TaxTMI 
TaxTMI 
2025 (5) TMI 428
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.... gain u/s 10(38) of the act. However, on the basis of information received by the AO, that the price of the shares of the company were manipulated and the company was a penny stock. Therefore, the assessment was reopened and ultimately order of assessment u/s 147/144B of the act was passed thereby making additions 4. Aggrieved by the order of assessment, assessee preferred appeal, however, Ld.CIT(A) after considering the claim of both the parties restricted the additions to the tune of Rs. 92,68,701/- thereby partly allowed the appeal. 5. Aggrieved by the order of Ld. CIT(A) assessee preferred the present appeal before us on the grounds mentioned herein below: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not deciding reopening of the case which was beyond the period of six years. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming stand of A.O. for not providing opportunity of cross examination of the persons including Naresh Jain whose statements have been used against the appellant for making the above addition. 3. On the facts and in the circumstances of t....
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....s to be provided a fair chance to defend his case. In Tin Box Company case the Hon'ble Apex Court has (page 218 of 249 ITR) held that assessment orders must be made after the assessee has been given a reasonable opportunity of setting out his case. 7. As the representative of 'Sovereign', Ld. A.O. supposed to follow the basic norms of a quasi- judicial authority i.e. to provide us the material to be against us. In the matter of Dhananjaykumar Singh (402 ITR 91) the Hon'ble Patna High Court has held as under: "It is a cardinal principle of law that if relevant materials and objections are produced before a quasi-judicial authority, the quasi-judicial authority is duty- bound, under law, to advert to them, discuss them and then reject them by recording reasons." 8. In this regard, we would like to draw your attention to the judgment of the Hon'ble Supreme Court delivered in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice....
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....per Book) 14. The Hornic Investment Pvt. Ltd. (BSE) issued contact notice for purchases of share on 23.04.2012 and assesse has paid Service Tax, Securities Transaction Tax, Stampt Duty, Turnover Tax and Sebi Turnover Tax and the payments of same are reflected in Purchase contact notice. (Page 09 of Paper Book) 15. 10,000 share of Ravinay Trading Company Limited was received in her Demat Account maintained in Central Depository Services ( I) Ltd on 25.04.2012 vide ISIN: INE812K01019. (Page 13 of Paper Book) 16. She sold share on following dates. 11.07.2013 1000 shares @ 696.35 15.07.2013 1000 shares @ 770 25.07.2013 1000 shares @ 771.25 12.08.2013 500 shares @ 880 27.08.2013 1500 shares @ 1100 Total Shares 5000 shares 17. The said script was split into 1:5 shares. Consequently, the appellant received 50,000/- shares on 18.09.2013. She sold 50,000 shares on the dates mentioned in the chart given below: 18.09.2013 1500 Shares @ 135.95 31.10.2013 8000 Shares @ 131.10 08.11.2013 1200 Shares @ 132 25.11.2013 4000 Shares @ 120 28.11.2013 11000 Shares @ 122.50 15.07.2013 1000 17.0....
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....was listed in the exchange since long time, that it was regularly filing documents with ROC and Exchanges, that SEBI or Exchange did not initiate any action against the said company. 24. As on today i.e. 18.02.2025 shares of said company is regularly traded on Stock Exchange. 25. It was further stated that from the above said submissions and factual data it was clear that NLC was neither penny or a shell company nor were the transactions fictitious, that the she had solely purchased the shares for the purpose of investment on the basis of fundamentals and valuation of the company. It was brought to the notice of the AO that no "information" existed on which the assessment was reopened under section 147 of the Act. 26. It was submitted before the ld. AO. that SEBI or any other regulatory authority had not passed any order against Appellant. 27. But, the ld.AO without considering the above arguments, held that the prof it arising out of sale of shares was not genuine and made an addition of Rs. 1.07 crores to the income of the assessee. 28. I would like to draw your honor's attention towards the Quarterly Financial results of Ravinay T....
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....rity transaction tax Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing Officer's reliance on statements from 'entry operators' to support additions under sections 68 and 69 as those statements were recorded in unrelated proceedings before survey on assessee, and assessee was not afforded an opportunity to challenge or cross-examine providers of those statements On revenue's appeal, High Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed Held, yes [Para 3] [In favour of assessee] 33. We would like to draw your kind attention to the judgment of the Hon'ble jurisdictional high court delivered in case of Principal Commissioner of Income-tax v/s. Indravadan Jain, HUF reported in [2023] 156 taxmann.com 605 (Bombay) held as under. While allowing the appeal filed by respondent, the Commissioner (Appeals) deleted the addition made under section 68. The Commissioner (Appeals) has observed that the Assessing Officer himself has stated that SEBI had conducted independent enquiry i....
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....such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assessee to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted Held, yes [Para 7] [ In favour of assessee] 35. In the case of PCIT vs. Smt Krishna Devi [2021] 126 taxmann.com 80, the Hon'ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon'ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains. 40. We would also like to place reliance on the decision of Hon'ble Gujrat High Court del....
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....s not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commissioner (Appeals) in deleting addition on account of bogus loss on sale of scrip of VIL - Whether there were concurrent findings of fact by Commissioner (Appeals) and Tribunal, and thus, no substantial question of law arose against same Held, yes [Para 4] [ In favour of assessee] 42. Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal Revenue submitted that order of Tribunal was ex-facie erroneous, illegal and perverse because Tribunal deleted additions wi....
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....at there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [ In favour of assessee] 44. Hon'ble Mumbai tribunal in case of Ramprasad Agarwal reported in [2018] 100 taxmann.com 172 (Mumbai - Trib.) whereas held as under. Section 68, read with section 10(38) of the Income-tax Act, 1961 - Cash credit (Share Transaction) - Assessment year 2014-15- On basis of information from DGIT ( Inv.), Kolkata that some companies were engaged in business of issuing pennystocks for which there were large number of beneficiaries claiming bogus long-term capital gain/short-term capital loss/business loss/speculation loss, Assessing Officer found that assessee was one of beneficiaries of said racket and had earned prof it on sale of investments in equity shares of a company, (Rutron) and claimed same as exempt under section 10(38) Assessee had produced relevant records to show allotment of shares by company on payment of consideration by cheque and he dematerialized shares in D-mat a....
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....ght on record any materials linking assessee in any dubious transactions relating to entry, price rigging or exit providers Even in SEBI report, there was no mention or reference to involvement of assessee Whether, therefore, impugned addition was to be deleted - Held, yes [Para 16] [ In favour of assessee] 47. Gopal Nihchaldas Pariani reported in [2023] 152 taxmann.com 252 (Mumbai - Trib.) held as under. Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credits (Share transactions) Assessment years 2014-15 and 2015-16 Assessee had sold shares of 'P'ltd and earned a Long Term Capital Gain therein which was claimed as exempt in relevant assessment years - Assessing Officer noted that statement of some persons were recorded by DDIT, Kolkata to show that 'P' ltd was a company engaged in providing bogus accommodation entries Assessing Officer held that long term capital Gain earned by assessee was bogus for reason that there was an unusual rise in price of script and further investigation wing had investigated trading of this company and found that accommodation entry providers were rigging price - Accordingly, he made addition u....
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....0 shares @ 771.25 12.08.2013 500 shares @ 880 27.08.2013 1500 shares @ 1100 Total Shares 5000 shares 14. Thereafter the said script was split into 1:5 shares. Consequently the assessee received 50,000 shares, which were sold on different dates as mentioned below: 18.09.2013 1500 Shares @ 135.95 31.10.2013 8000 Shares @ 131.10 08.11.2013 1200 Shares @ 132 25.11.2013 4000 Shares @ 120 28.11.2013 11000 Shares @ 122.50 15.07.2013 1000 17.07.2013 1000 29.07.2013 1000 14.08.2013 500 27.08.2013 1500 18.09.2013 5000 15. In this way, the Sales contact note clearly reveals about the sale of price per share, Quantity of Shares sold time of share sold. The assessee had paid Service Tax, Securities Transaction Tax, Stamp Duty, Turnover Tax and Sebi Turnover Tax, as required by the law. 16. However, AO was of the view that NCL (Nyssa Corporation Ltd) was a penny stock company as per the information received from the investigation wing and the shares were manipulated by broker to give bogus entries of LTCG/LTCL. Therefore assessee was considered to be one of the beneficiaries of the non-genuine LTCG. 1....
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....see to meet the case against him by providing the material sought to be used against him in arriving before passing the order of assessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment and, therefore, renders the orders passed by the Commissioner (Appeals) and the Tribunal vulnerable. The assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents whose statements were relied upon by him. Despite the request seeking an opportunity to cross examine the deponents and furnish the assessee with copies of statements and disclose material, these were denied to him. 21. We also noticed that since A.O. did not supply the copy of any statement to assessee not even provided with the opportunity to cross examination the person whose statement were used against the assessee, therefore under these circumstances no additions could have been made. 22. Even nothing has been placed on record to show or point out that assessee was related in any manner whatsoever with the company or its director Naresh Jain. Even from the records,....
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....68 .79 39.08 2012-13 3253.90 366.23 12.21 51.30 25. From the above financial results, it is clearly noticeable that the company had an EPS of Rs. 0.79 on 31.03.2012 which improved to Rs. 12.21 as on 31.03.2013. Besides this the above company is constantly listed in BSE and was never delisted anytime and the daily average traded volume of the shares is more than 1 lac shares on the stock exchange as per the submissions made by the assessee. 26. We further appreciate that the shareholding pattern of the company is more than 73% public pattern on a continuous basis. The last Financial Year Low-High of M/s. Nyssa Corporation is Rs. 3.62- 9.13 per share respectively of Rs. 1 paid up capital which means Rs. 36-91 of Rs. 10 paid up capital. 27. We would also place reliance on the decision of the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax V/s. Kuntala Mohapatra [2024] 160 taxmann.com 608 (SC) wherein the Hon'ble Court dismissed SLP filed by the department and held as under: Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 - Capital gains Income arising from transfer of long term securitie....
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....nd respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes-cum-bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the Commissioner (Appeals) found there was no reason to add the capital gains as unexplained cash credit under section 68. The Tribunal while dismissing the appeals filed by the revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The Tribunal therefore had rightly concluded that there was no merit in ....
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....sses However, both Commissioner (Appeals) and Tribunal overturned Assessing Officer's decision, concluding that assessee had demonstrated authenticity of transactions They found evidence on online trading platforms indicating that assessee had no control over share prices and had genuinely incurred losses, particularly with AIGL shares where only a portion were sold, and rest were held into subsequent assessment year Regarding shares of KPL, Tribunal reasoned that market rate being lower justified business loss, even though shares were not sold - Whether in view of above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, appeal, being devoid of any merits, was to be dismissed - Held, yes [Paras 8 and 9] [ In favour of assessee] 32. Hon'ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus loss Sale of shares) - Assessment year 2011-12 - An information was received from Deputy Director ( Inv.) where....
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....flected in bank account - Tribunal had therefore opined that merely on conjecture and surmises, Assessing Officer could not make disallowance - Whether in view of above observations made by Tribunal, issue involved was purely a question of fact, and no question of law, much less, substantial question of law for consideration was found - Held, yes [Paras 5 to 7] [ In favour of assessee] 34. In another decision of Hon'ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Mamta Rajivkumar Agarwal reported in [2023] 155 taxmann.com 549 (Gujarat) whereas held as under. Section 10(38) of the Income-tax Act, 1961 Capital gains - Income arising from transfer of long term securities (Share dealings) - Assessment year 2013- 14- Assessee had sold shares of SNCFL and earned long-term capital gains - Assessing Officer issued a show cause notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker....
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.... of shares of STL - Assessing Officer observing that financials of STL were weak and that shares of STL had been used for providing bogus accommodation entry in form of LTCG/STCG, disallowed claim of long-term capital gain and added entire sale proceed of shares under section 68 Whether since all transactions were carried out through regular bank accounts of assessee, allotment of shares and then holding of shares were proved by demat statement and sale of shares was made through BSE after remitting STT, assessee had discharged burden to prove purchase and sale of shares Held, yes Whether therefore, addition made by Assessing Officer was to be deleted and exemption claimed by assessee under section 10(38) was to be allowed - Held, yes [Paras 7 and 15] [ In favour of assessee] 37 In the case of Sheriar Jehani reported in [2024] 159 taxmann.com 9 (Mumbai Trib.) held as under. Section 68 of the Income-tax Act, 1961 Cash credit (Bogus LTCG on sale of shares) - Assessment year 2014-15 Assessee had sold shares of a company held by it and claimed exemption under section 10(38) on account of long- term capital gain (LTCG) arose on such sale of shares Assessing Officer, being of....
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....w of categorical finding of regulator SEBI exonerating assessee, and absence of any inquiry by Assessing Officer, impugned addition deserved to be deleted - Held, yes [Paras 33, 34 and 36] [ In favour of assessee] 39. It is important to mention here that assessee had relied upon the decision of Coordinate Bench of ITAT in ITA No. 3697/Mum/2024 in the case of RNR Trading Pvt Ltd Vs. ITO, wherein the 'same script' has been considered and dealt with and ultimately additions were deleted. The operative portion of the coordinate Bench in the above mentioned case is reproduced herein below: 11. We heard the parties and perused the record. We notice that the AO has made addition of Rs. 1.32 crores as bogus Long Term Capital Gain generated by the assessee, by rejecting the exemption u/s 10(38) of the Act claimed by the assessee. It appears that the AO has taken the above said figure from the report given by the Investigation Wing. However, the details furnished by the assessee would show that the assessee has claimed exemption of Long Term Capital Gain u/s. 10(38) of the Act only to the extent of Rs. 1,30,46,297/-. 12. Be that as it may, we notice that the assessee has....
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....yment was made through banking channel, consequently shares were received in her Dmat account maintained in Central Depository Services India Ltd. All the contract notes regarding purchase of shares have been placed on record coupled with the fact that assessee had paid all the required taxes i.e STT, stamp duty, SEBI turnover tax and all the payments reflected in the purchase contract notes. Besides the fact that the company is listed in BSE and never delisted at any time. Moreover, the Coordinate Bench of ITAT in ITA No. 3697/Mum/2024 in the case of RNR Trading Pvt Ltd Vs. ITO (supra), wherein the 'same script' has been considered and dealt with and ultimately additions were deleted. However the revenue failed to rebut the said documentary evidences and to bring on record any evidence to prove that assessee was actively involved in manipulating the script in question, therefore adhering to the principles of judicial consistency and judicial discipline and also taking into consideration the totality of facts and circumstances as discussed in detail in the above paras, we direct the AO to delete the additions made u/s 68 of the Act. Consequently the grounds raised by the assessee a....
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....h beneficiaries, who have involved in such transactions by trading in a Penny stock script, M/s NYSAA Corporation Ltd (formerly Ravınay Trading Co. Ltd)?" 5. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/- made u/s. 68 of I.T. Act, in not appreciating the fact that, during the Search operations of DGIT(Inv.) Mumbai on Shri. Naresh Jain in this statement on oath has admitted that their syndicates/associates have managed, controlled several scripts and also they have acted as conduit for funneling of fund through the stock market transactions in a large number of cases and also revealed that entry/exit providers accounts were used as conduit account for transit of funds to beneficiaries in providing accommodation entries in the form of Long Term Capital Gain/Long Term Capital Loss in several scrips including penny scrip of M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) to the assessee?" 6. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/- made u/s. 68 o....
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....oper conclusion and in the absence of any satisfactory explanation by the assessee, the AO were bound to make addition u/s. 68 of the Act. ?" 10. In the instant case, the appeal is being filed before Hon'ble ITAT. The tax effect involved in the instant case is Rs 4,96,535/-, which is below the prescribed limit as per CBDT's revised Circular No. 5/2024 dated 15.03.2024, however, this case falls under one of the exceptions specified in paragraph 3.1 (h) of the above stated Circular, wherein it is stated that in cases involving Organized Tax Evasion, including cases of bogus Capital gain/loss through penny stocks the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. 11. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary "y 42. All the grounds raised by the revenue are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the additions of Rs. 15,04,652/-. Therefore we have decided to take up all the grounds together and adjudicated the same through the present consolidated order. 43. We have heard the couns....