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Facts
The assessee sold shares of Rutron International Ltd. for Rs. 2,42,39,516, claiming Long Term Capital Gain (LTCG) exemption under Section 10(38). The Assessing Officer (AO) treated the transaction as bogus, making an addition. The CIT(A) upheld the AO's order, leading to the present appeal.
Held
The Tribunal held that the assessee's transaction was genuine and supported by documentary evidence like contract notes, demat statements, and bank statements. The additions made by the AO were based on suspicion and general investigation reports, not cogent evidence. The Revenue failed to demonstrate any nexus between the assessee and alleged price manipulation.
Key Issues
Whether the Long Term Capital Gain on sale of shares is genuine or bogus, and whether the additions made by the Assessing Officer are justified.
Sections Cited
10(38), 131, 133(6), 143(3), 147, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Raj Shardakumar Agarwal vs Income Tax Officer Ward 42(1)(4) B-1704, DB Woods, Krishna AO Number-94, Range Code-431, Vatika Road, Gokuldham, Ward 42(1)(4), KautilyaBhavan, Goregaon East S.O. Mumbai- BandraKurla Complex, Mumbai- 400063 400051 PAN:AEJPA6636H APPELLANT RESPONDENT Assessee by :Shri Priyanka Jain, Shri Pankaj Soni & Shri Rohan Mittal Respondent by :Shri Umashankar Prasad (CIT DR) Date of hearing : 16/01/2026 Date of pronouncement : 16/02/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeal)-51, Mumbai, order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for assessment year 2014- 15, date of order 17.01.2025. The impugned order emanated from the order of the Ld. Income Tax Officer, Ward-33(3)(1), Mumbai, order passed U/s 143(3) rws 147 the Act, date of order 29/12/2017.
Raj Sharadkumar Agarwal 2. The Ld. AR argued and filed a paper book containing page-1 to 187 which has been placed on record. At the outset, the Ld. AR respectfully submits that the addition made by the Ld. AO by treating the Long Term Capital Gain (LTCG) as bogus is unjustified, arbitrary and contrary to the documentary evidences placed on record. The assessee sold 91,000 shares of M/s. Rutron International Ltd. for a total consideration of Rs. 2,42,39,516/-. The resultant LTCG was duly claimed as exempt under section 10(38) of the Act. The entire transaction was executed through recognized stock exchange, supported by contract notes, demat statements, bank statements and STT payment details. Thus, the transaction satisfies all statutory conditions prescribed under section 10(38) of the Act. The Revenue has alleged that the assessee acquired shares through preferential allotment in a pre-arranged manner. In this regard, it is submitted that the share application dated 28.09.2011, as placed at page 118 of the paper book, clearly evidences the application for shares. There is no material on record to establish that the assessee had any prior arrangement or collusion with the company. Mere suspicion regarding acquaintance with the company cannot substitute legal proof.
The revenue has pointed out that the share application is dated 28.09.2011 whereas the cheque is dated 30.11.2011, and shares were allotted on 05.11.2011. The Ld. AR submits that procedural discrepancies, if any, in documentation cannot lead to a conclusion that the transaction itself is bogus, particularly when the payment is duly reflected in the bank account and shares are credited in the demat account. There is no evidence that the assessee received back the consideration in cash or otherwise.
Raj Sharadkumar Agarwal 4. The revenue has relied upon the statement recorded under section 131 of the Act from Shri Raj Sharadkumar Agarwal dated 08.12.2017. It is submitted that the replies to certain questions, such as lack of knowledge about the general meeting or allotment process, merely indicate that the investment decision was based on advice of a financial consultant. It is common for investors to act upon professional advice and not to be aware of procedural formalities of allotment. Such responses do not establish that the transaction is fictitious.
The fact that trading of shares of Rutron International Ltd. was suspended by SEBI and later revoked cannot automatically render the assessee’s transaction as bogus. There is no finding by SEBI holding the assessee guilty of price manipulation. The suspension of trading was a regulatory measure and cannot be used to draw adverse inference against a bona fide investor.
The revenue has emphasized that the share price increased from less than Rs.1 in June 2012 to Rs.25–26 in March 2013. The Ld. AR submits that price fluctuation in the stock market is governed by market forces and cannot be a ground to treat the gain as non-genuine in the absence of cogent evidence linking the assessee to any price rigging activity. The assessee has neither controlled the company nor influenced market price.
The revenue has also relied on notices issued under section 133(6) to purchasers, stating that such parties were not found at the given addresses. It is submitted that once the transaction is routed through stock exchange mechanism, the assessee is not expected to prove the identity or Raj Sharadkumar Agarwal creditworthiness of ultimate buyers. The stock exchange ensures anonymity of counterparties, and therefore such requirement is beyond the control of the assessee. The Ld. AR respectfully submits that no direct evidence has been brought on record to demonstrate that the assessee received any unaccounted cash or was beneficiary of any accommodation entry scheme. The addition has been made purely on suspicion, general investigation reports and surrounding circumstances, without establishing nexus between the assessee and alleged price manipulation.
The Ld. AR advanced her argument by submitting list of dates. The said list is reproduced as below:- S. No. Date Particulars of the event Document Type Paper Book reference 1 28.09.2011 The appellant applied for Share application Page No.118 150000/- equity shares of form Rutron Internatoinal Limited (“Rutron” for short) at a face value of Rs.10 per share, with no share premium 2 05.12.2011 The appellant was allotted Share allotment Page No.117 shares of Rutron on a letter preferential allotment basis each having face value of Rs.10 per share 3 06.12.2011 The appellant made a Bank statement Page No.34 payment of Rs.1500000/- towards the purchase of shares of Rutron through cheque bearing No.107780/- 4 01.02.2012 Shares were credited to the Demat account Page No.144 appellant’s demat account maintained with maintained with Comfort Comfort Securities Securities Limited Limited
Raj Sharadkumar Agarwal 5 30.04.2013 The shares of Rutron held by B.N. Rathi Page No.141 the appellant in the demat transaction account maintained with statement Comfort Securities Limited were subsequently transferred to the appellant’s demat account maintained with B.N. Rathi Securities Limited
In view of the above submissions, it is humbly prayed that the LTCG claimed by the assessee under section 10(38) be held as genuine and the addition made by the Ld. AO by treating the purchase and sale of shares as bogus be deleted.
The Ld. DR vehemently argued and contended that entire transaction is accommodation entry. The revenue authorities have rightly treated as bogus transaction. The Ld. DR stands in favour of the order of the revenue authorities. The Ld. DR filed two pages written submission which is reproduced as below:- “To, The Hon'ble Members, ITAT 'D' Bench, Mumbai Respected Sirs, Sub: Appeal in the case of Raj Sharadkumar Agarwal, 3290/MUM/2025/ for A.Y. 2016- 17, PAN No: AEJPA6636H, A.Y. 2014-15-reg. Kindly refer to the above. In this case, the assessee sold 91,00,000 shares of M/s. Rutron International Ltd for an amount of Rs. 2,42,39,516/-. He has claimed LTCG of RS. 2,42,39,516 exemption u/s. 10(38) of Raj Sharadkumar Agarwal the Act, which is equal to 2564% and the same was suspicion of revenue based on the following observations: 1. The assessee acquired shares of Rutron International Ltd though preferential shares.
The assessee has applied for shares vide dated 28.09.2011 which is evident from the printed share application form of Rutron International Ltd vide page No. 118 of paper book submitted on 07.10.2025. That means the assessee without conducting board meeting for issue of preferential shares the assessee has applied well in advance ie: on 28.09.2011 that means unless the assessee has acquaintance with the Rutron International Ltd he cannot assume the date of issue of preferential shares. As per the above it can be concluded that the assessee and the company Rutron International Ltd have prefixed the rigging up of price of shares.
In the statement recorded u/s.131 of the L.T.Act from Shri. Raj Sharadkumar Agarwal on 08.12.2017 she answered the question No.18 such as did you know any that Rutron International Ltd was offering shares to public on preferential basis to this she replied I did not know about this but the financial consultant who advised my husband had advised to apply.
Vide Q.No. 21 the officer asked her when there is no guarantee of allotment how is this possible. The assessee replied I don't know about this.
It is videQ.No. 22 the assessee was asked to explain further it is seen from the share application form that the date mentioned on the form 28.09.2011 whereas the date of cheque on the form is 30.11.2011. Please explain the discrepancy. The assessee has replied to this I Can't explain it.
Vide Q.No.28 of statement recorded the assessee was asked that it is seen that the company Rutron International Ltd had a general meetingon 22.10.2011 where preferential issue of 99,50,000 shares were approved subsequent to which the shares were allotted on 05.11.2011 to you. Did you know about the occurrence of this general meeting, the assessee has replied that I do not have any idea.
Raj Sharadkumar Agarwal 7. Application dated 28.09.2011, cheque dated 30.11.2011 in printed form where as shares allotted to assessee on 05.11.2011. There is a huge discrepancy.
The trading of shares of Rutron International Ltd was suspended by SEBI and was revoked only on July 2011. In view of the above, the assessee's investment in shares of Rutron International Ltd should be treated as bogus and the SEBI has directed the BSE to suspend trading in Rutron International Ltd on 27.08.2015.
This company was having market price of share at less than Rs.1 in June 2012 and Rs. 25 to 26 in March 2013. Therefore the price was jacked upto Rs.26 from less than Rs.1 in 9 months. Hence it is indicating that the company has no substantial financial strength and it is also to be taken into account that between March 2014 to May 2015 the price of the share remained in the range of Rs. 5 to 7 only. At the same time the purchasers of share were also enquired and with a view to verify the credit worthiness of purchasers notice u/s. 133(6) wasissued to parties. These parties are not existing at the given address. No reply from Rutron to notice issued U/s 133(6). It is my humble submission before the Hon'ble members that taking the above into consideration the addition may be sustained by treating the purchase of shares is bogus.”
The appeal was fixed in clarification on 16/01/2026. Further both the parties got the opportunity for the argument. The Ld. AR filed a rejoinder against the submission of the Ld. DR. The said rejoinder is reproduced as below:-
“REJOINDER TO SUBMISSIONS OF THE REVENUE DATED 12.12.2025 MOST RESPECTFULLY SHWEWETH: “The Departmental Representative ("DR") filed written note in the captioned appeal on 12th December, 2025, which was provided to the assessee on 16th January, 2025. In this regard, it is respectfully submitted as under:
The primary observations by the DR are not legally sustainable, due to the following reasons: The major thrust for making the proposed additions is on the statement of Mr. Anil Agarwal which was never provided to the assessee and, and even that had been subsequently retracted by him. Further, the assessing officer failed to bring on record whether there is any specific mention/reference to the assessee directly in the said statement. As elaborately explained infra, insofar as the assessee is concerned, the amounts were received as part of the sale of regular investments which were done through recognize stock exchange. It was not a one-off investment and the assessee's holding statement shows the total investments made in various companies. The assessee was not aware of any connection of Mr. Anil Agarwal or the share broker i.e. Comfort Securities and the company in which the investments were made. Above all, the entire funds were paid through and received into the bank accounts of the assessee. The application for preferential allotment was made by the assessee on 28.09.2011. It is only thereafter basis the final approval for allotment made in the board meeting and in the general meeting, the shares were finally allotted to the assessee on 05.12.2011.The suspension on the trading of equity shares of Rutron International Ltd was revoked with effect from 01.07.2011 itself. The assessee had been allotted the shares basis the application dated 28.09.2011 for preferential issue on 05.12.2011. i.e. post revocation of suspension only. Further, the suspension dated 27.08.2015 was again revoked with effect from 27.09.2018. The assessee had already sold the shares of Rutron International before this period from 2015-2018.
The sale of shares was done on the stock exchange only and it was impossible for the assessee to know the details of the purchasers of the said shares and hence, the fact that the purchasers did not respond to the notices issued under section 133(6) does not lead to the conclusion that the assessee had entered into a bogus sale transaction.
Raj Sharadkumar Agarwal Being so, the question of any addition being made in the hands of the assessee under section 68 of the Act, does not, in our respectful submission, arise at all. It is further submitted that reassessment proceeding was initiated merely on the basis of a common and general report by Directorate of Investigation Wing, Kolkata. Neither is the assessee's or the broker's name mentioned in the said report. It is settled law that no reopening is permissible merely on the basis of an investigation wing report,
It is, respectfully submitted that there was no reason, whatsoever to doubt the sale of shares inasmuch as there is uncontroverted/ contemporaneous evidence on record to support the purchase made by the assessee. The transactions undertaken by the assessee is duly supported by, inter alia, the following documentary evidences placed on record:”
Particulars Description Total Sales during the year Aggregate amount : Rs.2,42,39,516/- No. of Shares: 91,000/- Details of sale Transactions All the sales are through stock exchange Contract Notes/Bills of settlement of all the transactions are available The transactions are duly reflected in the Broker’s ledger. All the net receipts/payments from/to broker are by way of cheque/RTGS and are duly reflected in the Bank Statement. All the transactions are through D- mat account. Details regarding purchase of the shares sold Aggregate amount: Rs.15,00,000/-
Raj Sharadkumar Agarwal during the year No. of shares: 1,50,000/- equity shares Shares Contract Notes/Bills of settlement of all the transactions are available. The transaction are duly reflected in the Broker’s ledger. All the net receipts/payments from/to broker are by way of cheque/RTGS and are duly reflected in the Bank Statement. All the shares had been allotted in the demat account The application for preferential issue and the allotment letter for issue of the said shares are placed on record. Capital Gain/Loss during the year Long Term Capital Gain amounting to Rs.23,32,951/- During the course of the assessment proceedings, though the aforesaid documents and statements had been produced before the assessing officer, while drawing the ultimate conclusion, the same have not been considered and dealt with at all by the assessing officer. In the entire assessment order, apart from the contents of the statements being reproduced and the third-party reports, there is no whisper why the aforesaid evidences have not been taken into consideration. The aforesaid evidences, thus, remain uncontroverted/ undisputed. In CIT v. Shyam R. Pawar: [2015] 54 taxmann.com 108, the Bombay High Court has held that where DMAT account and contract note showed details of share transaction, and Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income under section 68.
Raj Sharadkumar Agarwal Reliance is also placed on the following judicial precedents: - ACIT Vs. Mrs. Rehana Mohammed Ali:
- Shaily Prince Goyal Vs. ITO: ITA 4271/Mum/2023 (Mum-Trib) - Tarachand Kothari Vs. ACIT:
- Tejash Ramesh Shah, HUF Vs. ITO: ITA No.5814/Mum/2024(Mum-Trib) - Shrenik Kumar VirchandMardia Vs. ITO: ITA No. 558/Mum/2025(Mum-Trib) Reliance is placed on the following decisions of the Tribunal dealing with similar facts and the shares purchased and the share broker in those cases were identical as in thecase of the assessee. The assessee in the present case has invested in the shares of Rutron International Ltd. and the stock broker is M/s. Comfort Securities Ltd., a stock broker company registered with NSE, BSE, MCX, MCX-SX, NCDEX and these two cases also dealt with the same scrip and broker. It was categorically held in these cases that if the assessee furnishes all the documentary evidences to prove the genuineness of the transaction, no addition can be made under section 68 in respect of the capital gains earned on those transactions. The aforesaid cases are enumerated hereunder:
Shri Meghraj Singh Shekhawat v. DCIT:
& 444/JP/2017 (Jaipur ITAT): In this case, the assessee had invested in the shares of Rutron International Ltd. under section 68 treating the transactions in shares as bogus. The Tribunal held and earned long term capital gains during the year, which were claimed as exempt under section 10(38). However, the assessing officer disallowed the exemption and added the amount of capital gains as unexplained cash credit transactions were duly reflected in the bank account and D-mat account of the assessee and the holding of assessing officer was merely on the basis of suspicion and surmise without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. Therefore, the Tribunal deleted the addition made under section 68 of the Act. Ramprasad Agarwal v. ITO: [2018] 100 taxmann.com 172 (Mumbai ITAT): In this case as well, the assessee had invested in the shares of Rutron International Ltd. and earned long term capital gains during the year, which were claimed as exempt under section Raj Sharadkumar Agarwal 10(38). However, the assessing officer disallowed the exemption and added the amount of capital gains as unexplained cash credit under section 68 treating the transactions in shares as bogus. The Tribunal followed the order of coordinate bench in the case of Megharaj SinghShekhawat (supra) and directed the assessing officer to not to treat the long term capital gains as bogus and delete the consequential addition under section 68 of the Act.To the same effect is the decision in the case of Sunita Motilal Sinha Vs. ITO 25(1)(3), Mumbai:
(Mum-Trib) where the assessee has traded in similar scrip of Rutron and the assessing officer in their cases has disallowed long term capital gain by merely relying on statement of Shri Anil Agarwal, and Investigation Wing Report, the Hon'ble Coordinate Bench in their cases has deleted the addition with regard to following observations which are as follows: - No evidence to show that the assessee has converted his unaccounted income by claiming long-term capital gain as exempt under section 10(38). - Evidence with regard to purchase and sale of shares were not rejected by the assessing officer -The assessing officer has not brought on anything on record which could prove the involvement of the assessee in price manipulation. -Statement of Shri Anil Agarwal cannot be used against the assessee, as he has said nothing about the assessee -No independent enquiry was made by the assessing officer and rather the entire premises of addition was based upon the generalized report on modus operandi of scrip of Rutron Furthermore, the assessing officer has not found any incriminating material to come to the conclusion that any dealing in cash was involved in any manner. Therefore, the assessing officer's allegation that assessee has indulged in bogus share transactions is false and baseless. Thus, the additions made by the assessing officer as an unexplained cash credit under Section 68 of Rs. 2,42,39,516 and commission expenses of Rs.7,27,185 is without any basis and liable to be deleted.”
We have carefully considered the rival submissions, perused the written arguments filed by both the parties, examined the paper book placed on Raj Sharadkumar Agarwal record, and taken into account the judicial precedents relied upon by the Ld. AR. It is an undisputed fact that the assessee had applied for shares of M/s. Rutron International Ltd. through preferential allotment, made payment through banking channels, and the shares were duly credited to the demat account. The subsequent sale of shares was executed through a recognized stock exchange, supported by contract notes, broker ledger, demat statements and bank statements. The receipt of sale consideration is duly reflected in the bank account. These documentary evidences have not been found to be false or fabricated. The addition made by the Ld. AO is primarily based on suspicion arising from price fluctuation of the scrip, certain discrepancies in dates, general investigation reports, and statements of third parties. However, no direct material has been brought on record to establish that the assessee was a beneficiary of any accommodation entry or that unaccounted money was introduced in the guise of LTCG. The Revenue has also failed to demonstrate any nexus between the assessee and the alleged price manipulation. Mere abnormal rise in share price or reliance on generalized investigation reports cannot, by itself, justify the addition in the absence of cogent and specific evidence against the assessee. Further, once the transactions are routed through stock exchange mechanism, supported by demat records and banking channels, and the primary evidences remain uncontroverted, the burden shifts upon the revenue to disprove the same with tangible material. In the present case, such burden has not been discharged. The judicial precedents relied upon by the Ld. AR, including decisions of the Coordinate Bench, Sunita Motilal Sinha (supra) & Ramprasad Agarwal (supra) in cases involving the same scrip, support the proposition that in absence of incriminating material linking the assessee with alleged bogus transactions, the Raj Sharadkumar Agarwal exemption under section 10(38) cannot be denied merely on suspicion or general allegations. In view of the above facts and circumstances, we hold that the LTCG claimed by the assessee under section 10(38) of the Act is genuine. Accordingly, the addition made under section 68 of the Act and the consequential addition towards alleged commission are directed to be deleted. The grounds raised by the assessee are allowed.