TaxTMI 
TaxTMI 
2026 (7) TMI 1476
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.... case and facts narrated therein. The grounds raised by the Revenue are as follows: 1. On the facts and circumstances of the case and in law, whether the learned Commissioner of Income Tax (Appeals) erred in law and on facts in accepting the assessee's claim that the transactions involving the shares of M/s. Excel Castronics Ltd. are genuine, despite evidence showing that such transactions were part of a colorable arrangement, designed with the sole intent of reducing tax liability through the claim of exempt income. 2. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) failed to properly evaluate the evidence on record which shows that the trading in the shares of M/s. Excel Castronics Ltd. was manipulated in a synchronized manner and was controlled by operator entities, where shares were offloaded once prices were artificially jacked up. As a result, the assessee's claim of exempt income from the sale of shares cannot be treated as genuine. 3. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) erred in failing to consider the well-organized nature of the transactions, where the shares were pu....
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.... authorities. From the records, we noticed that the assessee filed its return for the year under consideration, thereafter the assessment was reopened under Section 147 of the Act on the information received from the DGIT Investigation Wing, wherein it was informed that the assessee is one of the beneficiaries of bogus LTCG from shares of M/s. Excel Castronics Ltd. The said company, according to the Revenue, was a penny stock company and had been manipulated by entry operators to provide accommodation entries to various beneficiaries in the form of fictitious/bogus LTCG from the shares of M/s. Excel Castronics Ltd. Accordingly, the case of the assessee was reopened and, after providing an opportunity of hearing, additions were made, which were ultimately deleted by the Ld. CIT(A). 4. Before we proceed further, it is necessary to evaluate the order passed by the Ld. CIT(A) while dealing with these grounds raised by the assessee. The operative portion of the order of the Ld. CIT(A) is contained in Paras 18 to 32 and the same is reproduced herein below: 18. GROUND NO. 4 to 13 In these grounds the appellant has challenged the addition made of Rs. 54,79,415 u/s 68 o....
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....arlier known as M/s. Ahmedabad Gases Ltd.) which were listed at the Stock Exchange, Mumbai. 14. The assessee made an application to M/s. BCB Brokerage Pvt. Ltd. on 18th September, 2013 for dematerialization of 1,00,000 equity shares of M/s. Excel Castronics Ltd. The acknowledgment of the application for dematerialization to M/s. BCB Brokerage Pvt. Ltd. on 18th September, 2013 is at page 72. The said 1,00,000 equity shares of M/s. Excel Castronics Ltd. were credited to the demat account of the assessee on 25th September, 2013. The demat account statement reflecting the dematerialization of 1,00,000 equity shares of M/s. Excel Castronics Ltd. on 25th September, 2013 is at pages 74 to 77. Therefore, the purchase of 1,00,000 equity shares of M/s. Excel Castronics Ltd. for Rs. 10/- each aggregating to Rs. 10,00,000/-is proved by the assessee. "15. Thereafter, the assessee sold 78,561 equity shares of M/s. Excel Castronics Ltd. at the prevailing market price on the terminal of the Stock Exchange between 24th December, 2013 and 21st March, 2014 through his broker, M/s. BCB Brokerage Pvt. Ltd. (1) The sale of the said shares was recorded in the Dernat Account of the asses....
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....he actual financials and market dynamics, the benefit out of such entries should be taxed in hands of beneficiary u/s. 68 of the Act. In this respect the assessee has furnished the Financial Statements of M/s. Excel Castronics Ltd. for A.Ys. 2013-14 to 2016-17 at pages 135 to 152. A chart showing the revenue from operations, profit before tax and net worth of M/s. Excel Castronics Ltd. for A. Ys. 2013-14 to 2016-17 is an under: 19. I have considered the assessment order, submission of the appellant, and facts available on record. In the assessment order, the AO noted that the assessee is an individual and is engaged in share trading (F&O) and investment in shares and securities. He is a partner in various firms, M/s Rainbow Exim Trade LLP, M/s Rainbow Sports Cars LLP, M/s Muscle Car LLP, and M/s Cenzer Reality. The assessee is also a proprietor of M/s Sunrise Investments and M/s Nadol Property. From the statement of capital gains/loss for the period from 01.04.2013 to 31.03.2014, it is seen that the assessee has purchased 21,439 shares of M/s Excel Castronics Ltd on 28.01.2012 for Rs. 10 per share for total consideration of Rs. 2,14,390 and sold the entire shares in the F.....
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....f the sale proceeds on sale of shares of M/s. Excel Castronics Ltd. from the broker, M/s. BCB Brokerage Pvt. (ix) Investor Report and Settlement Summary of the assessee received from M/s. BCB Brokerage Pvt. Ltd. for the period from 1st April, 2014 to 31st March, 2015. 21. After considering the submissions filed by the assessee, the AO held that in the investigation carried out by the Rajkot Investigation Unit, it is already proved that the alleged scrip is manipulated to provide accommodation entries. The detailed analysis of the financials of the alleged company does not support the price rise of the scrip. Therefore, merely filling the details of purchase of shares, details of payments, and details of sales and bank statement does not prove that the transactions are genuine. The transaction is nothing but a colorable device used to claim the exempt income to reduce tax liability. Relying on the decision of Hon'ble Supreme Court in the case of Sumati Dayal vs CIT (214 ITR 801) and decision in the case of CIT vs Durga Prasad More, the AO held the transaction as bogus and accordingly the entire credit of Rs. 54,79,415/- shown from sale of the alleged scrip M/s ....
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....rom the AY 2008-09 to 2020-21. It is further contended that the purchase and sale of shares of M/s Excel Castronics Ltd were not the solitary transactions. The appellant has furnished all the documentary evidences including the details of purchases and sale to prove the genuineness of transactions. It is further contended that there is no evidence on record to show that the appellant is either connected to or involved in manipulation of alleged shares of M/s Excel Castronics Ltd. There is no evidence of exchange of any cash for the alleged transaction. Further, there is no adverse finding of the market regulator SEBI in the case of the appellant. The AO has not carried out any independent inquiry and has merely relied on the investigation report submitted by the Investigation Unit, Rajkot. The appellant has also relied on various judicial pronouncements, including the decision wherein the alleged scrip M/s Excel Castronics Ltd is involved. 23. (During the F.Y 2011-12, the appellant has applied for preferential allotment of 1 lakh equity shares of M/s Excel Castronics Ltd for Rs. 10 per share vide letter dated 28.01.2012. For this, the appellant has paid Rs. 10 lakhs by che....
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.... Rs. 40,32,655 and net LTCG of Rs. 50,45,560. From this, it is apparent that the appellant is a regular investor and trader in the share market. The main source of income of the appellant is from share trading and investment. It is not a case that the appellant is a naïve investor in the share market and has only purchased and sold the alleged scrip of M/s Excel Castronics Ltd. The facts indicate that the alleged capital gains are on account of regular trading/investment activity carried out by the appellant. 26. The appellant is engaged in share trading (F&O) and investment and trading in shares. The details of the same is as under- A.Y NO OF SCRIPS INVESTMENT MADE CAPITAL ON THE LAST DAY OF PREVIOUS YEAR NO OF SCRIPS STCG/(STCL) NO OF SCRIPS LTCG(LTCL) F &O PROFIT/(LOSS) 2008- 09 70,593,172 92,039,675 (2,851.215) - - (12,635,976) 2009- 10 14,717,196 65,767,776 101 (16,911,596) 6 (6,330,003) (2,145,183) 2010- 11 71 76,659,399 79,508,285 20,255,5....
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....ence, sale of shares has been proved by the assessee. 11. With regard to the genuineness of capital gains declared by the assessee, we notice that the AO has not conducted any independent enquiry to show that the trading transactions conducted by the assessee were not genuine. Further, the AO has not shown that the assessee was part of the group which was indulging in manipulation of prices of the shares of above said company. Further, it is not shown that the transactions entered by the assessee were found to be bogus by SEBI. On the contrary, the contention of the assessee is that she was not subjected to any enquiry by SEBI. Barring the failure of the assessee to prove actual date of purchase of shares, the assessee has furnished the details of demat account and details of sale of shares and those documents were not found to be not correct. Under these set of facts, we are of the view that the claim of purchase and sale of shares cannot be doubted with, in the ITA Nos. 3255, 3256 & 3257/Mum/2023 facts and circumstances of the case. Depending upon the actual date of allotment/purchase of shares, the capital gains earned by the assessee are required to be categorized into....
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....nature and hence not adjudicated separately. 32. In the result appeal is PARTLY ALLOWED. 5. After having heard the counsels of both the parties at length and perused the materials placed on record, we found that during the course of assessment proceedings, in order to verify the genuineness of the long-term capital gain earned by the assessee, the AO made verification and sought a reply from the assessee. Thus in order to substantiate that the transaction of sale of shares of M/s. Excel Castronics Ltd. was genuine, the assessee submitted following documents: (i) Application for preferential allotment of shares dated 28th January, 2012 to M/s. Excel Castronics Ltd. enclosing the cheque of Rs. 10,00,000/- for the application of 1,00,000/-equity shares of M/s. Excel Castronics Ltd. (ii) Letter dated 26th August, 2016 of M/s. Excel Castronics Ltd. evidencing the allotment of 1,00,000 shares to the assessee. PAR (iii) Bank account statement of the assessee with Union Bank of India for the period from 1st. January, 2012 to 31st January, 2012 evidencing the payment of Rs. 10,00,000/-made to M/s. Excel Castronics Ltd. for allotment of shares. ....
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.... shares for Rs. 1,90,87,536/-. The remaining 21,439 shares were sold in the AY under consideration. These shares were sold online through the broker M/s. BCB Brokerage Pvt. Ltd. It is seen from these details that the shares were purchased offline through preferential allotment for which payment of Rs. 10 lakhs was made through banking channels. Thereafter, these shares were sold on the stock exchange through the broker, and the transactions are supported by the broker's notes. Since in the present case the LTCG earned by the assessee was denied by the AO relying upon the Investigation Report of the Rajkot Investigation Unit, and no material was brought on record indicating that the assessee had carried out bogus transactions in connivance with the alleged operators, particularly considering the fact that the assessee is a regular investor in the share market, the claim of the assessee cannot be doubted. 9. Even the Coordinate Bench of the ITAT, on identical facts while deciding the issue of capital gains in the case of Ms. Nidhi Manan Shah v. ITO (ITA Nos. 3255, 3256 & 3257/Mum/2023) vide order dated 06.11.2024, has held that the sale of shares of M/s. Excel Castronics Ltd. cann....
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....h law. The assessee shall be provided adequate opportunity of being heard. We also direct the assessee to fully cooperate with the AO for expeditious completion of the assessment." 10. After further appreciating the facts, we notice that the Ld. CIT(A), while allowing the appeal of the assessee and deleting the disallowance made by the AO, also relied upon the decision of the Coordinate Bench of the ITAT in the case of Ms. Nidhi Manan Shah v. ITO (supra). On the contrary, although the Ld. DR had contested the order passed by the Ld. CIT(A) and had relied upon a number of judgments mentioned in his written submissions, he could not controvert the findings of the Coordinate Bench of the ITAT in the case of Ms. Nidhi Manan Shah v. ITO (supra), wherein the same scrip, i.e., M/s. Excel Castronics Ltd., was scrutinized and held not to be a penny stock company. The facts contained in the decisions relied upon by the Ld. DR are different from the facts of the present case, whereas, on the contrary, the Coordinate Bench of the ITAT has dealt with the same scrip, i.e., M/s. Excel Castronics Ltd. Thus, the Ld. CIT(A) was right in relying upon the decision of the Coordinate Bench of the ITA....