ACIT CIRCLE 24(1) MUMBAI, MUMBAI V. MANGLAM FINANCIAL SERVICES, MUMBAI

ITA 3727/MUM/2025

AI Insights

The case involves the Income Tax Department's appeal against the decision of the CIT(A) which had deleted the additions made by the Assessing Officer on the grounds of alleged manipulation and trading in penny stocks by Manglam Financial Services. The revenue contended that the assessee was involved in transactions that were part of a larger scheme of price manipulation and tax evasion involving penny stocks like Stampede Capital Limited and Steel Exchange India Limited. The CIT(A), however, found no direct evidence linking the assessee to these manipulations and noted that the transactions were conducted through a registered broker and involved legitimate trading activities. The Tribunal agreed with the CIT(A)'s findings and dismissed the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 777218 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2025
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 27-05-2025
• Other Referred Cases: Sumati Dayal v. CIT, CIT v. Durga Prasad More
• Laws Referred To: Income Tax Act
• Court: TRIBUNAL
• Department Lawyers: VERABHADRA MAHAJAN
• Assessee Lawyers: MILIND SAHASRABUDHE; SEBI OR
• Keywords: Cost of acquisition; Tax effect; Accommodation entries; Penny stocks; Bogus
• Section: 148; 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER& SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No. 3727/MUM/2025 (AY: 2018-19) (Physical hearing) ACIT, Circle – 24(1), Mumbai 601, 6th Floor, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012] Vs Manglam Financial Services 5, Savitri Sadan M V Road, Andheri East, Mumbai-400069. [PAN: AAYFM 7740 H] Appellant / Revenue Respondent / Assessee C.O. No. 158/MUM/2025 (AY: 2018-19) (Arising out of ITA No. 3727/Mum/2025) Manglam Financial Services 1213, 12th Floor, Hubtown Solaris, Prof. N.S. Fadke Road, Andheri- East, Mumbai-400069. [PAN: AAYFM 7740 H] Vs ACIT, Circle – 24(1), Mumbai 601, 6th Floor, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012] Appellant / Revenue Respondent / Assessee Assessee by Shri Milind Sahasrabudhe, CA Revenue by Shri Verabhadra Mahajan, Sr-DR Date of Institution 27.05.2025 Date of hearing 16.09.2025 Date of pronouncement 17.09.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue and cross-objection therein by assessee are directed against the order of ld. CIT(A)/NFAC dated 29.03.2025for A.Y. 2018-19. The revenue has raised following grounds of appeal: “1. On the facts and circumstances of the case and in law, Ld. CIT(A)/NFAC has erred in deleting the addition of Rs 19,60,046/- an disallowance of the loss and of Rs 1,10,750/ being income from other sources u/s 68 of the LT. Act, without appreciating the factual matrix and circumstantial evidences of the case. Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 2 2. On the facts and the circumstances of the case and in law the Ld. CITIA) erred in deleting impugned additions, without appreciating the fact that upon extensive enquiry and investigation by the investigative wing of the department, it was found that script of Stampede Capital Ltd. was compromised with large scale manipulation of trades and fabricated trading activity 3. On the facts and the circumstances of the case and in law the Ld. CIT(A) erred in deleting impugned addition without appreciating the facts that upon extensive enquiry and investigation by the investigative wing of the department, it was revealed that Steel exchange Ltd was one of the penny stocks manipulated by Shri Naresh Jain, the lynchpin of the syndicate involved in manipulation of the prices of several penny stocks. 4. On the facts and the circumstance of the case and in law the Ld. CIT(A) erred deleting the addition made by the AO without appreciating the facts that in such penny scrip, trading transactions of purchase and sales are not affected for commercial purpose but to create artificial gain and complete the cycle of circular trading with a view to evade taxes. 5. On the facts and the circumstance of the case and in law the Ld. CIT(A) erred in not appreciating the fact that transaction of shares of such penny scrip are notgoverned by market factors prevalent at relevant time rather transactions are product of design and mutual connivance on part of assessee and operators. 6. On the facts and the circumstance of the case and in law the Ld. CIT(A) erred in not appreciating the fact that the detailed investigation carried out by the investigation wing revealed the modus operandi that that the scrip was utilized by entry operators for providing accommodation entries under the garb of Long-Term Capital Gain/Short Term Capital Gain Loss by manipulating/rigging up the share price. 7. On the facts and circumstance of the case and in law the order of the Ld. CIT(A) suffers from perversity as it ignores the facts brought on record establishing manipulation of share prices of Stampede Capital Limited as part of colorable device to generate fictitious Capital loss. 8. On the facts and the circumstances of the case and in law, Ld. CIT(A) erred in ignoring the decisions in Sumati Dayal v. CIT 214 TR-80 and CIT v. Durga Prasad More 82 ITR-540 (S.C.) and coming to a conclusion only on the basis of the arguments advanced by the assessee. 9. The appellant craves leave to amend or alter or add a new ground which may be necessary.” Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 3 2. The assessee on service of memorandum of appeal filed its cross-objection raising following grounds; “1. The current appeal is not maintainable in light of monetary limit Circular of CBDT 5/2024 dated 15.03.2024. 2. The reopening under section 148 is bad in law and entire proceedings are void. 3. The assessment order is bad at law in as much as the copy of the alleged information flagged on the insight portal of the department and the documents related to the allegations levelled on appellant which have been relied upon and are the sole base for reopening of the case and for the justification of addition to income have not been furnished to the appellant and appellant has been accordingly prevented from seeking the opportunity to challenge the same, if any, relied upon by the department in framing the said report. 4. The assessing officer has not applied any mind whatsoever to the facts of the case and evidences on record and passed clearly premeditated order. The order is accordingly bad at law. 3. Rival submissions of both the parties have been heard and record perused. The learned Commissioner of Income Tax – Departmental Representative (CIT-DR) for the revenue submits that case of assessee was reopened on the basis of insight information available with assessing officer that assessee is beneficiary of penny stock scrip of Stampede Capital Limited and Steel Exchange India Limited. Both the scrips are penny scrips which were managed by well-known entry operators. The assessing officer during the assessment brought sufficient material on record that assessee is beneficiary of such scrips. The assessee has shown loss on sale of Stampede Capital Limited of Rs. 19,60,046/- and gain of Rs. 1,10,750/- on Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 4 sale of scrip of Steel Exchange India Ltd. The scrip of Steel Exchange India Ltd was manipulated by Naresh Jain and his associates who is well known accommodation entry provider in the form of capital gain or loss in several scrips throughout the country. The Investigation Wing carried out full- fledged investment in respect of entry provided by Naresh Jain. Similarly, price manipulation of Stampede Capital Limited was managed by SMC Global Capital Markets Limited. The assessing officer in para 3.6 of his order narrated the email exchange about selling of scrip of Stampede Capital Limited to Mozilla Thunderbird. On perusal of such email, it was observed that advice was given to beneficiary regarding sale of shares of Stampede Capital Limited should not be matched knowingly. Such modus operandi was a part of manipulation of price of scrip to generate long term or short-term capital gain or loss. The assessing officer made on addition on the basis of detail analysis of both the scrips. The ld. CIT(A) allowed relief to the assessee on accepting the submission of assessee. The modus operandi of entry provider or price rigging clearly shows that it was a penny scrip. The ld. CIT-DR for the revenue prayed for restoring the order of assessing officer by reversing the finding of ld. CIT(A). The ld. CIT(A) submits that he has also filed his written synopsis which may also be considered. 4. On the other hand, the learned Authorised Representative (ld. AR) of the assessee submits that assessee is a partnership firm engaged in share trading. The assessee made purchase and sale of all the shares only through registered broker namely Marwani Shares and Finance Ltd. with Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 5 Bombay Stock Exchange (BSE) or National Stock Exchange (NSE). During the relevant financial year, the assessee has traded in more than 1200 scrips. The assessee has shown net profit of Rs. 4.30 crores. The assessing officer acted on the basis of insight information about penny scrip of Steel Exchange Ltd. and Stampede Capital Limited. The ld. AR of the assessee by referring page no. 8 of assessment order wherein working of profit/loss on the share of Stampede Capital Limited is extracted by assessing officer would submit that 4,500 shares of Stampede Capital Limited were in opening stock as on 01.04.2017. The assessee purchased 46,55,133 shares and sold 44,62,137 shares, leaving closing balance of 1,97,696 shares as on 31.03.2018. The assessee suffered a loss of Rs. 19,60,046/- and there was speculation gain of Rs. 28,611/-. The assessee explained that they have no connection with Narendra Balasia or SMC Global Securities. Similarly, while referring the scrip of Steel Exchange India Ltd., as recorded on page no. 31 of assessment order, the assessee has purchased the share on 06.11.2017 and sold on the very next day i.e. on 07.11.2017 and earned profit of Rs. 2,021/- only. The assessing officer has added the entire sale consideration instead of allowing purchase cost of such shares. In fact, the assessee has earned gain of Rs. 2,021/- only. The assessee is not involved either in price rigging or in manipulation. The assessing officer has not proved the nexus of broker of assessee with alleged entry provider. The assessee is bona fide trader and made intraday trading. The assessee has shown income from share trading of Rs. 4.30 crores. There is no occasion with the assessee to claim a false loss or Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 6 accommodation loss of only Rs. 19 lakhs (Approx). The ld. CIT(A) appreciated the fact of case properly. In respect of scrip of Stampede Capital Limited,it was held that the assessee has made profit of Rs. 14,60,264/- and loss of Rs. 34,20,310/- resulting net loss of Rs. 19,60,046/-. It was also held that there is no direct evidence that assessee or his broker has connection with SMC Global Securities which were found involved in manipulation of scrip of Stampede Capital Limited. No adverse comment was made by BSE or NSE in respect of transaction of assessee. The transaction is made through de-mat account and banking channel. The assessee has made transaction with SEBI registered broker. Marwani Shares and Finance Ltd. Similarly, for scrip of Steel Exchange, the ld. CIT(A) held that assessee has no business with Naresh Jain. Copy of de- mat account, bills, contract notes are nothing to do with Naresh Jain. The assessee has shown only profit of Rs. 2,021/-. The ld. AR of the assessee further submits that assessing officer merely acted on the basis of report of Investigation Wing without connecting the assessee with entry provider. The ld. AR of assessee prayed for dismissal of appeal of revenue. 5. In support of his cross-objection, the ld. AR of the assessee submits that tax effect in the appeal is less than the monetary limit of tax effect for filing appeal before Tribunal. The reopening is bad in law. The reopening is based on information in the insight portal and is not based on the independent investigation on fact. 6. In rejoinder submission, the ld. CIT-DR for the revenue supported the order of assessing officer on reopening. Against the objection of monetary Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 7 limit of tax effect, the ld. CIT-DDR for revenue submits that present appeal falls in exception clause of CBDT Circulars. To support his submissions, the ld CIT-DR for the revenue has also relied on the decisions of Apex Court in Sumati Dayal vs CIT 214 ITR-80(SC) and CIT vs Durga Prasad More 82 ITR-540 (S.C.) 7. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that assessing officer while passing the assessment order solely relied upon the information available in insight portal. Such information was based on the investigation carried out by Investigation Wing. The assesseein response to show cause notice of assessing officer with regard to sale of shares of Stampede Capital Limited submitted that they have no relationship with SMC Global Securities Ltd. and is not involved in manipulation of price or beneficiary of bogus entry. The assessee carried out transaction of trade through Marwani Shares and Finance Ltd. The scrips were publicly traded in recognised stock exchange. The assessee has shown taxable income of more than Rs. 4.30 crores and has paid tax of Rs. 1.47 crores. The reply of assessee was disregarded. The assessing officer solely relied on the report of Investigation Wing. We find that during First Appellate Stage, the assessee also took similar stand as of before assessing officer. Before ld. CIT(A), the assessee stated that 4,500 shares of Stampede Capital Limited were in opening stock and they purchased 46,55,133 shares and sold 44,62,137 shares, leaving closing balance of 1,97,696 shares as on 31.03.2018. The assessee explained that they have no connection with Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 8 Narendra Balasia or SMC Global Securities Ltd. and that their trading in shares was through Marwani Shares and Finance Ltd. 8. We find that ld. CIT(A) in his finding held that there is no evidence against the assessee nor the assessing officer proved any connection of assessee with SMC Global Securities who were found involved in manipulation of scrip of Stampede Capital Limited. The assessee traded on the platform of BSE or NSE. No comments were made in respect of transaction of assessee, which were carried through de-mat account and banking channel. There is no allegation against the broker of assessee by SEBI or stock exchange. The broker of assessee is registered with Stock Exchange. On such categorical finding, the ld. CIT(A) deleted the addition. 9. So far as the addition on account of trading in share of Steel Exchange Ltd. is concerned, we find that assessee has shown profit of Rs. 2,021/- only. The shares were purchased and sale within 24 hours. The assessing officer relied on the report of Investigation Wing on the basis of such against Naresh Jain. The assessing officer made addition merely that assessee traded in share. The shares were traded through de-mat account. The assessee furnished copy of de-mat account, purchase bills, contract notes and nothing adverse was pointed out by assessing officer. We find that ld. CIT(A) on appreciation of fact deleted the entire addition by taking view that assesse has earned benefit/gain of Rs. 2,021/- only. 10.On independent examination of material available on record, we find that assessee firm is regularly trading in different scrip. Before us, the ld. AR of the assessee claimed that assessee traded in more than 1200 scrips and Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 9 only 2 scrips were doubted by assessing officer. Such facts are not controverted by lower authorities or by ld CIT-DR for revenue before us. We also find that assessee has shown net profit of 4.30 crores. The assessing officer made addition without giving any specific finding on the evidence and explanation furnished by assessee. Thus, we do not find any justification in making addition against the assessee merely on the basis of report of Investigation Wing without bringing any adverse evidence to connecting the assessee with price rigging of the impugned shares. The principal of “human probabilities” as has been held in Sumati Dayal vs CIT (supra) and CIT vs Durga Prasad More (supra) is not applicable on the facts of present case, when the assessee has clearly brought the facts on record that they were regularly making trading in more than thousands scrips, and has shown profit of more than four crore in shares and other trading. Thus, we affirmed the order of ld. CIT(A) with our additional observation. In the result ground of appeal of revenue is dismissed. 11. In the result, the appeal of revenue is dismissed. C.O. NO. 158/Mum/2025 (A.Y. 2018-19) 12.Considering the fact that we have affirmed the order of ld. CIT(A) and thereby dismissed the appeal of revenue on merit.Therefore, adjudication of other respective contention of parties either on issue of tax effect or on the grounds raised in C.O. by assessee have become academic. In the result, grounds of cross-objection of assessee are dismissed being infructuous. Printed from counselvise.com ITA No. 3727/Mum/2025 & C.O. No. 158/Mum/2025 Manglam Financial Services 10 13. In the result, appeal of revenue is dismissed and cross-objection of assessee is also dismissed. Order was pronounced in the open Court on 17/09/2025. Sd/- ARUN KHODPIA ACCOUNTANT MEMBER Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated:17/09/2025 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "