ARVIND BHAGUJI KANGANE,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-27(1), MUMBAI, MUMBAI
Facts
The assessee, an individual investor, filed a return of income for AY 2016-17. The case was reopened under section 147 based on information that Sanasa Tech Fab Ltd. was a penny stock company used for generating bogus capital gains. The assessee had claimed long-term capital gain exemption of Rs. 2.40 crore on the sale of shares of this company.
Held
The Tribunal found that the assessee had provided sufficient documentary evidence, including allotment advice, contract notes, and bank statements, to substantiate the transaction. The Tribunal noted the absence of any allegations of price rigging against the assessee or their broker and referred to various High Court decisions that supported the deletion of additions when genuine transactions are proved. The Tribunal held that the lower authorities erred in treating the capital gains as unexplained credit.
Key Issues
Whether the long-term capital gains from the sale of shares of Sanasa Tech Fab Ltd. are to be treated as unexplained cash credit and added under section 68, and whether the reassessment order passed under the faceless assessment scheme was valid.
Sections Cited
148, 147, 68, 115BBE, 10(38), 144B, 151A
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee is directed against the order of ld. CIT(A) / NFAC
dated 11.06.2025 for A.Y. 2013-14. The assessee has raised following
grounds of appeal:
“1.0On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of notice u/s 148 issued in mechanical manner, in absence of new tangible material and on the basis of borrowed satisfaction and without having reason to believe of escapement of income;
2.0 On facts and circumstances of the case and in law, Ld. CIT-(A) erred in confirming the addition made u/s 68 of entire sale consideration of STT paid listed shares of Rs.2,50,36,002/- on rejecting the appellant's claim of Long term capital gain;
3.0 The Ld. CIT-(A), before confirming the addition u/s 68 of entire sale consideration of STT paid listed shares of M/s Sanasa Tech Fab Ltd (earlier
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
known as M/s Jeevo Motors Finance Co. Ltd) of Rs.2,50,36,002/-, ought to have considered the understated vital facts, being;
a) The correctness of documentary evidence, being Contract-cum-bills, ledger account/confirmation of account, D-mat statements, Global report, bank statements, bhav copy, letter of allotment, etc had not been doubted by the Ld. AO and Ld. CIT(A);
b) The period of holding of listed shares in appellant's D-mat account exceeds 16 to 21 months and such shares had been sold on floor of BSE on which STT, Service Tax, etc. had been paid;
c) The substantial increase in price of shares listed in BSE cannot be a sole reason to treat the bonafide transaction as non-genuine;
d) The SEBI had not framed any allegations and had not passed any contrary order against the appellant and stock broker,
e) The appellant is not related to any directors/promoters and exit providers and the AO, inspite of appellant's written request, had not provided the copies of contrary material/evidence and statements of 3rd persons for rebuttal and also did not allow an opportunity of cross examination;
f) The genuineness of capital asset acquired in earlier year cannot be disputed in impugned year.”
Vide application dated 01.09.2025, the assessee has raised following
additional ground of appeal:
“1.0 On facts and circumstances of the case and in law, the re-assessment order passed u/s.147 dated 23/03/2022 by National Faceless Assessment Centre (NFAC) is bad-in-law, since the scheme for faceless assessment of income escaping assessment prescribed u/s.151A had been notified by the CBDT w.e.f. 29/03/2022;
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
2.0 On facts and circumstances of the case and in law, the re-assessment order passed u/s.147 r.w.s. 144B is bad-in-law, since the intimation to complete the assessment in accordance to the procedure laid u/s.144B has not been issued by the NFAC and no notice u/s 144B had not been served to the assessee. The appellant craves leave to add, amend, alter and/or withdraw any of the grounds of appeal at the time of hearing.”
Brief facts of the case are that assessee is an individual and claimed to
have been engaged in investment in shares. The assessee filed his return
of income for assessment year (A.Y.) 2016-17 on 15.10.2016 declaring
income of Rs. 30,85,930/-. Return of income was processed under section
143(1). Subsequently, case was reopened under section 147. Notice under
section 148 dated 31.03.2021 was served upon the assessee. In response
to notice under section 148, the assessee filed his return of income on
16.04.2021 declaring same income as declared earlier. The case of
assessee was reopened on the basis of information received from DDIT
(Inv.) Ajmer that Sanasa Tech Fab Ltd. which was earlier known as Jeevo
Motors Finance Company Limited was identified as penny stock script
company, used for generation of bogus capital gain or loss. The assessee
traded in the script of such company. On the basis of such information,
case of assessee was reopened. During the assessment, the assessing
officer find that assessee has claimed long term capital gain and claimed
exemption under section 10(38) of Rs. 2.40 crore on sale of shares of
Sanasa Tech Fab Ltd. During the assessment, the assessee furnished copy
of allotment advice, contract notes from Swastika Investments Ltd (Share
broker) and bank statement showing payment of consideration and receipt
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
of sales of shares during the year. The assessing officer on the basis of
details furnished before him recorded that assessee made application for
allotment to 1,00,000/- preferential share of Sanasa Tech Fab Ltd. which
were earlier known on Jeevo Motors Finance Company Limited. The shares
were allotted on 07.10.2014 at a price of Rs. 10/- per share. The assessee
acquired such share off market. The assessee held such share for more
than one year and sold between 16.11.2025 to 31.03.2016. The assessing
officer examined the financials of such company as recorded on page 2, 3
and 4 of assessment order and recorded that such company was not
having tangible asset nor any substantial investment. The shares were
artificially rigged from Rs. 10/- to Rs. 284/-. Such company has not paid
any dividend to the shareholders. The assessing officer further recorded
that share of this company was traded from Bombay Stock Exchange and
limited number of brokerage firms have made trading of its share. The
names of various brokers are recorded on page no. 5 to 7 of assessment
order. On recording such discrepancies, the assessing officer issued show
cause notice to the assessee. The assessee filed its reply and submitted
name of certain companies wherein the price of shareswas increased
substantially including of Suzlon Energy Ltd., Eicher Motors Ltd. and other
companies in which share prices were increased over 100 times. The reply
of assessee was not accepted. The assessing officer by referring the
decision of Hon’ble Supreme Court in Durga Prasad More and Sumati
Dayal, treated the sale consideration of Rs. 2.50 crore as unexplained and
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
added under section 68 and taxed the same under section 115BBE in the
assessment order dated 23.03.2022.
Aggrieved by the additions in the assessment order, the assessee filed
appeal before ld. CIT(A). Before ld. CIT(A), the assessee challenged the
validity of reopening as well as additions on merit. On the merits of the
case, the assessee submitted that he has furnished sufficient documentary
evidence to justify the genuineness of purchase and sales and long-term
capital gain earned thereon. The shares were sold on recognised stock
exchange on which security transaction tax (STT) was paid. The holding
period is more than one year. The shares were held in Demat account. The
assessee furnished contract bills, Demat statement, bank statement, rate
list and confirmation of stock broker. The assessee requested the assessing
officer to provide the contrary material and statement of third party for
rebuttal and to allow opportunity of cross-examination.No such opportunity
was provided nor statement of third party provided. The assessee also
given comparative list of other shares which were increased drastically
during the relevant period. On validity of reopening the assessee submitted
that objection of assessee was rejected mechanically. There was no
sufficient tangible material. The reopening was based on borrowed
satisfaction.
The ld. CIT(A) on considering the submission of assessee and the
assessment order upheld that validity of reopening by taking view that
sufficient opportunity was given to the assessee during assessment. The
assessing officer followed due process and there was tangible information
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
in the possession of assessing officer. On merit, the ld. CIT(A) by referring
various decisions held that he has no reason to interfere with the order of
assessing officer. Further, aggrieved, the assessee has filed present appeal
before Tribunal.
We have heard the submissions of learned Authorised Representative (ld.
AR) of the assessee and the learned Senior Departmental Representative
(ld. Sr. DR) for the Revenue. The ld. AR of the assessee submits that
assessee purchased the shares of Sanasa Tech Fab Ltd. which were earlier
known as Jeevo Motors Finance Company Limited. Such shares were
allotted under preferential allotment scheme on 07.03.2014. The assessee
purchased / were allotted 1.00 lac shares @ Rs. 10/- per share. The
assessee made payment of consideration of Rs. 10 lacs by way of cheque
on 20.02.2014 that is at the time of applying for preferential shares. The
shares were held in Demat account. The shares were sold through
registered broker of Bombay Stock Exchange on 10.11.2015 to 17.03.2016.
The assessee received total consideration of Rs. 2.50 crore. The shares
were sold at average rate of Rs. 250/- per share. The period of holding was
ranging from 17 to 21 months. The assessee before the lower authorities
furnished contract note cum sale bills, ledger account of a stock broker,
bank statement, Demat statement and rate publication of Bombay Stock
Exchange (BSE). In support of purchase of shares, the assessee furnished
letter of company for allotment of shares, bank statement, Demat request
form, Demat statement and his balance sheet of earlier years. The
assessee is regularly investor in shares. There is no allegation that
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
assessee or his brokers were involved in alleged price rigging. There is no
investigation by Security and Exchange Board of India(SEBI) against the
broker of assessee. STT was paid at the time of sale. The assessing officer
simply relied upon the information from Investigation Wing without giving
any finding on various evidence or bringing adverse material on record
against the evidence furnished by assessee.
The ld. AR further furnished that he has also raised additional ground of
appeal. In the additional ground of appeal, the assessee has challenged
the validity of assessment order passed by faceless assessing officer. The
ld. AR of the assessee submits that scheme of faceless assessment about
reassessment that is income escaping assessment was brought on the
statute book by taxation and other law (realization and amendment of
certain provisions) Act, 2020 with effect from 01.11.2020 which were
notified on 29.03.2022. Therefore, the assessment was taken by NFAC
prior to 29.03.2022 is without jurisdiction as NFAC Scheme was not
operational prior to 29.03.2022, hence, assumption of jurisdiction by
assessing officer prior to that date is invalid. Assessment in the present
case was completed on 23.03.2022, hence such assessment order is bad in
law being without legal sanction. To support his submission on merit, the
ld. AR of the assessee relied upon following decision: PCIT vs Smt. Renu Aggarwal 456 ITR 249 (SC) PCIT vs ParasbenKasturchand Kochar 130 Taxmann.com 177 (SC) & 130 Taxmann.com 176 (Guj-HC) PCIT-31 vs Indravadan Jain HUF ITA No. 454 of 2018 (Bom-HC) PCIT-3 vs Ziauddin A Siddique ITA No. 2012 of 2017 (Bom-HC) CIT vs Shyam R. Pawar 54 taxmann.com 108 (Bom-HC)
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
CIT vs Smt. Jamnadevi Agrawal 20 Taxmann.com 529 (Bom-HC) PCIT vs Smt. Krishna Devi 126 Taxmann.com 80 (Delhi-HC) PCIT vs Sanjaykumar Damjibhai Gangani 178 taxmann.com 276 (Gujarat) 8. On the validity of reassessment order, the assessee relied upon the
following decision: Nabiul Industrial Metal Pvt. Ltd. vs ITO (NFAC), Delhi ITA No. 1328/Kol/2024 (Kol-ITAT) Md. Mahimud SK vs ITA ITA No. 2229 & 2230/Kol/2024 (Kol-ITAT) 9. On the other hand, ld. Sr. DR for the Revenue supported the order of lower
authorities. The ld. Sr. DR for the Revenue submits that assessing officer
has brought sufficient material on record that scrip on the sale of which the
assessee has shown long term capital gain were penny scrip. The
Investigation Wing carried out full-fledged investigation against such penny
scrip company, Sanasa Tech Fab Ltd. is one of the penny scrip companies.
Such penny scrip company was not doing actual business except providing
accommodation entries. Three were very few brokers who were making
transaction of such scrip. The assessee has shown abnormal profit. On the
legal issue of assessment order passed by faceless assessment unit, the ld.
Sr. DR for the Revenue submits that assessing officer acted in accordance
with the faceless scheme framed by CBDT.
In short rejoinder submission, the ld. AR of the assessee submits that
assessing officer on page 5, 6 & 7 has given the name of certain share
broker, wherein the scrips were transacted through a very well-known
brokers company which includes Aditya Birla Money Ltd., Mehta Equities
Ltd. and Religare Broking Ltd. The action of assessing officer is simply
based on the information of Investigation Wing which was not verified nor
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
the assessing officer have brought any adverse material against the
evidences furnished by assessee.
We have considered the rival submissions of both the parties and have
gone through the orders of lower authorities carefully. We have also
deliberated on various case laws relied by ld. AR of the assessee and the
various evidences furnished by assessee.We find that during the
assessment, the assessing officer noted that assessee has shown capital
gain of Rs. 2.40 crore on sale of shares of Sanasa Tech Fab Ltd., the
assessee claimed exemption of capital gain of under section 10(38). On
show cause, the assessee furnished share allotment advice, contract note
from Swastika Investments Ltd. (assesses broker), bank statement and
details of shares. The assessing officer also recorded that preferential
allotment of 1.00 lakh shares of Jeevo Motors Finance Company Limited
were allotted. The name of Jeevo Motors was changed to Sanasa Tech Fab
Ltd. The assessing officer also accepted the fact that shares were held for
more than one year, though acquired off market. The assessing officer by
referring certain financial of such company noted that such company was
not having meaningful tangible assets and the price of shares were
increased up to Rs. 284/-. The shares were transacted by limited brokers.
The assessing officer on the basis of his observation was of the view that
such company prepared a grand plan providing fictitious long term capital
gain to the interested parties. The sale price realised by assessee is not
possible in such a short span of period. The assessing officer treated the
entire sale consideration of Rs. 2.50 crore as unexplained credit and added
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
under section 68, without allowing the cost of investment in impugned
shares. The ld. CIT(A) confirmed the action of assessing officer without
giving any independent findings.
We find that before assessing officer, the assessee furnished letter of
allotment, bank statement for payment of purchase consideration, Demat
account request, Demat statement. To substantiate the sale, the assessee
furnished sale bills cum contract note confirmation of his brokers, Swastika
Investmart, bank statement and Demat statement. No comments were
made by assessing officer or by ld. CIT(A) nor any adverse material was
brought on record. We find that assessee has filed his balance sheet as on
31.03.2015 wherein he has sold investment in various other shares.
We find that Hon'ble Gujarat High Court in the case of Himani M. Vakil
(2014) 41 taxmann.com 425 (Guj) held that where assessee duly proved
genuineness of sale transaction by bringing on record contract notes of
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.
Further Hon’ble Gujarat High Court in the case of Parasben Kasturchand
Kocher (2021) 130 taxmann.com 176 (Guj), also held that when assessee
discharged his onus by establishing that transactions were fair and
transparent and all relevant details with regard to transfer furnished to
Income Tax Authority and the Tribunal have also took the notice of fact
that the shares remained in the account of assessee, the assessee also
furnished demat account and details of bank transaction about the sale and
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
purchase of shares, the addition was deleted. Further in PCIT Vs Mamta
Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that
where the assessee had sold the shares and earned LTCG and the
Assessing Officer alleged that transaction was penny stock deal aim at
illegitimately claiming LTCG exemption under section 10(38), since there
was no allegation on record suggesting the assessee or his broker involved
in rigging up the price of scrips, the addition was rightly deleted by
Tribunal.
Wealso find of Hon'ble Jurisdictional High Court in the case of PCIT Vs.
Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018 dated
12.07.2023 also held that when assessing officer nowhere alleged that
transactions made by assessee with a particular broker or share broker was
bogus, merely because investigation was done by SEBI against the broker
or its activities, the assessee cannot be said to have entered into ingenuine
transaction.We find that assessee made sale of shares through BSE and
paid security transaction tax and there is no allegation against the assessee
or his share broker through whom assessee has made sales that they were
indulging any price manipulation/ rigging. Therefore, we do not find any
justification in treating the LTCG as unexplained cash credit in absence of
any cogent evidence against the assessee specific. Thus, in view of
aforesaid and factual and legal discussion, we do not find any justification
on treating the long-term capital gain as fictitious and adding under section
68, particularly when the assessee has furnished sufficient evidence to
ITA No. 4158/Mum/2025 Arvind Bhaguji Kangane
discharge his primary onus. In the result, ground no. 2 and 3 of appeal are
allowed.
Considering the fact that we have allowed appeal on merit, therefore,
adjudication on other legal issue have become academic.
In the result, appeal of the assessee is allowed.
Order was pronounced in the open Court on 22/01/2026.
Sd/- Sd/- PADMAVATHY S. PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 22/01/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order
Assistant Registrar ITAT, Mumbai
