Loading judgment…
Facts
The case involves cross-appeals concerning assessment year 2016-17, primarily relating to additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act concerning the sale of unlisted equity shares. The Commissioner of Income Tax (Appeals) had partly deleted these additions.
Held
The Tribunal held that investments in shares, previously accepted by the revenue in earlier assessment years, could not be treated as unexplained upon their sale by amalgamating companies. The Tribunal found that the assessee had provided sufficient evidence regarding the buyers and the genuineness of the transactions, and the AO had failed to produce independent evidence to the contrary. The direction to add a 5% profit element was also set aside for lack of basis.
Key Issues
Whether additions under Section 68 for sale of unlisted equity shares are justified when the investments were accepted in prior years, and if a presumed profit element is sustainable without basis.
Sections Cited
68, 143(3), 147, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM
These are cross appeals against the order of the Commissioner of Income-tax (Appeals), Kolkata-27 (hereinafter referred to as the “Ld. CIT(A)”] dated 15.04.2025 for the AY 2016-17.
At the outset, we observe from the appeal folder in ITA No. 2. 1966/KOL/2025 that there is a delay of 26 days in filing the appeal by the department in support of which condonation petition was filed. It was stated in the condonation petition that the delay has
The common issue raised in all the grounds raised by the Revenue is against the order of ld. CIT (A) partly deleting the addition to the extent of ₹2,18,15,000/- as made by the ld. AO of ₹2,30,00,000/- u/s 68 of the Act in respect of transactions of sale of unlisted equity shares. The assessee in its appeal has also challenged the part sustaining of addition vide ground no.4 in its appeal to the tune of ₹11,50,000/- being 5% of the total sale value of investments without any basis and prayed the same may be deleted.
3.1. The facts in brief are that the assessee filed the return of income on 05.10.2016, showing total income of ₹12,39,240/-, and book profit u/s 115JB of the Act amounting to ₹14,22,063/-. The return was processed u/s 143(1) of the Act accepting the returned income. Thereafter, the case of the assessee was reopened after the ld. AO received information from DGIT(Inv), Mumbai, that the assessee is engaged in the reversal trades in illiquid stock options resulting in non-genuine business profit/loss and was beneficiary of the said entries. According to the said information, the assessee has purchased stock option for an aggregate premium value amounting to ₹65,12,000/- and sold the same for an aggregate premium value of ₹96,12,000/-, thereby making a profit of ₹31 lacs. It was also informed that both buy and sale of trades were executed through the 3.2. The ld counsel of the assessee submitted that the unlisted shares were purchased by the amalgamating company in financial year 2008-09 and the investments in shares were accepted by the revenue even in the assessment proceedings in A.Y. 2008-09 which has been noted by the ld CIT(A) in the appellate order also. The case of the assessee is squarely covered by the decision of the co- ordinate Bench of group company in case of Shree Ramchandra Ingot India Pvt Ltd. Vs DCIT in for A.Y. 2017-18 & others, which was also covered in the same search. The ld. AR submitted the issue of sale of shares (unlisted equities) has been decided by the co-ordinate bench in favour of the group concern vide order dated 19.11.2025. The ld. AR therefore prayed that since the issue is similar, the present addition sustained by the ld. CIT(A) may kindly be deleted by following the said order of the co-ordinate bench.
3.3. The ld. DR on the other hand submitted that each case has different facts nonetheless the issue of sale of shares was decided by the bench in the case referred by the ld. AR . The ld. DR relied heavily on the order of AO and prayed that the order of AO may be restored.
3.4. We have heard the rival submissions and perused the materials available on record we find that the issue of sale of shares is squarely covered by the decision of the co-ordinate Bench in the case of Shree Ramchandra Ingot India Pvt Ltd. Vs. DCIT (supra), under similar “17. After considering the rival submissions and perusing the materials available on record, we find that the assessee is carrying on the business of trading of sundry iron and steel items and is being assessed to tax regularly right from the inception when it was incorporated on 30.12.2004. We note that vide order dated 26.12.2022 of NCLT Kolkata benches, two companies namely M/s. Jyani Agencies Pvt Ltd., and M/s. Jyani Dealer Pvt Ltd., were amalgamated with the assessee company. We note that undisputedly these investments in the private equity shares were held by these amalgamating companies in their respective balance sheets. We also note that these private equity investments were also sold by these amalgamating companies and the sales considerations were also received by them. Thereafter, vide the above NCLT order, these companies came to be merged with the assessee company upon amalgamation. We note that these investments were accepted by the revenue in the hands of amalgamating companies in the earlier assessment years even in the assessments framed u/s.143(3) of the Act as mentioned hereinabove. We note that the assessments wereframed for the assessment year 2017-18 in case of amalgamating companies namely Jyani Dealers Pvt Ltd and Jyani Agencies Pvt Ltd vide orders dated 02.5.2019 and 22.05.2019 passed u/s.143(3) of the Act by the AO and these investments were accepted. We note that the notices u/s.143(2) and u/s.142(1) of the Act along with questionnaire were issued wherein the Assessing Officer specifically raised the issue of investment in private equity shares. In fact, the scrutiny has been selected primarily to verify the investments in private equity shares and the assessments were framed u/s.143(3) of the act dated 02.05.2019 & 22.05.2019 as stated above accepting these investments in private equity shares. Whereas in the impugned assessment order, the AO has raised suspicion on share capital raised by the amalgamating companies by overlooking the fact that the share capital of the amalgamating companies were accepted in their respective assessments by the AO. In our opinion the AO has no basis of such suspicion and therefore, we do not find any merit in the contention of the revenue that these were shell companies and has been rightly treated so by the AO while framing the assessment and the addition has been rightly made u/s.68 of the Act at Rs.7,33,50,000/-. In our opinion, once these investments have been accepted in the earlier assessment years in the hands of the amalgamating companies, then how the same can be treated as unexplained investments when these investments were sold by the same amalgamating companies. The decision of Hon’ble Supreme Court in the case of PCIT vs NRA Iron and Steel Pvt Ltd.(supra) is distinguishable on facts and therefore not applicable to the present case before us as in the present the buyers of shares were issued summons u/s 131 of the Act and they responded to the summons by filing their confirmations along with the supporting evidences as mentioned by the AO in second part of para 8 in the assessment order whereas in the above case PCIT vs NRA Iron and Steel Pvt Ltd.(supra) the investors were not traceable even. The case of the assessee finds support from the decision of the co-ordinate Bench in the case of Tulsyan and Sons Pvt Ltd(supra). We also find that the Co-ordinate Bench of this Tribunal in the case of ACIT vs Pawanputra Advertising Private Limited, in IT(SS)A No. 144 & 145/KOL/2024 (AYs: 2019-20 & 2020-21) and others order dated 26.8.2025, wherein, the Co-ordinate Bench has held that where the investments made by the
We have heard the rival contentions and perused the materials as placed before us. The issue for adjudication before us is in respect of confirmation of addition by ld CIT(A) as made by the AO on the ground that the identity and credentials of the purchasers are suspicious. We observe that the assessee has been in the regular business of purchase and sales of investments over the years as corroborated by the materials placed before us. Even the sales proceeds received during the current financial year were in respect of sale of shares /investments partly out of opening balance and partly out of current purchases as is apparent from the following chart placed before us:-
9.1. The assessee has also filed movement of investments over the years which showed that the phenomenon of purchase and sale of shares/investments was regular feature of the assessee’s business. This is also undisputed that the assessee company had raised share capital (including premium) amounting to Rs.119,84,67,000/- in financial year 2010-11, relevant to AY 2011-12 and the capital so raised in AY 2011-12 was invested in shares/securities and accounted for in the books of accounts which were audited and audited accounts are placed at page no. 102 to 111 of PB Vol.-1. We also note that the assessment for AY 2011-12 was framed u/s 143(3) of the Act vide order dated 17.03.2014 a copy of which is placed at page no. 276 and 277 of PB Vol.-1 and the neither the share capital/share premium nor the investments out of that source were doubted by the AO. 9.2. We also note that similar issue was involved in the case of M/S Swarna Kalash Commercial Pvt Ltd. Vs ACIT ,Central Circle -2(2), Kolkata, a group concern of the Rashmi Group of Companies ,which was also subjected to search u/s 132(1) of the Act in the same search proceedings. We note that the coordinate bench has decided the issue in favour of the assessee in ITA No. I.T.(S.S.)A.No.53/Kol/2022 A.Y.2019-20 vide order dated 01.09.2023 involving the same issue of addition of sale of shares/investments by the AO on the ground that identity and credentials of the purchasers of shares/investments were suspicious. The operative part of the order is extracted as under: “6.We have considered the rival contentions and gone through the record. First we deal with the issue relating to the undated detailed order passed by the Assessing Officer even after the prescribed date of limitation for passing the assessment order for the assessment year 11.2. The shares were held by the assessee as investments and were sold at the cost of acquisition by the assessee. Hence, there is no profit/loss on such sale of investment. We also look at the movement of investment held by the assessee, which is tabulated below:
FY AY Opening Purchase Sales Amount Closing Balance byA.O.
SI Opening Purchases Sales Closing No Name of the Script Balance Balance Amount Amount Amount Amount I Bellona Supply Pvt. Ld. 1,24,57,344 0 1,24,57,344 0 2 P N Jewelers Pvt ltd 38,45,323 0 38,45,323 0 3 Rozela Tie Up pvt. Ltd. 3,64,33,053 0 3,64,33,053 0 4 Rashmi Cement Ltd. 0 1,57,32,000 0 1,57,32.000 5 Cimmco Vinimay Pvt. Ltd. 13,32,04,353 53,71,44,701 0 67,03,49,05 6 Festive Vincom Pvt Ltd 28,01,625 0 0 4 28,01,625 7 GreenHillDealmark Pvt Ltd 26,14,850 0 0 26,14,850 8 SwabhimanCommosales Pvt 26,15,900 0 0 26,15,900 Ltd 9 Topline Business Pvt Ltd 41,00,205 0 0 41,00,205 10 VidyaBuildcon Pvt Ltd 0 2,50,00,000 2,50,00,000 0 11 BadrinathMinning Pvt Ltd 59,36,974 75,250 60,12,224 0 12 Sankul Retailers Private Ltd 0 74,49,572 74,49,572 0 13 Alok Financial Services Pvt 0 8,10,000 8,10,000 0 14 Ltd Asankul Cosmetics Pvt Ltd 0 6,55,26,090 6,55,26,090 0 15 Daffodil Plaza Pvt Ltd 0 88,198 88,198 0 16 NAT Communication & 0 1,26,37,632 1,26,37,632 0 Marketing Pvt Ltd 17 Alok Pattanayak 0 3,00,000 3,00,000 0 Total 20,40,10,245 66,47,63,507 17,05,60,000 69,82,13,63 4 11.4. Based on the analysis of the above details, it is evident that entire sales is made from purchases & opening stock as under:
11.5. It is also important to note that the AO has made enquiries from the buyers of the shares sold by the assessee by issuing summons u/s 131 of the Act who have responded and furnished the required details. Summary Statement of the replies made in response to notice u/s 131 by various buyers (Sale of Shares) is tabulated below:
Further, according to the ld. Counsel, the only piece of evidence that is there in this case is the statement of Sri Sanjib Patwari who is one of the owners of the Rashmi group and Sri K K Verma is the accountant, recorded u/s 132(4) of the Act which have been relied upon by the Assessing Officer. These statements have been retracted the very next day by furnishing affidavits. Subsequent to retraction, no further cross- examination was conducted of these persons. The ld. Counsel has further submitted that even otherwise the addition made by the Assessing Officer was far more than the alleged disclosure made by these persons in their retracted statements and hence, no cognizance in fact can be taken for the purpose of the addition. 12.1. We find force in the above contentions of the ld. Counsel in the facts and circumstances of the case. As laid down by the various Higher Courts of the country, the retracted statement can not be made sole basis for
The issue raised by the assessee in Ground nos.1 and 2 is general in nature and needs no specific adjudication.
The issue raised in ground no.3 in the assessee’s appeal is against the confirmation of addition of ₹31,00,000/- by the ld. CIT (A) as made by the ld. AO u/s 68 of the Act in respect of non-genuine profit made by the assessee by indulging in bogus buy and sale of trades. The fact qua this ground is discussed hereinabove.
5.1. In the appellate proceedings, the ld. CIT (A) affirmed the order of the ld. AO on the ground that the assessee has indulged in granting artificial trade volumes by trading with few counter parties in illiquid stock options/ contracts options, where wider market was not involved in the trades and the trades were such that one of the counter parties books a profit while the other counter party books a loss and thus, the profit made/ credited amounting to ₹31 lacs in the books of account of the assessee were not genuine profit from any genuine trading from illiquid options and were rightly added u/s 68 of the Act.
5.2. After hearing the rival contentions and perusing the materials available on record, we find that during the year the assessee has made/ derived commodity profit of ₹31 lacs which was credited to the profit and loss account and was accordingly offered for tax as apparent from the documents furnished by the assessee in respect of transactions transacted on the Bombay Stock Exchange. We note that the ld. AO has disbelieved these transactions on the ground that the assessee has derived profit in these transactions which were held
In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is allowed.
Order pronounced in the open court on 26.02.2026.