CHINTAN HARSHAD KANAKIA,MUMBAI vs. ITO WARD 42(1)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, “C”, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER SMT RENU JAUHRI, ACCOUNTANT MEMBER ITA No.2822/M/2025 Assessment Year: 2015-16 (Hybrid hearing) Chintan Harshad Kanakia, ITO Ward 42 (1)(1) Room No. 103, Sacovar Apt., Sagar Complex, 703, Kautilya Bhavan, Vs. Saibaba Nagar, Borivali (W), BKC, Mumbai -400051 Mumbai PAN – AGNPK6023E

(Appellant) (Respondent)

Assessee by Ms. Riddhisha Jain, CA Revenue by Shri Virabhadra Mahajan, SR. D.R. Date of Hearing 03.11.2025 Date of Pronouncement 01.01 .2026

Order Under Section 254(1) of Income Tax Act Per: Pawan Singh, Judicial Member: 1. This appeal by the assessee is directed against the order of learned CIT (A)

dated 27.02.2025 for Assessment Year 2015-16. The Assessee has raised

following grounds of appeal:-

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the disallowance of claim of exemption of Rs. 1,41,11,269/- claimed u/s 10(38) of the Act and the reason assigned for doing so are wrong and contrary to the provisions of Income Tax Act and Rules made there under. 4. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding penalty u/s 271(1)(c) of the IT Act 1961 and the reasons assigned for doing so are wrong and contrary to the provisions of Income Tax Act and Rules made there under. 5. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding interest under section 234B 234C and 234D of the IT Act 1961 and the reasons assigned for doing so are wrong and contrary to the provisions of Income Tax Act and Rules made there under. 6. Your Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing. 2. The brief facts of the case are that the assessee is individual, filed his

return of income for Assessment Year (AY) 2015-16 on 27.01.2016

declaring income of Rs.10,06,180/-. In the computation of income, the

assessee claimed exemption of Rs.1.41 Cr on sale of shares of Parag

Shilpa Investment Ltd. under Section 10(38). The case of the assessee

was reopened on the basis of information received from Principle

Commissioner of Income Tax-32 (PCIT), Mumbai that search action

under section 132 was carried out on KCGP Share Broking Services Pvt.

Ltd., which were providing entry of penny stock and assessee is one of

the beneficiary bogus long-term capital gain. As per information the

assessee traded in the scrips of Global Cap, which is penny scrip and

claimed exemption of Rs.68,40,897/-. The AO recorded reasons of

reopening and proceeded for re-assessment. The notice under Section

148 was issued to assessee on 23.06.2021. After the decision of Hon’ble

Apex Court in Union of India Vs Ashish Aggarwal (2022) 444 ITR 1 SC

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia where in the notice issued under Section 148 between 01.04.2021 to

30.06.2021 to respective assesses’ was directed to be considered as

deemed notice under Section 148A. As per direction of the Hon’ble Apex

Court the assessee was provided reasons recorded, information and

material relied by the Revenue. The information and material was

provided to the assessee on 31.05.2022 with the direction to furnish

reply within two weeks from the date of receipt of notice. The Assessing

Officer recorded, in absence of reply to said show cause notice order

under Section 148A(d) was passed on 29.07.2022 and issued notice

under Section 148. In response to notice under Section 148 dated 29.07.2022 the assessee filed his return of income on 13.08.2022.

142(1) proceeded for reassessment. The Assessing Officer required the

assessee to furnish brief note on business activities, computation of

income, profit and loss account with balance sheet along with all

annexure and note on account, details of all bank accounts, details of all

capital gains, claim exempted along with details of purchase of shares,

DEMAT account reflecting the purchase of shares, bank statement

showing purchase consideration and evidence of sales of share and

payment of Security Transaction Tax (STT). The AO also recorded that

the assessee that return filed on 13.08.2022 in response to notice under

Section 148 is not a valid return. The AO recorded that assessee has not

responded to his show cause notice, thus, another notice was issued to

the assessee. In response to which, the assessee filed his reply on

06.02.2023 and 07.02.2023. On the basis of reply furnished by assessee 3

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia the AO recorded that assessee submitted copy of invoices of purchases

of shares of Parag Shilpa Investments Ltd, share certificate reflecting

assessee’s name on back side of share certificates. The assessee

submitted sale was made through India Advantage Security Ltd and sales

invoices were furnished. The Assessing Officer recorded that on careful

perusal of purchase invoices, he find that assessee purchased shares

from Conquer Barter on 22.07.2023, the share to Conquer Barter was

allotted on 10.09.2013. So, it was not possible for Conquer Barter to sell

the shares before allotment. Thus, a fresh notice dated 24.03.2023 was

issued to assessee to submit DEMAT account showing the purchase of

share from Conquer Barter on 22.07.2013. The AO further recorded that

assessee failed to respond to show cause notice so he issued a fresh

show cause notice on 10.04.2023 to furnish reply on or before

17.04.2023. The contents of such show cause notice is recorded in para

8 of assessment order. The AO further recorded that the assessee again not furnished any reply and failed to furnish DEMAT account.

assessment recorded that assessee purchased 30,000 share of Parag

Shilpa Investments Ltd. on 22.07.2023 from Conquer Barter and these

share were split into ratio of 1:10 and became 3,00,000 share. Out of

these share 172350 were sold in between 13.12.2015 to 18.03.2015 for

a sale consideration of Rs.1.48 Cr on which assessee computed capital

gain of Rs.1.41 Cr. And after reducing purchase cost and claimed

exemption under Section 10(38). The shares were allotted to Conquer

Barter only on 10.09.2023, so such share could not have been purchased 4

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia on 22.07.2013 as claimed by the assessee. The assessee failed to furnish

DEMAT account reflecting the purchase of such share. The assessee

failed to prove the share of Parag Shilpa Investments Ltd. were held for

a period exceeding 12 month, thus, not eligible to claim exemption under

Section 10(38) and exemption on sale of shares of Parag Shilpa Investments Ltd. was disallowed and added to the income of assessee.

appeal before CIT (A). Before CIT (A) the assessee challenged the

validity of reopening beyond three years as per new provisions of Section

148/148A w.e.f. 01st April, 2021 and thus notice issued on 23.06.2021 is

void ab initio and entire assessment is bad in law. The assessee also

raised plea that no addition was made on the reasons recorded and that

additions were mode on different issue, which is not permissible. The

assessee also challenged the validity of addition in disallowing exemption

for not qualifying the period of twelve months. In support of all the

grounds of appeal, the assessee filed detailed written submission and statement of fact.

action of Assessing Officer on validity of reopening as well as on merit.

On the validity of reopening the assessee submitted that re-assessment

was initiated on specific information regarding trading in GLOBAL CAP

being penny stock, this was sole reason for issuing notice under Section

different addition by expended the scope of inquiry and disallowed claim

of assessee of long-term capital gain related with share of Parag Shilpa 5

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia Investments Ltd. which is beyond the jurisdiction of Assessing Officer as

it is unrelated to the original grounds of reopening. The Ld. CIT(A)

appeal held that judicial precedent clarify that once reassessment is

validly initiated the AO is empowered to exempt any income that comes

to notice during reassessment even if it was notpart of original reasons recorded.

On merit the assessee submitted that Assessing Officer during

assessment focused on authenticity of shareholding period and doubted

the claim on the basis of date of purchases. Due to discrepancies in the

date of allotment and purchase by assessee the AO doubted the

legitimacy of assessee’s claim. It was also contended that delay in issuing

the share certificate not affects the ownership and shares were validly

transferred on the date of purchase. The assessee provided purchase

invoices and sale contract. The assessee failed to furnish DEMAT

account. Section 10(38) mandates for long-term capital gain exemption

when share is held for more than 12 months and sold through recognised

stock exchange and on payment of STT. There was clear evidence

regarding holding period and sale of share through India Advantage

Security Ltd. The Ld. CIT (A) on considering the submission of the

assessee noted that Assessing Officer identified certain discrepancies in

the evidence provided by the assessee wherein the assessee claimed

purchase of share from Conquer Barter Pvt. Ltd. on 22.07.2013;

however, shares were allotted to Conquer Barter Pvt. Ltd. on 10.09.2013.

The assessee was asked to provide DEMAT account to prove conclusively

about holding period but assessee failed to furnish such DEMAT account. 6

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia The Ld. CIT (A) held that decision of AO in absence of critical evidence

and inconsistencies found in evidence of assessee and upheld the action

of Assessing Officer. Further aggrieved the assessee has filed present

appeal before the Tribunal.

the Assessee and the Ld. Senior departmental representative (ld DR) for

the Revenue. The Ld. AR of the assessee submits she has two-fold

submissions, firstly, that case of assessee was reopened on the basis of

information received from Principle Commissioner of Income Tax (PCIT)

32 Mumbai that assessee traded in the share of GLOBAL Cap which is

penny scrip Company, used to facilitate introduction of unaccounted

money and the assessee is beneficiary of sale of such scrip of

Rs.68,40,897/-. The copy of reasons recorded as provided to the

assessee along with notice under Section 148A(b) is placed on record at

page No. 13-15 of Paper Book (PB). The Assessing Officer has not made

any addition on such reasons recorded. The Assessing Officer picked up

some other issue related with transaction of Parag Shilpa Investments

Pvt. Ltd. which was not covered in the information received, which was

basis of reasons recorded. Thus, assessment order completed on

different issue is bad in law as has been held in a series of decision

including by decision of jurisdictional High Court in Jet Airways (I) Ltd.

Vs. CIT (2011) 331 ITR 236 (Bomb.) wherein it was held that if after

issuing notice under Section 148, the AO does not assess or re-assess

such income for which he had formed reason to believe that it had

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia escaped assessment, it is not open to him to independently assess or re-

assess any other income which came to his notice subsequently during

the re-assessment proceeding. To support her submission the Ld. AR also relied upon the following decision.  CIT Vs Shri Ram Singh(306 ITR 343 Raj),  Ranbaxy Laboratory Ltd Vs CIT (336 ITR 136 Delhi),  Tata Communication Transformation Services Ltd Vs ACIT (ITA No. 358/ Mum/2022, 8. Secondly, on merit, the Ld. AR of the assessee submitted assessee

purchased 30,000 share of Parag Shilpa Investments Ltd. for a

consideration of Rs. 12.00 lakhs by making payment through account

payee cheque. Later on the shares of Parag Shilpa Investments Ltd.

were split into ratio 1:10. Out of which 172350 shares were sold on

13.02.2015 and 18.03.2015 through Security Exchange Board of India

(SEBI) registered broker after payment of Security Transaction Tax

(STT). Before Assessing Officer the assessee furnished purchase invoices,

share certificate showing ownership in the name of assessee, contract

note form registered broker and bank statement showing payment

through banking channel. All such evidence which was filed before AO is

also placed on record. To prove the essential condition for establishing

genuineness of long-term capital gain on listed company the assessee

has shown identity of parties, genuine contract of purchase and sale

payment through banking channel and after payment of STT. Once the

assessee furnished primary evidence the burden shifts on the revenue to

disprove them through credible material. The AO has not carried out any

independent investigation from stock exchange or broker of the assessee 8

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia to bring adverse evidence. The addition is based on third-party general

information that assessee’s name appeared in the list of beneficiary

found during search in KCGP Share Broking Services Pvt. Ltd. The report

with AO was not provided to the assessee rebut the allegation of

implicating him. No cross-examination of such person was offered by AO.

The sole ground for making addition was discrepancies in the purchase

date. The conclusion drawn by AO is legally and factually unsustainable.

When the transaction was off market under the Companies Act, share

can be transferred before the name is entered in the Register of

members with subsequent regularization by issuing Company. The AO

never examined register of members of Parag Shilpa Investments Ltd. to

verify actual transfer entries. No notice under Section 133(6) or summon

under Section 131 was issued to Conquer Barter Pvt. Ltd. The action of

AO is purely presumptive and not supported by law or fact. The

assumption cannot replace evidence, specifically when assessee’s

documents were not controverted. The share certificate produced before

AO clearly shows he name of assessee entered in the Register of

member on 22.11.2013. Even if, the date of acquisition is conservatively

taken as of 22.11.2013, the holding period up to the date of sale on

13.02.2015 to 18.03.2015 clearly qualifies 12 months period for

satisfying statutory condition for eligibility of long-term capital gain.

Thus, basic condition for long-term capital gain is fulfilled. The AO has

not doubted any other instance of transaction of long term capital gain,

except the date of purchase of shares. The Ld. AR of assessee submits

that Hon’ble jurisdictional High Court in CIT Vs. Jamna Devi Aggarwal 9

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia (2010) 328 ITR 656 (Bombay) held that once period of holding exceed

12 months and shares were sold through exchange with STT paid,

exemption under Section 10(38) must follow. Similarly, Punjab &

Haryana High Court in PCIT Vs. Prem Pal Gandhi (2018) 403 ITR 552

(P&H) also held that suspicions about timing of purchase cannot override

documentary evidence providing long-term capital holding. The Ld. AR of

assessee reiterated that even on AO’s own interpretation of transaction

chronology, the period of holding is more than 12 months and addition in

disallowing long-term capital gain is not legally tenable. The Ld. AR submits that she has good case on merit as well as on legal issue.

order of lower authorities and relied on both the issues. The Ld. Senior

DR for the revenue submits that AO as well as Ld. CIT (A) has given detailed finding while disregarding the submission of the assessee.

 We have considered the rival submissions of both the parties and gone

through the orders of the lower authorities carefully. We have also

deliberated on various case laws relied by Ld. AR of the assessee. We

have also deliberated on various documentary evidence furnished by

assessee which includes the purchase invoices, copy of cheques issued

from Oriental Bank of Commerce dated 01.08.2013 for Rs.10,00,000/-

and Rs.2,00,000/- against the purchase consideration, copy of share

certificates bearing the date of transfer. First, we are considering the

primary submission of Ld. AR of the assessee about validity of

assessment order. We find that case of assessee was reopened on the

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia basis of information received from PCIT-32 that in the search action

on KCGP Share Broking Services Pvt. Ltd. that the assessee traded in

scrip Global Cap, which is penny scrip and used to facilitate

introduction of unaccounted money in the form of long-term capital

gain. However, in the assessment order there is no such reference.

Rather, during assessment the AO on the basis of details provided by

assessee noted that in the transaction of long-term capital gain on

share of Parag Shilpa Investments Pvt. Ltd. there is discrepancies in

the date of purchase of share. Thus, admittedly, no addition is made

on the basis which was the basis of reopening of assessment. We find

that Hon’ble jurisdictional High Court in CIT Vs Jet Airways (supra)

held that the Bombay High Court held that when no addition was

made on the basis of reasons recorded for reopening of the

assessment, it was not open for the AO to bring some other

income to tax in the course of assessment proceedings. It was also

held if after issuing notice under section 148, the AO accepts

contention of assessee and holds that income, for which he had

initially formed a reason to believe that it had escaped assessment,

has, as a matter of fact, not escaped assessment, it is not open to him

to independently assess some other income; if he intends to do so, a

fresh notice under section 148 would be necessary, legality of which

would be tested in event of a challenge by assessee.

[2022] 135 taxmann.com 335 (Mumbai – Trib.), also held that where AO

recorded reasons on basis of which reassessment was initiated, but did

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia not make any addition in reassessment proceedings, in such case

primary reason to believe that income had escaped assessment would fail and reassessment could not be treated as a valid order.

(supra) and Ranbaxy Laboratory Ltd. Vs. CIT (supra). Thus, in view of,

aforesaid factual and legal submission the assessee succeeded on primary submission.

of acquisition of scrip of Parag Shilpa Investments Pvt. Ltd. There is no

other material on record that scrip of Parag Shilpa Investments Pvt. Ltd

is also part of penny scrips. We find that the Ld. AR of the assessee in all

her fairness has filed copy of share certificate issued in the name of

Conquer Barter Pvt. Ltd. which bears the date of issuance as 10.09.2013.

The shares were transferred to assessee on 22.11.2013. Such date of

transfer is clearly discernible on back side of share certificates, copy of

which is filed at page No. 77 of the Paper Book. We find that Assessing

Officer or the CIT (A) has not doubted any other sequence of event in

furtherance of transfer of such share. The AO and CIT(A) has not

disputed about the sale of share through India Advantage Share Broking

Company and payment of STT. Even as per the submission of Ld. AR the

date of acquisition of share is taken from 22.11.2013, the assessee

clearly qualified 12 months for seeking benefit of long-term capital gain.

Thus, assessee also succeeded on merit. In the result, ground No.3 of appeal is allowed.

ITA No. 2822 /Mum/2025 (AY 2015-16) Chintan Harshad Kanakia 13. Considering the fact, we have allowed appeal of the assessee on merit

therefore specific adjudication of ground No.1 & 2 which relates to

issuance of notice under Section 148 by faceless Assessing Officer and

not by jurisdictional Assessing Officer, has become academic. 14. In the result, appeal of the assessee is allowed.

S Sd/- Sd/- - (RENU JAUHRI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai dated : 01/01/2026 * Ashwani Rao Sr. Private Secretary.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench

By Order

Dy/Asstt. Registrar,ITAT, Mumbai