INCOME TAX OFFICER, JAIPUR vs. RENU AGARWAL, JAIPUR

Date : June 24, 2014

A.Sunil Kumar
Place : Mumbai

Adjudicating
Officer.”
Renu Agarwal, Jaipur.
16
6. In continuation of above written submissions, as per direction of the Bench, the ld. DR vide letter dated 15.07.2025 further submitted written submission as under :
“ It is respectfully submitted that paragraphs 4 and 5 of the assessment order clearly demonstrate the factual basis of the Assessing Officer’s finding that the transactions in the shares of Eins Edutech were not genuine. The relevant portion is reproduced below for ready reference :
“ Since some aspects of purchase & sale of the alleged shares, particularly the genuineness of the transaction, need to be examined, the A/R of the assessee filed the copy of contract notes, details, and calculation of capital gain for the F.Y. 2014-
15. From the details and calculation of income sheet of the assessee for the financial year 2014-15, it came to notice that the assessee has shown Rs. 3,51,429/- as Short Term Capital
Gain (with STT) & Rs. 1,30,266/- as Short Term Capital Loss
(without STT), and after adjusting Short Term Capital Gain becomes to Rs. 2,21,163/-. From the details of stock summary of quoted shares from 01/04/2014 to 31/03/2015, it is seen that assessee has made transactions of shares in the scrip of EINS
EDUTECH (Code: 511064), which is marked as PENNY
STOCK.”
“From the ledger of EINS Edutech Limited as furnished by the A/R of the assessee, it came to notice that assessee has sold shares of Rs.10,17,964.72 as against quantity of 18,955 against purchase of Rs. 18,38,667.01 (quantity of 18,955) and short- term profit becomes to Rs. 1,79,297.71 and the script of Eins
Edutech renames as Aplaya Creations in stock market.”

These facts reinforce the Revenue’s position that :
 The scrip involved is a known penny stock, renamed from Eins
Edutech to Aplaya Creations.
 The transactions resulted in an abnormal gain despite negligible fundamentals.
 The DDIT (Investigation) report and SEBI findings squarely apply to this pattern of trades.
The Revenue respectfully submits that these facts, extracted directly from the assessment record, further strengthen the case for confirming the addition made by the Assessing Officer under Section 68/69C.
Renu Agarwal, Jaipur.
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Respectfully submitted on behalf of the Revenue.”

Total

12,39,622.56

Total

14,18,919.9
7
Short Term Capital Gain :
Rs. 1,79,297/-
These transactions had been executed from account payee cheque and STT was also been charged on these transactions. The assessee being a small investor had been figuring out opportunities to invest by studying various charts, market trends, etc. Observing such trends the assessee invested in shares of “EINS Edutech Ltd.” and later on sold such shares after booking the expected profit and considering that the share prices would not raise further as reflected by market charts. The sale of shares resulted in short term capital gain and had been properly declared as Short Term Capital Gain while filing return of income.
From the table above, it can be clearly seen that price of shares rise from Rs. 334.98 to Rs. 361.11, within a period of 9 days, in terms of Renu Agarwal, Jaipur.
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percentage the rise is 7.8% which seems to be due to general market operations. Now, it should be taken into consideration that merely
7.8% rise in stock prices within a period of 9 days cannot be considered as price rigging. Even the upper circuit and lower circuit limits for Stock prices ranges 5% to 20% on day basis, then how the rise of 7.8% within 9 days can be called as price rigging. Although, at that time the assessee was not aware of these types of activities even prevail in stock market. The charts are showing movement in the script and the assessee had just enter in the market stream to earn profits.
Further after selling such shares, the assessee repurchased shares of same company (at rate of Rs. 385.24) as the charts/trends showed upward movement on this script, and after earning expected returns assessee sold these shares (at rate of Rs. 482.80), and earn returns of 25.32% within a period of 3 months and 17 days, which is again a justified percentage of return which can be earned from genuine stock market operations in a considerable time period.
2. These transactions are duly reflected in the Demat Statement and STT had also been charged on these transactions. The documentary evidence i.e. Bills, Contract Notes, Demat statements and bank statements, etc. are already submitted to your good-self and are reattached to prove the genuineness of the transaction. All the transactions were made through account payee cheque only and duly reflected in the books of accounts, and the same can be verified through bank statements of the assessee.
3. While making the calculations the ld. AO had also miscalculated the sale value of these share, the actual sale value (duly reflected in Contract Notes/Account ledger from share broker) was Rs.
14,18,920/- and the addition being made by Ld. AO on account of sales consideration is Rs. 20,17,964/-, we are unable to find how the ld. AO had considered the value Sales consideration of Rs. 20,17,964/-.
It is further submitted that the ld. AO had made the addition of complete amount of Sales consideration (as calculated by ld. AO) i.e.
Rs. 20,17,974/- without taking into account that the actual Short Term
Capital Gain resulting from these transactions was Rs. 1,79,297/- only
(as calculated in table above). The AO taxed the whole sales consideration which is against natural justice. It is a settled law that if the transaction is bogus then only the profit can be taxed not the whole sale value, reliance can be placed on the following cases :-
Renu Agarwal, Jaipur.
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(i)
In the case of M/s. Shivhare Associates, Gwalior vs. ACIT,
Range-1, Gwalior (16 May, 2018), the court held that “ in such cases, a just, fair and reasonable net profit rate is to be applied on the basis of past history of the trading result of the assessee or the comparable case of the same line of business”, “As stated above that while making best judgment one should have reasonable nexus to the available material and circumstances. In the case under consideration both AO and CIT Appeal have ignored the past history of the assessee and comparable cases” and “Therefore, our observation in ITA No. 47/Agr/2014 and ITA No. 48/Agr/2014 are squarely applicable to the other cross appeal, hence, in accordance therewith in this appeal also the grievance of the assessee is found justified and accordingly, the AO is directed to apply N.P. rate of 2.7%
on the estimated sales after deducting interest and salary to partners subject to the minimum return income. In the result, appeals of the assessee are partly allowed and those of the department are dismissed.”
(ii)
Tax : In this the ITAT held that “Having given a thoughtful consideration to the rival submissions, we find that during the course of survey, the assessee has offered an amount of “16 lakhs for taxation spread over a period of six years.
This additional income was offered on account of profit earned on undisclosed sales. The assessing Officer has no other evidence except the statement of the assessee to estimate any other income. While adjudicating the appeal, the ld. CIT (A) has carefully examined issue and has rightly held that the undisclosed sales cannot be added to the income of the assessee; only gross profit can be added. He has also taken into account the additional income declared by the assessee. We, therefore, find no infirmity in the order of the ld. CIT (A) and we confirm the same.” Even when the assessee (Syed Rizwan Murtza) in this case was proved to be in default of undisclosed income the court had applied the gross profit rate to the undisclosed sales, then in this case (Renu Agarwal) all the transactions had been executed in transparent manner and Capital gain was also declared correctly in ITR.
Renu Agarwal, Jaipur.
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Considering the above cases, it is to further submit that the STCG from the above share script was Rs. 1,79,297/- only, and the same was already declared for tax purposes in the ITR. The assessee has neither claimed any exemption of tax u/s 10(38) (LTCG exemption) nor claimed any set off. It also shows that the assessee was having bona- fide transaction only.
4. It is to submit that, transactions carried out by assessee can’t be presumed as fraudulent on the basis of involvement of company’s directors in suspicious/deceptive activities, and the addition can’t be held justified without any cogent evidence in support of such addition.

The addition cannot be made on surmises, presumptions, suspicion and based on the activities of directors of such company where assessee holds some shares for a short period of time and same has been declared correctly in Return of income. The reliance can also be placed on the following case laws :-
(i)
PCIT-3, Calcutta vs. Rungta Properties Pvt. Ltd. 106
(Calcutta) [2017] : In this case the Court held that “ As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied the loss of Rs.
25,30,396/- only on the basis of information submitted by the Stock fictitious. AO has also not doubted the genuineness of the documents placed on record by the assessee. AO’s observation and conclusion are merely based on the information representative. Therefore, on such basis no disallowance can be made and accordingly we find no infirmity in the order of ld. CIT (A), who has rightly allowed the claim of assessee. Thus ground No. 1 of the revenue is dismissed.” This case specifically states that no allegations can be placed on a person only on the basis of information received from others sources, further in the case of assessee, the assessee was not having any tax benefit from the transaction.
(ii)
Kiran Kothari Huf, Kolkata vs.ITO, Ward 35(3), Kolkata
15 November, 2017 : The court held that “ld AR that the AO and CIT (A) was not justified in rejecting the claim of the assessee on the basis of theory of surrounding
Renu Agarwal, Jaipur.
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circumstance, human conduct and preponderance of probability without bringing on record any relevant legally admissible evidence against the assessee. For the said proposition we rely on the judgment of the Special Bench of Mumbai Bench in the case of GTC Industries Ltd. (supra).
The various facets of the contention of the AO, to rope in the assessee for drawing adverse inferences which remain unproved based on the Kiran Kothari HUF AY 2013-14
evidence available on record are not reiterated for the sake of brevity. The AO has merely carved out certain features/modus operandi of companies indulging in practices not sanctioned bylaw and as mentioned in such report. However, we note that neither any investigation was carried out against the assessee nor against the brokers to whom the assessee dealt with the purchase and sale of shares in question. Thus the AO has failed to bring on record any material contained in the purported reports which are having so called adverse impact on the assessee.
We find that the transactions of sale of shares by the assessee was duly backed up by material/evidence including contract notes, demand statement, bank account reflecting transactions, the stock brokers have confirmed the transaction (pages 24-25 of the paper book), the shares having been sold on the online platform of the stock exchange. In absence of any evidence to back the conclusion of AO/CIT (A), it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transitions.” In this case the appeal of the revenue was dismissed being unsupported by documentary evidences and merely based on presumptions and modus operandi of the company where assessee was a shareholder.
(iii)
CIT Vs. Smt. Sumitra Devi in ITA 54/2012 : In this case the Rajasthan High Court held that “ True it is that several suspicious circumstances were indicated by the AO but then, the findings as ultimately recorded by him had been based more on presumptions rather than on cogent proof.
As found concurrently by the CIT (A) and the ITAT, the AO had failed to show that the material documents placed on record by the assessee like broker’s note, contract note, relevant extract of cash book, copies of share certificate, de-mat statement etc. were false, fabricated or fictitious.
Renu Agarwal, Jaipur.
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The appellate authorities have rightly observed that the facts as noticed by the AO, like the notice under Section 136
to the company having been returned unserved; delayed payment to the brokers; and de-materialisation of shares just before the sale would lead to suspicion and call for detailed examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary.” As all the contract notes, demat statement has been duly submitted and the payment was through account payee cheque, copy of bank statement has also been submitted and the resulting gain from transactions has been duly included in taxable income of the assessee the same can’t be considered as fraudulent on the part of assessee.
(iv)
High Court of Gujarat in case of Commissioner of Income- tax-I Vs. Maheshchandra G. Vakil [2013] (Gujarat) held that, Where assessee proved genuineness of share transactions by contract notes for sale and purchase, bank statement of broker, demat account showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange, Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit.
(v)
High Court of Gujarat in case of Commissioner of Income-tax-I
Vs. Himani M. Vakil (Gujarat) held that, Where assessee proved genuineness of share transactions by bringing on record contract notes for sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit.

From case laws (iv) and (v) it is to placed that the addition ld. AO made in this case is totally unjustified and shall be deleted.

The facts of the case cited above are having the same facts as in the case of assessee i.e. the proceedings were carried out without documentary evidences, merely based on presumptions, and considering the modus-operandi of companies and its directors, and the judgment were decided
Renu Agarwal, Jaipur.
23
on facts established and supported by documentary evidences submitted by the assessee.
5. Further it is to provide, that as quoted in Assessment Order such “ Long Term Capital Gain” or “Capital Loss” would either inflate the share price and being exempted by claiming exemption nor in case of loss would be set off from Profits and reduce the Tax Liability of the assessee, however in this case the gains arising from stocks were Short Term in nature and form the part of total income of the assessee, further the assessee hadn’t claimed any Long term capital gain u/s 10(38) of Income Tax Act, 1961, during the year under consideration.
The entire sales consideration has been considered as addition to total income of assessee, which is totally unjustified and against natural justice, as the assessee has not been benefited in any manner (in respect of tax benefits) by executing these transactions.
6. As referred in the assessment order that the activities of Director were to artificially effect the share prices in the market, in response to this it is to submit that the activities of directors are not available in the open market, and this activity in general is a sophisticatedly planned activity and the same remains confidential among stock influencers. Being a normal investor assessee observing the market trends invested in these shares and as soon as she earned her expected returns, booked the gain. Being a small investor, the assessee was more concerned of making profits instead of analyzing financials of the company and finding out whether the entity having significant operations or fixed assets. In fact, the same can be observed through IPO’s of various renowned companies where shares of companies are issued and listed at a higher price considering its operations, profitability and scope of expansion.
7. It is to be emphasize that any shareholder holding insignificant number of shares cannot be punished/penalized for the unfair practices of director of such company, as the small investors are more focused on making the profits and not on what type of trade practices its directors are executing.

Prayer : As per above submissions, it is clear that there is no intention of the assessee for rigging the prices of shares of Eins
Edutech Limited, neither assessee had got any tax benefit from such transaction, and the ld. AO had made the entire sales consideration without taking into account the purchase price of such shares, thus the order passed by AO was merely based on presumptions without any evidence and therefore rightly deleted by CIT (A)-NFAC.”
Renu Agarwal, Jaipur.
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8. The ld. AR of the assessee has further submitted written submission as under :-
“ With due respect, we are submitting herewith the detailed statement of purchase and sale transactions in relation to the equity shares under consideration. It is to bring to your kind notice that 1,555 shares were originally purchased on 28/11/2014, which were subsequently split in the ratio of 1:10 on 12/032025, resulting in 15,550
shares post-split.
The actual total sale value of the said share script was Rs.
14,18,920/-. Due to splitting of shares, a stock Journal was passed in the books of account of Rs. 5,99,044/-. The AO has wrongly considered this Stock Journal as sales and assessed the whole value of Rs. 20,17,964/- as unexplained cash credit u/s 68 of the Act. All the contract notes of purchase and sale have already been submitted before the Hon’ble bench. The AO neither examined the contract notes nor made any independent enquiry of the said share script and not allowed the purchase cost which was paid through exchange only.
As the whole purchase and sale was through recognized exchange only and the short-term capital gain earned on the said script was properly declared in return. Therefore, we request your kind consideration of the above facts and circumstances, and humbly seek that the matter be viewed accordingly to avoid any misinterpretation.”
Renu Agarwal, Jaipur.
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9. The ld. AR furnished the following documents by way of Paper
Book :-

PAPER BOOK
Sr. No.
Particulars
Page No.
1. ITR Acknowledgement AY 2015-16
1
2. ITR Computation
2
3. Stock statement
3-4
4. Abstract of Broker’s Financial Statement
5-9
5. Contract Notes
10-16
6. Bank statement
17-20
10. We have heard the rival submissions, perused the material on record and gone through the orders of the lower authorities. Having considered the material on record, we find that the AO made the addition drawing inference that the entire sale transactions of the assessee in the stocks of Eins Edutech are bogus without bringing any cogent evidences contrary to the documentary evidences i.e. Bills, Contract Notes, Demat statements and bank statements etc. submitted by the assessee. The AO has not disputed that the entire purchase and sales transactions were carried through recognized Stock Exchanges, payments have been made through account payee cheque and STT has been charged on these transactions and the same were duly reflected in the books of account of the assessee. It is noted that the AO has doubted the transactions considering the price rigging information and accordingly initiated the proceedings on the basis of report of the Investigation Wing of the department relating to misuse of the Stock Exchange platform for evading
Renu Agarwal, Jaipur.
26
or avoiding legitimate taxes. The assessee submitted that being a small investor, investments have been made in the shares after studying various charts, market trends etc. and later on sold such shares after booking the expected profit and also paid the tax on the profit. Based on the evidence placed on record, the Bench noted that the assessee has purchased the stock of ‘’EINS Edutech Ltd. by an account payee cheque supported by a online contract note for an amount of Rs.12,39,622.56 and thereby sold those shares for an amount of Rs.14,18,919.95 and thereby offered the gain of Rs.1,79,297/- as short term capital gain. This gain is part of overall short term capital gain of Rs. 3,51,428/- offered by the assessee in computation of income filed as per computation of income. This fact has not been disputed by Revenue. Now coming to the amount of addition of Rs.20,17,964/- made by the AO, the Bench noted that there was action of split of shares for which to meet the quantity reconciliation, assessee had shown sale and purchase of Rs.5,99,045/- in tally records so as to record the correct quantity and their ld. AO added that Rs.5,99,045/- with sale consideration of Rs.14,18,919/- and thereby added a sum of Rs.20,17,964/- which cannot be added as income of the assessee as ld AO already taxed the Short Term Capital Gain. Considering the above factual aspects as discussed above, we see no reasons to deviate in the findings of the ld.CIT(A) and therefore, the appeal of the Revenue fails as dismissed.
Renu Agarwal, Jaipur.
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In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 30/09/2025. ¼ Mk0 ,l- lhrky{eh ½

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(Dr. S. Seethalakshmi)

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2. izR;FkhZ@ The Respondent- Renu Agarwal, Jaipur.
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