CHHAYA KETAN MEHTA,MUMBAI vs. INCOME TAX OFFICER - 33(1)(3), MUMBAI

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ITA 6543/MUM/2025Status: DisposedITAT Mumbai09 March 2026AY 2014-1514 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was not justified in upholding the AO's action of bringing the long-term capital gains on the sale of SRK Industries Ltd. shares as unexplained income. The Tribunal deleted the addition made under Section 68 towards the proceeds of sale of listed shares, which gave rise to the claimed exempt long-term capital gain under Section 10(38). The reasoning was based on the fact that the purchase and sale of shares were conducted through a recognized stock exchange and registered stockbrokers, payments were made through banking channels, and Securities Transaction Tax (STT) was paid. The Tribunal noted that the AO had not criticized the documentation and there was no allegation against the assessee for participating in price rigging. The Tribunal also deleted the consequential addition of commission amounting to Rs. 90,432/- made on an estimated basis. The Tribunal relied on various judicial precedents, including the Bombay High Court decision in *PCIT vs. Indravadan Jain HUF* and coordinate bench decisions concerning the same scrip (SRK Industries Ltd.), which held in favor of the assessee in similar transactions. The Tribunal directed the AO to grant the exemption under Section 10(38) as claimed. The ground related to natural justice was not adjudicated as the appeal was allowed on merits.

What were the facts?

The assessee, Chhaya Ketan Mehta, filed an appeal before the Income Tax Appellate Tribunal (ITAT) against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] dated May 20, 2025. The CIT(A) had upheld the assessment order passed by the Income Tax Officer (AO) under Section 143(3) of the Income-tax Act, 1961, for Assessment Year 2014-15. The core dispute involves the AO's addition of Rs. 75,16,570/- under Section 68 of the Act, disallowing the assessee's claim for exemption under Section 10(38) on the sale of shares of SRK Industries Ltd. The AO based the addition on a report concerning penny stock companies and alleged off-market purchases. The CIT(A) confirmed this, citing the AO's doubts about the transaction's genuineness and evidence of price rigging through circular trading.

What were the issues?

1. Whether the assessment order was passed in gross violation of the principles of natural justice, as the assessee was not afforded a fair, reasonable, and sufficient opportunity of being heard, and material was not confronted? (Question of law and fact, relying on principles of natural justice). 2. Whether the CIT(A) erred in confirming the AO's action of taxing Rs. 75,16,570/- under Section 68 of the Act, denying exemption under Section 10(38) for the sale of SRK Industries Ltd. shares, which were traded on the Bombay Stock Exchange? (Question of law and fact, relying on Sections 68 and 10(38)). Assessee's contentions: The assessee argued that the assessment order violated natural justice by not providing sufficient opportunity to be heard and by relying on un-confronted material. On merits, the assessee contended that the sale of shares was genuine, evidenced by broker notes, bank statements, and demat account statements, and was rightly claimed as exempt long-term capital gains under Section 10(38). The assessee also argued that Section 68 was wrongly applied as the nature and source of the credit were explained. Reliance was placed on the Bombay High Court decision in *ITO v/s Indravadan Jain* and other coordinate bench decisions concerning SRK Industries Ltd. Revenue's contentions: The revenue, through the Senior DR, argued that the addition was justified as the transaction was based on surmises and conjectures, and the price of shares was rigged through circular trading, making the claim for exemption under Section 10(38) invalid. The revenue also contended that the amount added was unaccounted income rightly taxed under Section 68.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 68,Section 10(38),Section 14

AI-generated summary — verify with the full judgment below

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR

For Appellant: Shri Nishit Gandhi, Adv
For Respondent: Shri Virabhadra Mahajan (Sr. DR)
Hearing: 21.01.2026Pronounced: 09.03.2026

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :

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