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Facts
The assessee filed an income tax return declaring long-term capital gains (LTCG) which was processed under section 143(1). Subsequently, the AO reopened the assessment alleging the LTCG was from accommodation entries in penny stocks and treated it as an unexplained cash credit under section 68. An additional amount was added under section 69C for commission expenses. The CIT(A) upheld both additions.
Held
The Tribunal held that the AO made additions solely based on general investigation reports without specific material linking the assessee to manipulation or accommodation entries. The assessee discharged the initial onus under section 68 by providing documentary evidence. The Tribunal noted similar transactions in the assessee's wife's case were deleted and that the SEBI and company records did not indicate any wrongdoing. The additions were deleted.
Key Issues
Whether the additions made under Section 68 and 69C are sustainable based on general investigation reports without specific evidence linking the assessee to accommodation entries or manipulation?
Sections Cited
143(1), 147, 143(3), 68, 69C, 10(38), 148
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Income Tax Appellate Tribunal, ‘G’ BENCH: MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI JAGADISH
PER JAGADISH, A.M : This appeal filed by the assessee for Assessment Year (AY) 2012-13 arises from the order dated 31.07.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”], confirming the assessment framed by the Assessing Officer (AO) under section 143(3) read with section 147 of the Income-tax Act, 1961 (“the Act”) vide order dated 18.12.2019. 2. The assessee is a partner in the firm Shri S.J. Chirania and Associates and derives income from business/profession, capital gains and income from other Sudheer Chirania :- 2 -: sources. The return of income was filed declaring total income of ₹6,09,380/- after claiming exemption under section 10(38) on long-term capital gains (LTCG). The return was processed under section 143(1).
Subsequently, the AO reopened the assessment based on information received from the Investigation Wing alleging that the assessee was a beneficiary of accommodation entries through trading in shares of M/s Tilak Venture Limited, alleged to be a penny stock. The AO treated the LTCG of ₹2,20,36,564/- as unexplained cash credit under section 68 and further made an ad-hoc addition of ₹4,40,731/- under section 69C towards alleged commission expenses. The CIT(A) confirmed both additions. Aggrieved, the assessee has raised the following grounds of appeal :
1. 1. 1. “1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding and sustaining the initiation of reassessment proceedings by issue of notice u/s 148, which is not as per provisions of law, clearly outside the sanction of law, illegal, bad in law, barred by limitation, unsustainable, in gross violation of the principles of natural justice or otherwise void for want of jurisdiction.
2. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the initiation of reassessment proceedings by issue of notice u/s 148 merely on the cursory observation in paragraph 6.1 of his order that the reopening was warranted not only on account of the dubious transaction carried out by the appellant but as it was initiated after processing of information shared by the Investigation Directorate which is indeed a travesty of facts as it is clearly apparent from the record that no independent enquiry was carried out either by the Assessing Officer or the first appellant authority thus rendering such finding not only perverse but leading to the unassailable inference that the reopening is solely based on borrowed satisfaction.
3. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the reassessment proceedings holding that no objections were raised before him by the appellant against Sudheer Chirania :- 3 -: reopening of assessment specially when the objections raised against the reopening by the appellant before the Assessing Officer have been quoted verbatim in his order and which the Ld. first appellate authority has failed to address despite his powers being coterminous with that of the Assessing Officer thereby resulting in failure to ensure fair play and substantial justice.
4. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the additions made by the Assessing Officer, solely based on the generic information received from the investigation wing, not specific to appellant, without carrying out independent enquiries to establish complicity of the appellant or her broker in particular, with the allegations as made by the Assessing Officer of claiming accommodation entries to book long term capital gain/ (loss).
5. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the Assessing Officer's action in making addition of Rs 2,20,36,564/- u/s 68 on account of sale proceeds on sale of shares of M/s Tilak Ventures Limited and after holding the same for a period of more than 12 months sale thereof through online platform of recognized stock exchange through the SEBI registered stock broker subject to payment of Securities Transaction Tax (STT) without there being any specific adverse finding against the said bonafide transaction in particular.
6. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the Assessing Officer's action without appreciating that there is no order of SEBI brought on record or in public domain that indicts the appellant or her broker for any wrong doing or manipulation and also ignoring the fact that the said company continues to be MCA compliant and said scrip continues to be listed on the recognized stock exchange till date.
7. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the addition/s made u/s 68 of the Income Tax Act, 1961 despite the fact that all requirements such as identity, creditworthiness, genuineness have been satisfactory explained with cogent evidence thereby fully discharging the onus on the appellant particularly coupled with the fact that no further questions were asked and no independent enquiries were conducted by the Assessing Officer to shift the onus back onto the appellant before drawing an adverse inferences.
8. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) has erred on facts and in law in sustaining the addition made u/s 68 of the Income Tax Act 1961 when the Ld. Commissioner of Income Tax (Appeals) has himself agreed that the appellant had provided various supporting evidence in respect of the share transaction as stated in paragraph 7.1 of his order but at the same time neither the Assessing Officer nor the Ld. Commissioner of Income Tax (Appeals) cared to examine with the due diligence required of a statutory authority the volumes of supporting material supplied by the appellant to explain the nature and source of the transaction thus leading to grave miscarriage of justice.
9. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the addition made u/s 68 of the Income Tax Act with the cursory finding in paragraph 7.4 of his order that the appellant has not been able to explain the nature and source of the transaction despite substantial documents to evidence the transaction being placed on record and not a single document independently examined or verified and no concrete evidence brought on record to establish accommodation entries as alleged.
10. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has grossly erred in declining opportunity to cross examine the persons named in the report of the Investigation Directorate despite specific request made by appellant resulting in violation of principles of natural justice thus vitiating the entire proceedings.
11. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in not following the ratio decidendi of the binding decisions rendered by the Hon'ble Jurisdictional High Court and Hon'ble Jurisdictional Tribunal in many cases in general and in particular the decisions, wherein, the transactions in the same scrip i.e. M/s Tilak Ventures Limited have been held to be genuine.
12. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in not taking cognizance of the principle of consistency and thereby ignoring the favorable precedence at the assessment stage itself in the appellant's own case for Assessment Year 2013-14 and 2015-16 for the transaction in the same scrip and the decision of Hon'ble Jurisdictional Income Tax Appellate Tribunal, Mumbai dated 25.09.2024 in Chirania :- 5 -:
3158/Mum/2024 in case of spouse of the appellant for transaction in the same scrip in the assessment year 2015-16. 13. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the Assessing Officer's action in making ad-hoc addition of Rs 4,40,731/- u/s 69C on account of unexplained commission expenditure on the basis of mere conjectures and devoid of any evidence.”
The learned Authorised Representative (Ld. AR), at the outset has submitted that the issue is squarely covered in favour of the assessee by multiple decisions of the Hon’ble Jurisdictional High Court and the Tribunal, including decisions involving the same scrip and family members of the assessee.
It was submitted that the assessee had applied for allotment of 50,000 equity shares of M/s Tilak Finance Limited on a preferential basis and paid the application money through banking channels. Shares were duly allotted vide letter dated 22.07.2010 and credited to the assessee’s demat account. The shares were disclosed in earlier returns.
Subsequently, part of the holding was sold through a recognised stock exchange via SEBI-registered broker and the remaining shares were split, resulting in 3,85,000 shares. These shares were sold online through recognised stock exchange platforms and sale proceeds were received through banking channels. Securities Transaction Tax (STT) was duly paid and exemption under section 10(38) was claimed.
The assessee furnished complete documentary evidence including allotment letters, bank statements, contract notes, demat statements and broker ledgers. No adverse material was confronted to the assessee and no independent enquiry was conducted by the AO.
The Ld. AR has placed reliance on a catena of binding judicial precedents of the Hon’ble Supreme Court, Hon’ble Jurisdictional Bombay High Court and various coordinate benches of the Tribunal, including several decisions rendered on identical facts involving the same scrip i.e. M/s Tilak Ventures Limited.
The following decisions were specifically relied upon: • Pr. CIT vs. Parasben Kasturchand Kochar [130 taxmann.com 177 (SC)] • PCIT vs. Indravadan Jain (HUF) [2023] 156 taxmann.com 605 • CIT vs. Shyam R. Pawar [2015] 54 taxmann.com 108 • PCIT vs. Ziauddin A. Siddique (ITXA No. 2012 of 2017) • CIT vs. Jamna Devi Agarwal [328 ITR 656] • PCIT vs. Prem Pal Gandhi [2018] 401 ITR 253 • Farzad Sheriar Jehani vs. ITO [2024] 159 taxmann.com 9 • DCIT vs. Pavankumar Bachhraj Chandan [2024] 161 taxmann.com 674 • Mahendra Parekh vs. ACIT (ITA No. 1566/Mum/2023) • Uttam Jain (HUF) vs. ACIT (ITA No. 2427/Mum/2023) • Vijayrattan Balkrishan Mittal vs. DCIT (ITA No. 3429/Mum/2019) • Ramprasad Agarwal vs. ITO [100 taxmann.com 172] • Aadesh Commodities Pvt. Ltd. vs. NFAC (ITA No. 4035/Mum/2023) • Crosseas Capital Services Pvt. Ltd. vs. ACIT (ITA No. 3417/Mum/2023) • Shri Sachin Chirania vs. ITO (ITA No. 4508/Mum/2023 – AY 2011-12) • Shri Sachin Chirania vs. ITO (ITA No. 4408/Mum/2023 – AY 2012-13) • Smt. Anju Chirania vs. ITO (ITA No. 3158/Mum/2024) • Smt. Preeti Chirania vs. ITO (ITA No. 4245/Mum/2024) • Smt. Priyanka Omprakash Bajaj vs. ITO (ITA No. 2929/Mum/2024)
• Shri Yogesh P. Thakkar & Ors. vs. DCIT (ITA Nos. 1605–1611/Mum/2021)
The Ld AR argued that consistent ratio emerging from the above decisions is that addition under section 68 cannot be sustained merely on the basis of general investigation reports or alleged price manipulation, when the assessee has: • purchased shares through identifiable sources, • held them in demat account, • sold them through recognised stock exchange, • received consideration through banking channels, and • paid applicable STT and other statutory levies.
The learned Departmental Representative relied upon the orders of the lower authorities and submitted that the additions were justified based on investigation reports outlining the modus operandi of accommodation entries.
We have carefully considered the rival submissions and perused the material on record. The AO has made additions solely on the basis of general investigation reports without bringing any specific material linking the assessee with any manipulation or accommodation entry. The assessee has discharged the initial onus under section 68 by furnishing complete documentary evidence establishing identity, genuineness and creditworthiness. No enquiry was conducted by the AO to disprove the evidence produced. The similar addition of on sale of shares of M/s. Tilak Venture Ltd , u/s 68 was made in the case of assessee’s wife Smt. Preeti Chirania and Hon’ble ITAT in vide order dated 10.12.2024 has deleted the addition as under :
“13. After appreciating the arguments of the parties and taking into consideration the facts and documents put forth before, us we found that as per the facts of the case are that the assessee had made an application for allotment of 50000 shares in the company known as M/s Tilak Finance Limited and paid application money through proper banking channel for allotment of 50000 equity shares of M/s Tilak Finance Limited vide account payee cheque number 0289280 drawn on HDFC Bank which is debited in the bank account on 19.07.2010. Accordingly, M/s Tilak Finance Limited issued allotment letter dated 22.07.2010 for allotment of 50000 shares of Rs 10/- each at a premium of Rs 5/- per share. The shares so allotted were credited in the demat account. Out of 50000 shares acquired by the assessee of Tilak Finance Limited, the assessee sold 5000 shares during August to September, 2011 and the balance shares of 45000 were split into 10 shares of Rs. 1/ each by the said company. Accordingly, after splitting 450000 shares were credited in the demat account of the assessee. We also noticed that the name of company was changed from Tilak Finance Limited to OCTS and then changed to Tilak Ventures Limited. Out of these shares, only 109000 shares were sold during the period September, 2011.
14. And in order to prove the genuineness of transaction of trading in shares of Tilak Venture Limited, the assessee had furnished documents to the Assessing Officer vide letter dated 10.12.2019 and which is enclosed at paper book page number 48 to 54, which contains: i. A statement of determination of long term capital gain/loss on shares along with the copy of all the contract notes in Form number AA for the previous year ended 31 March, 2012 relevant to assessment year 2012-13 (enclosed at page number 55 to 65 of paper book). ii. The copy of the account of assessee in the books of SEBI registered broker for the assessment year 2015-16 (enclosed at page number 66 of paper book). iii. The copy of SEBI registered brokers' ledger in the books of assessee for the assessment year 2015-16 (enclosed at page number 67 of paper book).
Sudheer Chirania :- 9 -: iv. A copy of bank statement of account number 01431000151919 at HDFC Bank for the period started from 02.07.2010 to 29.07.2010 highlighting the payment made towards acquisition of shares of Tilak Venture Limited (enclosed at page number 68 of paper book). v. The copy of allotment letter of shares of Tilak Venture Limited (enclosed at page number 69 of paper book). vi. The copy of demat statement for the period started from 01 April, 2010 to 31 March. 2011 highlighting the credit of shares of Tilak Venture Limited in the appellant transaction statement (enclosed at page number 70 of paper book). vii. The copy of demat statement for the period started from 01 April, 2011 to 31 March, 2012 highlighting the split as well as the debit of shares of Tilak Venture Limited (enclosed at page number 71 to 72 of paper book). viii. The copy of Form 10 DB issued by the SEBI registered broker M/s Nirmal Bang Securities Private Limited showing total Securities Transaction Tax collected from the appellant for the assessment year 2012-13 (enclosed at page number 73 of paper book).
In our view all the ingredients such as identity, creditworthiness, genuineness have been satisfactorily explained by the assessee with cogent evidences placed on record before the Assessing Officer thereby discharging the We also noticed that no onus cast upon the assessee. enquiries have been conducted by the AO to disprove the assessee's evidences or to bring on record and confront the assessee with any adverse material either before or during the reassessment proceedings to shift the onus back on to the assessee.
From the records, we also noticed that there is no order of SEBI in the public domain that indicts the assessee or her broker for any wrong doing or manipulation as regards the above transaction. The fact that the said scrip continues to be listed on the recognized stock exchange till date, has also been ignored. The copy of the information downloaded from MCA website showing the said company is an 'ACTIVE compliant company has also been placed on record.
Apart from above, the assessee vehemently asserted that she is neither related to the management of the said company, i.e M/s Tilak Ventures Limited nor to the recognized stock broker through whom transactions of sale had been carried out on the online platform of the Stock Exchange during the year under consideration. The AO has failed to bring on record any evidence to show that the assessee had paid any cash in lieu of cheques received from brokers towards sale consideration of shares, to disprove the bonafides of the transaction.
On the contrary, the AO failed to furnish to the assessee, copies of the information relied upon and material seized by the department at the back of assessee, copies of statements of so-called entry operators recorded by investigation wing and also not allowing cross examination of such persons (who are departmental witnesses). Therefore, in our view some generic information based on few unconnected trades as received from Investigation wing, cannot be been used to paint all trades in that scrip with the same brush, especially when assessee's name in particular has not even figured in that report for any wrongdoing.
Even otherwise, the assessee has been an investor in shares with long term prospective and had made investment in companies like Suzlon Energy 9CIN: L40100GJ1995PLC025447), Perfect Corporate Service Ltd (CIN : U65990MH1995PLC094311), Jaiprakash Power Ventures Ltd, (CIN: U36991HP1995PLC031163) nd the securities transaction tax, service tax, turnover charges, stamp charges, SEBI fees etc have been duly paid. Therefore, these facts established the credentials of the assessee as bonafide investor.
Thus after having gone through the documents filed by the assessee and the revenue, nowhere in the information supplied in their hand material to implicate the assessee calling with programmer / enter provider. The Ld.AO had sought to made additions on the ground that sale of shares and unusual rise in price were not in line with any commercial principle and market factors. Whereas on the contrary the transactions entered into by the assessee is fully supported by the documents / evidences. The Sudheer Chirania :- 11 -: assessee during the course of assessment proceedings had also placed on record several documents as mentioned and discussed above which prove the genuineness of transaction of trading in shares of M/s Tilak Finance Ltd and all the documents. which were furnished by the assessee were in her power and possession. Therefore in our view, the assessee has discharged her burden by proving the genuineness of the transaction cast upon her in terms of Sec. 68 of the Act.
The revenue has not placed on record any material to reject the evidences placed by the assessee in support of the transactions and the additions have been made solely on the basis of general investigation report received by the Ld.AO from Mumbai Investigation Directorate. The said report is only reference to the modus operandi of certain entry / exit providers of accommodation entries and is in no way implicating the genuine transaction in trading in shares. carried out by the assessee. Since the assessee has relied upon the catena of decisions of different courts and also jurisdictional ITAT more particularly the Hon'ble ITAT Mumbai having same scrip of M/s Tilak Finance Ltd as discussed by us above, therefore, in view of our detailed discussion and also keeping in view judicial pronouncements particularly by the Hon'ble Supreme Court and binding decision of Jurisdictional Bombay High Court and the decision of Hon'ble ITAT having dealt with same scrip M/s Tilak Finance Ltd, therefore while adhering to the principles of judicial consistency and maintaining judicial discipline, we direct the AO to delete the additions made u/s 68 of the Act.
Since we have deleted the addition on merits, therefore there is no need to adjudicate legal grounds challenging the reopening of the assessment raised by the assessee.
In the result, the appeal filed by the assessee partly allowed. ”
We also note that in the assessee’s own case for Assessment Year 2015- 16, reassessment proceedings were initiated on same reasons involving the same scrip, however, no addition was ultimately made by the AO. The said assessment Sudheer Chirania :- 12 -: has attained finality. In the absence of any fresh material or change in facts, the Revenue is not permitted to take a contradictory stand in different assessment years. The Hon’ble Supreme Court has repeatedly emphasized that certainty and consistency are essential attributes of tax administration.
In view of complete documentary evidence furnished by the assessee, absence of any incriminating material, binding judicial precedents including the decision in Smt. Preeti Chirania, acceptance of identical transactions by the Revenue in other years, we hold that the addition made under section 68 is unsustainable and deserves to be deleted. Consequently, the addition under section 69C, being purely consequential, is also deleted.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 16th day of January, 2025 at Mumbai.