ACIT-23(1), MUMBAI, MUMBAI V. GORDHANBHAI GOVINDBHAI KAKADIYA , MUMBAI

ITA 5333/MUM/2024

AI Insights

The case involves an appeal by the revenue against the order of the National Faceless Appeal Centre (NFAC), which had deleted additions made by the Assessment Unit under sections 68 and 69C of the Income-tax Act, 1961. The additions pertained to unexplained income and expenditure amounting to Rs. 2,56,01,928 and Rs. 12,80,096 respectively, claimed as Long Term Capital Gain (LTCG) from penny stock transactions. The revenue argued that these transactions were part of a scheme to convert unaccounted income into legitimate income under the guise of exempt LTCG. The ITAT found merit in the revenue's submissions and remanded the matter back to the CIT(A) for a fresh examination, ensuring that the assessee is given a fair opportunity to present his case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711389 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Assessment Year: misc
• Other Referred Cases: Durga Prasad More (1971) 82 ITR 540(SC), Sumati Dayal [1995] 80 Taxmann. 89(SC), Pr. CIT W Swati Bajaj (I.A.No. GA/2/2007) in ITAT No of 2022, Manoj Jain (HUF) in ITA No 1782/KOL/2018
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ARUN KANTI DATTA
• Keywords: Set aside; Opportunity of being heard; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Tax effect; Accommodation entries; Earning of tax free income; Penny stocks; Bogus
• Section: 147; 271(1)(c); 68; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No.5333/Mum/2024 (Assessment Year: 2016-17) ACIT-23(1), Mumbai Room No.511, 5th Floor Piramal Chambers, Lalbaug, Lower Parel, Mumbai-400 012 vs Gordhanbhai Govindbhai Kakadiya BC-2010, G Block Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (E), Mumbai-400 051 PAN: AGYPK2399A APPELLANT RESPONDENT Assessee by : None Respondent by : Shri Arun Kanti Datta – CIT DR Date of hearing : 16/07/2025 Date of pronouncement : 23/07/2025 O R D E R Per Anikesh Banerjee (JM): The instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter called, ‘Ld. CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Assessment Year 2016-17, date of order 14/08/2024. The impugned order emanated from the order of the Assessment Unit, Income tax Department (in short, the “Ld. AO”) passed under section 147 r.w.s. 144B of the Act, date of order 10/05/2023. Printed from counselvise.com 2 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya 2. The assessee has taken the following grounds of appeal:- “1.\" Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 2,56,01,928/-made as unexplained income which is taxable u/s 68 of the Income-Tax Act, 1961?\" 2. \"Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs 12,80,096/- made as unexplained expenditure (Commission Paid) which is taxable u/s 69C of the Income-Tax Act, 1961?\" 3. \"Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the entire addition of Rs. Rs.2,56,01,928/-claimed as Long Term Capital Gain incurred in trading of penny stock transactions of penny stock\" Yamini Investment Company Ltd. (YICL)\" without considering that a scheme was hatched by promoter/brokers/operators, who have in collusion rigged the prices of penny stock to obtain accommodation entries of bogus LTCG/STCG to the beneficiary after routing unaccounted money?” 4.\" Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 2,56,01,928/- claimed as Long Term Capital Gain made on account of penny stock transaction, without appreciating the facts that the action of the AO was based on analysis of information received from investigation wing of the department who have carried out that detailed investigation on this issue\" 5.\" Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition Rs. 2,56,01,928/- claimed as Long Term Capital Gain made on account of penny stock transaction without appreciating the facts that the assessee has entered into penny stock transaction, which was arranged transaction, which involve the series of preconceived steps and lack of commercial content and totally an artificially structured transaction entered into with the sole intent to evade taxes?\" 6. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition Rs. 2,56,01,928/- claimed as Long Term Capital Gain made, without considering that there was huge price jump in the price of Penny Stock in question, without any economic rationale which was an arrangement of converting the unaccounted income into legitimate income under the garb of exempt LTCG, without paying any taxes and assessee was one of the beneficiary of such transactions?\" Printed from counselvise.com 3 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya 7. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition made on account of penny stock transaction without appreciating the nature of the transactions by accepting the documentation presented by the assessee at face value, without adequately considering the underlying fraudulent intent and the orchestrated steps taker to present these transactions as genuine. The assessment of the true character and intent behind these transactions was crucial and has been overlooked.\" 8. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the fact that the direct and circumstantial evidences in view of the decision of Durga Prasad More (1971)82 ITR 540(SC) and Sumati Dayal [1995] 80 Taxmann. 89(SC) [1995] 2014 ITR 801(SC)[1995] 125 CTR 124(SC), rendered by the Supreme Court, where it was held that Hon'ble Court and Tribunal have to judge the evidence before it by applying the test of probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer 9. \"Whether on the facts and circumstances of the case and in law, the L. CIT(A) has erred in deleting the entire addition Rs. 2,56,01,928/-claimed at Long Term Capital Gain made on account of penny stock transaction without considering the judgment on Hon'ble Calcutta High Court's decision in the case of Pr. CIT W Swati Bajaj (I.A.No. GA/2/2007) in ITAT No of 2022, Dated 14.06.2022, wherein it was held that the onus is on the assessee to establish the genuineness of the price hike and also has to prove that the price of the shares stocks was so manipulated! 10. Whether on the facts and circumstances of the case and in law, Lá6. CTT(A) has erred in deleting the addition Rs. 2,56,01,928/claimed as Long Term Capital Gain made, without appreciating the facts the on the similar issue of LTCG, the Hon'ble ITAT. Kolkata in the case of Manoj Jain ( HUF) in ITA No 1782/KOL/2018, treated the penny stock transaction as income from other sources instead of LTCG, and the same was upheld by the Hon'ble High Court Calcutta (2004) 164 taxmann.com 133 (Calcutta), which has been confirmed by the Hon'ble Supreme Court by dismissing SLP is SLP (c) of 21636/2024 Dated 20.09.2024? 11.The tax effect involved in this case is Rs. 90,95,682/- which is above the prescribed limit as per CBDT's latest Circular No. 05/2024 Dated. 15.03.2004. However, this case falls under the exception within the ambit of exceptional clause 3.1(h), of the CBDT's Circular mentioned above, wherein it is stated to in cases lying Organized Tax Evnion\" including of 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. Hence, the appeal u/s 253 of the Act is being filed before Hon'ble ITAT. The appellant craves leave to amend or alter any grounds or add a new ground whih may be necessary.” Printed from counselvise.com 4 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya 3. When the appeal was called up for hearing, none appeared on behalf of the assessee. An adjournment petition dated 14.07.2025 was filed by M/s Mohanlal Jain & Co., Chartered Accountants, seeking adjournment of the matter. However, the Registry has informed that no Power of Attorney has been filed by the assessee in support of such representation. It is further noted from the record that the assessee was granted adjournments on multiple occasions in the past and was specifically directed to file a valid Power of Attorney. Despite such directions, the assessee has failed to comply with the same and continued to seek adjournments through the Chartered Accountant without furnishing the requisite authority. In view of the above non-compliance and lack of representation despite sufficient opportunities, and considering the material available on record, we are of the view that there is no justification to further adjourn the matter. Accordingly, we proceed to dispose of the present appeal ex parte qua the assessee, after hearing the submissions of the Ld. DR and upon perusal of the documents placed on record. 4. The brief facts of the case are that during the impugned assessment year, the assesse earned long term capital gain and claimed exemption under section 10(38) of the Act amount to Rs.2,56,01,928/-. Further, related to this transaction, the Ld.AO suo motu calculated the amount paid by the assesse to the broker amount to Rs.12,80,096/- and the additions are made under section 68 and 69C of the Act, respectively. The aggrieved assesse filed an appeal before the Ld.CIT(A). The Ld.CIT(A), considering the submission of the assesse allowed the appeal and the addition was deleted. Being aggrieved on the appeal order, the revenue filed an appeal before us. 5. The Ld.DR argued and filed a written submission relevant part of which is extracted below:- Printed from counselvise.com 5 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya “Conclusion and Prayer In conclusion, the Revenue's case is that the LTCG of Rs.2.56 crore claimed by the assessee was fictitious, generated through manipulative trade practices and abuse of the securities market, and rightly brought to tax by the AO using Section 68 (cash credit) and Section 69C (unaccounted expenditure). The assessee failed to discharge his onus of proving the genuineness of this windfall gain as a legitimate investment outcome. On the other hand, the Department marshaled significant evidence: an Investigation report identifying the assessee as a beneficiary of a known scam, the SEBI order confirming price manipulation in the specific stock, and the inherent improbabilities in the transaction. The law, as elucidated by multiple court decisions, favors looking at such transactions realistically and not formalistically. When that is done, one can only conclude that this was a sham transaction, a facade for converting undeclared income to ostensibly exempt income. We respectfully submit that the CIT(A)'s interference in the assessment was unwarranted. He appears to have been swayed by the existence of transaction records and a misplaced notion of lack of inquiry, whereas he ought to have appreciated the larger picture and the ample evidence of wrongdoing. The CIT(A)'s order, if allowed to stand, would essentially provide a blueprint for tax evaders to escape by simply ensuring their transactions are routed through regular channels. This would defeat the purpose of the law and incentivize abuse of legitimate exemptions. In contrast, restoring the AO's addition would be in line with the string of decisions that have cracked down on this very type of tax evasion. We therefore pray that the Hon'ble ITAT: • Set aside the order of the CIT(A) to the extent that it deleted the additions on account ' of LTCG and commission; • Uphold the assessment order in treating Rs.2,56,01,928/- as taxable income (unexplained cash credit) and Rs. 12,80,0967- as unexplained expenditure; Printed from counselvise.com 6 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya • Consequently, deny the exemption under Section 10(38) on the said amount and uphold the chargeability of tax (including under Section 115BBE, if applicable, at the higher rate on unexplained income, as was done by AO). This will effectively allow the Revenue's appeal. We also seek clarity that with the addition being upheld, the protective initiation of penalty u/s 271(1)(c) (ground 7 before CIT(A)) stands revived and can be pursued as per law (subject of course to disposal in separate penalty proceedings). Respectfully submitted.” 6. We have heard the submissions of the Ld. DR and perused the material available on record. It is observed that the Ld. DR has raised objections regarding the acceptance of fresh evidence by the Ld. CIT(A) without affording a reasonable opportunity of rebuttal to the Assessing Officer. It is further noted that the Ld. CIT(A), while passing the impugned order, did not appropriately address the issue relating to the exit provider. Moreover, the assessee failed to appear before the Bench or produce any evidence in support of his claim. No Power of Attorney authorizing any Authorized Representative (AR) was filed. It is evident from the conduct of the assessee that there has been consistent non-compliance with the directions of the Bench, which appears to be a deliberate attempt to avoid the proceedings. In view of the above, we find merit in the submissions of the Ld. DR and deem it appropriate to remand the matter back to the file of the Ld. CIT(A) for fresh adjudication, after granting a reasonable opportunity of hearing to the Assessing Officer in respect of the fresh evidence furnished by the assessee. We make it clear that we are not expressing any opinion on the merits of the case so as not to cause prejudice to the decision-making process of the Ld. CIT(A). Printed from counselvise.com 7 ITA 5333/Mum /2045 Gordhanbhai Govindbhai Kakadiya Needless to state, the assessee shall be afforded adequate opportunity of being heard in accordance with law, and in turn, the assessee is expected to be diligent and cooperative during the remand proceedings before the Ld. CIT(A). 7. In the result, the appeal filed by the revenue bearing ITA No.5333/Mum/2024 is allowed. Order pronounced in the open court on 23rd day of July, 2025. Sd/- sd/- (NARENDRA KUMAR BILLAIYA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 23/07/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai Printed from counselvise.com "