope of newly substituted section 148. [Para 28]

■
The Department has not set up a case that for initiating proceedings under section 148 it had material other than the material seized during the search of ‘M’ Group. The contention was that though the material with regard to unaccounted loan advanced by the petitioner was received, the earning of interest on unaccounted loan was derivation of the Assessing Officer from the material received. The submission is that the derived conclusion cannot be acted upon under section 153C. The submission lacks merit and shall defeat the concept of single assessment order for each of relevant preceding years for assessing ‘total income’ in case of incriminating material found during search or requisition. [Para 29]

■
The argument that by enactment of sections 153A to 153D has not eclipsed.
Section 148 does not enhance the case of respondent to initiate the proceedings under section 148. On fulfilment of two conditions for invoking section 153C the proceeding in accordance with section 153A are to be initiated. The Pramila Agarwal, Jaipur.
54
operating field of and section 153A to 153D and section 148 are different.
Applicability of section 153C in cases where the seized material related to or belonged to person other than on whom search is conducted or requisition made does not render section 148 otiose. Section 148 shall continue to apply to the regular proceedings and also in cases where no incriminating material is seized during the search or requisition.[Para 30]

Finally, the Hon’ble Juri ictional Rajasthan High Court held that notices issued u/s 148 are bad in law and impugned order so passed are quashed.
12. The Hon’ble Juri ictional High Court in another case namely
Tirupati Construction Co. Vs. ITO (DB Civil Writ Petition No. 17651 &
17523/2022) dated 21.03.2024 had decided in a similar case holding that order passed u/s 148A(d) deserves to be set aside. The relevant head notes are as under:-
Section 148A, read with sections 147, 148, 153A and 153C, of the Income-tax
Act, 1961 - Income escaping assessment - Conducting inquiry, providing opportunity before issue of notice under section 148 (Scope of provision) -
Assessment years 2016-17 and 2017-18 - Assessing Officer issued on assessee a notice under section 148A(b) seeking to reopen assessment for assessment year 2016-17 - Assessee in response filed a reply raising serious objection to maintainability of proceedings on ground that entire basis for reassessment was incriminating material and information collected during search carried out in year 2016 and prior to 31-3-2021 in premises of another assessee and nothing more and, therefore, no proceedings for reassessment could be drawn under section 148A - Assessing Officer did not find merit in reply of assessee and passed an order under section 148A(d) - Whether since entire basis for reopening assessment was nothing but material and information collected during search conducted in year 2016 in premises of another assessee, only legally permissible course of action was one provided under section 153C and not under section 148 - Held, yes - Whether impugned order passed under section 148A(d) deserved to be set aside - Held, yes [Paras 14, 16 and 17] [In favour of assessee]
Pramila Agarwal, Jaipur.
55
13. The facts of the instant case of the assessee are same as that of the above-cited cases so decided by Hon’ble Juri ictional Rajasthan High
Court. In the instant case also ld. AO has observed at page 12 of the assessment order that in fact one of the beneficiaries Shri Ajit Gupta
(third party) of Delhi have categorically admitted in his statement recorded u/s 132(4) that he paid commission of 6%. Moreover, in case of search conducted in the case of third party, statement of persons involved in these activities were recorded on which reliance has been placed by the ld. AO which includes the statement of Shri Sanjay Vora, Shri Anil
Agarwal, Shri Rakesh Somani, Shri Mayur Jain, Shri Sumit Kumar Jain,
Shri Bidyoot Sarkar, Shri Praveen Kumar Agarwal, Shri Anil Kedia, Shri
Anuj Agarwal and Shri Rajkumar Kedia (as mentioned on page 11 & 12
of the assessment order) and information relatable to person other than the person on whom search was conducted (here in the present case, the assessee) was found, which reflected that assessee is the beneficiary of bogus long term capital gain, as per AO and thus the same is incriminating in nature.
14. Moreover the Hon’ble Supreme Court in the case of ACIT vs
Pramod Jain in 176 taxmann.com 762 has affirmed the findings of the Pramila Agarwal, Jaipur.
56
Hon’ble Rajasthan High Court in the case of Shyam Sunder Khandelwal vs ACIT and the relevant heads notes are:
Section 153C, read with sections 148 and 153C, of the Income-tax Act, 1961 -
Search and seizure - Assessment of any other person (Section 153C vis-a-vis section 148) – Assessment year 2014-15 - High Court held that on satisfaction of twin condition for proceedings under section 153C, Assessing Officer has to proceed in accordance with section 153A, however, itis not obligatory on Assessing Officer to make assessment for all years - Further, provisions of sections 153A to 153D have prevalence over the regular provisions for assessment or reassessment under sections 143 & 147/148 and there is incriminating material seized or requisitioned belonging or relatable to person other than on whom search was conducted, section 153C is to be resorted to -
Additionally, provisions of sections 153A to 153D have prevalence over regular provisions for assessment or reassessment under sections 148
&147/148 - Subsequently, where basis for initiation of section 148
proceedings in case of assessee was material seized relating to or belonging to assessee during search conducted on ‘M’ Group, notices issued under section 148 and impugned orders rejecting objections filed to issuance of notice were to be quashed and set aside - In instant SLP, Whether, there was delay of 322
and 358 days respectively in filing SLP which had not been satisfactorily explained - Held, yes - Whether instant court found no good reason to interfere with common impunged order passed by High Court, accordingly SLP was to be dismissed on ground of delay as well as merits - Held, yes [Paras 1 to 3]
[In favour of assessee]
Respectfully following the decision of Hon’ble Juri ictional High Court of Rajasthan and the Hon’ble Supreme Court of India, it is held that action u/s 147 / 148 so taken by the ld. AO is not justified in the instant case of assessee in view of the aforesaid facts and same is held to be bad in law. Therefore, the consequent order so passed is also bad in law and addition so made are hereby deleted and additional ground No. 8 raised by the ld. AR of the assessee is allowed.
Pramila Agarwal, Jaipur.
57
15. As the notice u/s 148 and consequent order so passed has been held to be bad in law on legality of the issue as per additional grounds of appeal No. 8, the other grounds of appeal are not being adjudicated, becoming educative in nature.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 10/10/2025. ¼ jkBkSM+ deys'k t;UrHkkbZ ½

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(RATHOD KAMLESH JAYANTBHAI)

(Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 10/10/2025
*Santosh
आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
1. vihykFkhZ@The Appellant- Pramila Agarwal, Jaipur.
2. izR;FkhZ@ The Respondent- ITO, Ward-2(5), Jaipur.
2. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत.
6. xkMZ QkbZy@ Guard File { ITA No. 531/JPR/2025}

vkns'kkuqlkj@ By order

सहायक पंजीकार@Aेेज. त्महपेजतंत