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Facts
The assessee filed a return of income and the case was reopened for transactions involving shares of M/s. Arya Global (Kuvam International Ltd.), alleged to be a penny stock. The assessee claimed Long Term Capital Gain (LTCG) on the sale of these shares, which the Assessing Officer (AO) treated as bogus.
Held
The tribunal observed that the assessee failed to substantiate the genuineness of the transaction and provide documentary evidence to counter the Revenue's findings. Relying on High Court decisions, the tribunal held that the increase in share price was unrealistic and the transaction was sham.
Key Issues
Whether the Long Term Capital Gain claimed by the assessee on the sale of penny stock shares was genuine or bogus, and if the additions made by the AO and upheld by the CIT(A) were justified.
Sections Cited
10(38), 68, 69C, 143(3), 147, 148, 250, Chapter VI-A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM
O R D E R Per Kavitha Rajagopal, JM:
This appeal has been filed by the assessee, challenging the order of the Learned Commissioner of Income Tax [‘Ld. CIT(A)’ for short], National Faceless Appeal Centre (‘NFAC’ for short) passed u/s. 250 of the Income Tax Act, 1961 (‘the Act') pertaining to the Assessment Year (‘A.Y.’ for short) 2011-12.
As there was no representation on behalf of the assessee inspite of several opportunities given, notably the Bench had also on the earlier occasion directed the assessee to appear inspite of giving a last opportunity, none appeared before us on behalf of the assessee. We, therefore, proceed to decide this appeal by hearing the Learned Departmental Representative (‘Ld. DR’ for short) and on perusal of the materials available on record.
“1. The Learned CIT(A) passed appeal order Ignoring the principal of natural justice. In fact, the appellant had asked for the adjournment of hearing in response of first hearing notice. The learned CIT(A) had passed the order without giving an opportunity of hearing.
2. The Learned CIT(A) had conveniently ignored the grounds of appeal of the appellant. One of ground raised by the appellant that appellant had not been provided cross examination of third party and also certified copy of statement recorded of the third party on the basis of which reassessment proceedings initiated and assessment order was passed.
The Learned CIT(A) passed the non-speaking order and further also passed the order without application of mind.
4. The Ld. CIT(A) erred in Law as well as of facts by not considering the appellant plea that the re-opening of assessment u/s 147 of Income Tax Act, 1961 had been done without application of mind and solely on the basis of borrowed satisfaction on the basis of the information received from the Investigation wing. Hence, the process of re-opening of the assessment itself is void ab intio, illegal and hence, assessment order is liable for quash.
The Ld. CIT(A) erred of law as well as of fact in confirming re-assessment proceedings by ignoring the fact as well as law that the re-assessment proceedings lacks proper sanction from the appropriate authority. Hence, the process of re-opening of the assessment itself is void ab intio, illegal and hence, assessment order is liable for quash.
6. The Ld. CIT(A) erred of law as well as of fact by not considering the request of the appellant for keeping the appeal proceedings in abeyance as the appellant was exploring the provisions of Vivaad Se Vishwaas, 2024 and whether to go for Settlement of Disputes or not. The Ld. CIT(A) without considering the request of the appellant passed an appeal order. Hence, the appellant had been denied of reasonable opportunity of hearing and violation of principle of natural justice.
7. The Learned CIT(A) had erred of fact as well as of Law by sustaining the addition made by the Ld. AO u/s 68 of Rs 1,03,15,740/- by treating entire sales considered received by the appellant as an unexplained credit without considering the explanations and documents submitted by the appellant during the course of assessment proceedings.
8. The Ld. CIT(A) erred of fact as well as of law by confirming the addition made u/s 69C of Rs 3,09,472/- being 3% of Sales Value of Rs 1,03,15,740/- on account of presumption without any justification.
The Ld. CIT(A) erred of fact as well as of law by not allowing the cost of acquisition of Rs 4,14,500/- being the amount paid towards the cost for the purchase of shares.
The Ld. CIT(A) erred of fact as well as of law by not allowing the deduction of Rs 1,15,000/- claimed under Chapter VI-A of Income Tax Act, 1961. 2
The Ld. CIT(A) erred of fact as well as of law by not appreciating that the assessment order has been passed without considering the submissions, explanations made by the appellant during the course of assessment proceedings.
The order appealed against is bad in Law and against the principles of natural justices and tax jurisprudence.
The order appealed against is based on surmises and conjectures.
The appellant craves leave to add, amend, alter and vary any of the grounds of appeal either before or at the time of hearing of the appeal.
Each ground of appeal is distinct and separate.”
Brief facts of the case are that the assessee is an individual and had filed her return of income dated 23.07.2011 declaring total income at Rs.28,31,970/- and the same was processed u/s 143(1) of the Act. The assessee’s case was reopened u/s 147 vide notice u/s 148 of the Act dated 30.03.2018 for the reason that the assessee has purchased 50,000 shares of M/s. Arya Global (Kuvam International Ltd.) for a consideration of Rs.4,14,500/- @Rs.8.29 per share and subsequent to this, splitting of shares into 5,00,000 shares, the assessee sold the same for consideration of Rs.1,03,15,740/- thereby claiming a Long Term Capital Gain (‘LTCG’ for short) amounting to Rs.98,48,770/- during the year under consideration. The Learned Assessing Officer (‘AO’ for short) sought for details pertaining to the said transaction alleged to be a penny scrip for the purpose of availing bogus LTCG u/s 10(38) of the Act as exempt in the hands of the assessee. The Ld. AO made an addition of Rs.1,03,15,740/- u/s 68 of the Act as unexplained investment and Rs.3,09,472/- as unexplained cash expenditure u/s 69C of the Act thereby determining the total income at Rs.1,34,39,129/- vide assessment order dated 27.12.2018 passed u/s 143(3) r.w.s. 147 of the Act on the ground that the assessee has failed to substantiate the genuineness of the transaction.
The assessee is in appeal before us, challenging the order of the Ld. CIT(A) on the above mentioned grounds.
We have heard the Ld. DR and perused the materials available on record. It is observed that the assessee has transacted in shares of M/s. Arya Global (Kuvam International Ltd.) alleged to be a penny stock listed on BSE scrip code (531731), basis which the Ld. AO reopened the assessee’s case pursuant to the information received from ADIT (Inv.), Unit-8(2), Mumbai that the assessee was one of the beneficiaries of availing bogus LTCG by transacting in the said penny scrip. It is further observed that the assessee had purchased 50,000 shares of the scrip for a meagre consideration of Rs.4,14,500/- on 24.06.2009 and 25.06.2009 and had sold the same for a consideration of Rs.1,03,15,740/- claiming LTCG of Rs.98,48,770/- as exempt u/s 10(38) of the Act during the year under consideration within a short span of time. The contention of the Revenue was that the price of the shares of the penny scrip was artificially rigged and controlled by the operators, the exit providers and brokers for providing accommodation entries. The Ld. AO held the transaction to be a non-genuine after considering the circumstantial evidences where the price of the alleged penny scrip was rigged for the purpose of bogus transactions, which the beneficiaries would take advantage of the exorbitant increase in the price of the share without any justifiable cause or reason. The Ld. AO had relied on the decision of the Hon’ble Jurisdictional Bombay High Court in the case of Sanjay Bimalchand Jain vs. Pr.
CIT, Nagpur and others in where on identical facts it was held that the Ms. Nayna Mukesh Shah assessee had indulged in dubious transaction for accounting the undisclosed income in the guise of LTCG. The first appellate authority though had passed a cryptic order, upheld the addition made by the Ld. AO. Before us, neither the assessee nor her representative had substantiated that the impugned transaction was genuine in nature and had also failed to furnish supporting documentary evidences to controvert the Revenue’s finding that the transaction in the alleged penny scrip of M/s. Arya Global Shares and Securities Ltd. was a sham transaction. By considering the proposition laid down by the Hon’ble Jurisdictional Bombay High Court in the case of Sanjay Bimalchand Jain (supra), also the Hon’ble Kolkata High Court in the case of PCIT vs. Swati Bajaj of 2022 (2022) 139 taxmann.com 352 (Kolkata), we deem it fit to hold that the assessee has failed to establish as to the huge increase in the share price resulting in unrealistic LTCG, which a regular scrip pertaining to a functional company would yield. On the basis of the circumstantial evidences and also in the absence of any rebuttal by the assessee inspite of several opportunities, we deem it fit to hold that there is no infirmity in the order of Ld. CIT(A).
Hence, the grounds raised by the assessee are hereby dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 27.02.2026