TaxTMI 
TaxTMI 
2026 (1) TMI 66
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....nst the order dated 21st March, 2025, passed by the Ld. CIT(A), arising from the assessment framed under section 143(3) read with section 147 of the Income-tax Act, 1961, for the assessment year 2012-13. In its memorandum of appeal, the Revenue has raised the following grounds for our consideration: 3. The brief facts of the case are that the assessee filed his return of income for the assessment year 2012-13 on 21st December, 2012. In the said return, he declared a total taxable income of Rs. 16,55,116/-. Along with this, the assessee also disclosed exempt income of Rs. 4,00,69,645/-, shown as Long-Term Capital Gains (LTCG) arising from the sale of shares, and claimed exemption under section 10(38) of the Income-tax Act, 1961 ("the Act"). This return was taken up for routine processing and was accepted under section 143(1) of the Act on 18th March, 2013. Thus, at that stage, no variation was made and the return stood concluded. 4. Subsequently, the Assessing Officer received information from the Investigation Wing, Mumbai. The information suggested that the scrip of M/s. Banas Finance Limited, a company listed on the Bombay Stock Exchange (BSE), was a "penny stock" which had....
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.... Officer concluded that the assessee had taken accommodation entries in the form of bogus LTCG. Accordingly, the entire amount of Rs. 4,00,69,645/- was treated as unexplained money under section 69 of the Act. 7. Aggrieved, the assessee preferred an appeal before the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)]. After considering the matter in detail, the Ld. CIT(A) found that the addition made by the Assessing Officer was not justified. The appellate authority examined the assessment order, the submissions made by the assessee, and the evidences produced, and concluded that the transactions were genuine. In support of his claim, the assessee had furnished the following documents: 1. Copy of the share application dated 11.12.2010 submitted to M/s. Banas Finance Ltd. for allotment of preferential shares; 2. Copy of the cheque dated 11.12.2010 for Rs. 20 lakhs drawn on Syndicate Bank in favour of M/s. Banas Finance Ltd .; 3. Allotment letter dated 01.01.2011 confirming the allotment of one lakh preferential shares to the assessee; 4. Copy of the assessee's demat account reflecting the shares held; 5. Copies of broker....
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....1,00,000 430 Total 4,21,43,793.00 10,00,000 The appellant has shown LTCG of Rs. 4,00,69,644/- from the sale of these shares and the same is claimed as exempt u/s 10(38) of the IT. Act. From the above, it is seen that the appellant has purchased the preferential shares of M/s Banas Financial Ltd and for the same payment of Rs. 20 lakh has been made through the banking channels. Subsequently, these shares were sold on the stock exchange and the receipts are reflected in the bank account. 10. Now, coming to the observations of the AO that the price of the shares is not supported by the fundamentals of the company. The appellant has submitted the financials of this company and has contended that when this company started its operation in A.Y 2010-11, the turnover was only Rs. 2 lakhs which has increased to Rs. 7 crores in the AY 2011-12 and 2012-13 showing revenue growth at 350 times. This growth in revenue has increased investor confidence which led to the rise in the price of these shares. The price rise on the stock exchange depends on multiple factors and mostly it is driven by the investors' sentiment. In this case, th....
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....tablished by the assessee, the investors had creditworthiness to make those investment and the transactions were genuine. So far as the fulfilment of these primary ingredients of Section 68 is concerned, we find that the assessee has successfully demonstrated the fulfilment of the same which is evident from the orders of both the lower authorities. The transactions have duly been confirmed by the investors in response to notice u/s 133(6). The assessee has filed voluminous documentary evidences before both the lower authorities which prove the fulfilment of these conditions. Even the assessment order u/s 143(3) of an entity who made an investment of Rs.290 Lacs has been placed on record wherein no adverse view has been taken against the investor. The Share allotment has been made after following due procedure of law and after obtaining statutory approval from the concerned government agencies SEBI & Stock Exchanges. The complete details of the same, as required by law, has been filed with Registrar of companies and the new shares have subsequently been listed on the stock exchange. The nature of documents filed by the assessee, to support the transactions, have elaborately been giv....
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....emoval of doubts" or that it is "declaratory. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identify and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders ie, they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre- amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It d....
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.... in the order passed by SEBI, the transactions cannot be held as bogus merely by relying on the probability angle and third-party statements. 16. In this case, as already discussed, the appellant has furnished all the documentary evidence to substantiate the transactions. The AO has not pointed out any discrepancies in the documents furnished by the appellant. The addition is based mainly on the findings of the Investigation Unit that the scrip of M/s Banas Finance Ltd. has been manipulated by entry operators and that the price rise is not backed by the financials of the company. However, as discussed above, M/s Banas Finance Ltd. was a listed entity and the appellant had acquired preferential shares which are duly recorded in the books of accounts. The payment made for these purchases was made through banking channels. All these shares were dematerialized and are reflected in the demat account. The sales are made on the stock exchange and the transactions are duly supported by the broker's note. The appellant's name is not mentioned in the order passed by SEBI. The appellant has also justified that the price rise of this scrip is influenced by the growth of the company and....
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....ting beneficiaries. The Appellant's reliance on banking channels, demat accounts, and broker notes is insufficient, as these can mask collusive arrangements. The burden of proof lies squarely on the Appellant, as per the Supreme Court's seminal ruling in CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC), where it was held that apparent must not be treated as real without probing the surrounding circumstances, and unexplained investments justify additions under unexplained income provisions. This principle was reaffirmed by the Supreme Court in Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), emphasizing that human probabilities and circumstantial evidence must guide assessments in suspicious transactions. Kailash Chandra Gupta HUF v/s ITO (L.T.A. No. 4013/Mum/2023 (A.Y. 2012-13) (26.07.2024): held that "the contention of Ld. AR of the assessee that the transaction is through cheque, banking channels come to the rescue of assessee in terms of addition by AO. Moreover, the existence of Exit Providers and shell companies give rise to the thought of sham transaction". The ITAT Mumbai Bench has consistently upheld such additions in similar penny stock case....
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....pra); (ii) Manipulation additions are evidenced by statements (Parwani, supra), not adequately rebutted. Conclusion: In conclusion, the Revenue submits that the Appellant has not discharged the onus to refute the AO's findings, and the scrutiny report's recommendation for appeal underscores the need to uphold tax integrity. The ITAT is requested to reverse the CIT(A)'s deletions, ensuring compliance with the Act and deterring penny stock abuses." 11. On the other hand, the Learned counsel for the assessee relied upon the order of the Ld. CIT(A) and also drew our attention to various documents filed in the Paper Book, which have also been referred to by the Ld. CIT(A). 12. We have carefully considered the rival submissions advanced by the learned representatives of both sides, and have also perused the relevant findings recorded in the impugned order as well as the material placed before us in the paper book. It emerges from the record that the assessee had invested a sum of Rs.20 lakhs in the shares of M/s. Banas Finance Limited. The source of this investment has been explained as withdrawal of capital from Mehta Emporium, a partnership concern in which t....
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....rameters of the company. It is noteworthy that the turnover of M/s. Banas Finance Limited, which was only about Rs.2 lakhs in A.Y. 2010-11, had increased nearly 350 times by A.Ys. 2011-12 and 2012-13, reflecting a turnover of over Rs.7 crores. Such growth in business fundamentals does lend some support to the contemporaneous increase in the scrip's valuation. In fact, as seen from the record, the listed price of the shares on 4th November, 2011, was Rs. 9.83, which subsequently rose to Rs.281/-. The increase in price was gradual and consistent, falling largely within the permissible circuit filter norms prescribed by the BSE and SEBI. The daily increase in price was in the range of 1.8% to 1.95%, barring on rare occasions when it touched 4.9%, still below the 5% upper limit of circuit filter. Thus, the price movement cannot, by itself, be branded as artificial or manipulated. 15. It is further a matter of record that in the case of M/s. Banas Finance Limited itself, this Tribunal has previously returned findings favourable to the genuineness of the preferential allotment of shares. The relevant portion of the judgment is already quoted in the appellate order. The reliance pl....