ANNU ANIL AGRAWAL,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 4(4), MUMBAI, MUMBAI

ITA 5473/MUM/2024

AI Insights

The case revolves around the appeal by Annu Anil Agrawal against the order of the Commissioner of Income-tax (Appeals), Mumbai, which upheld the additions made by the AO regarding alleged bogus long-term capital gains (LTCG) from the sale of shares. The AO had reopened the assessment based on information from the DGIT (Inv.) Kolkata, claiming the assessee engaged in transactions involving penny stocks, which were part of a scam. The Tribunal found that the AO's actions were based on incorrect and unverified information, and the assessee was not given a fair opportunity to contest the allegations, leading to the quashing of the reopening notice and deletion of the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705315 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: Signature Hotels Pvt. Ltd. v. ITO, Hindustan Lever Ltd. v. R.B. Wadkar, PCIT 5. Mumbai vs. Shodiam Investment Private Limited, Vijayrattan Balkrishan Mittal vs. DCIT CC- 8(1), Farrah Marker vs. ITO 19(3)(1), Mumbai, Swati Bajaj vs. PCIT, Shyam Pawar case, Indravadan Jain, HUF vs. PCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADITYA RAI
• Assessee Lawyers: SUCHEK ANCHALIYA; RUBY
• Keywords: Reassessment proceedings; Question of law; Corroborative evidences; Unexplained cash credit; Onus to prove; Reopening of assessment; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Reason to believe; Tangible material; Borrowed satisfaction; Penny stocks; Bogus
• Section: 147; 143(3); 68; 131; 69; 133(6); 69C; 10

Judgement Text

" |आयकर अपीलीय न्यायाधिकरण न्यायपीठ, म ुंबई| IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER आयकर अपील सुं./ITA No. 5473/MUM/2024 (नििाारण वर्ा / Assessment Year :2011-12) Annu Anil Agrawal C-3401/3402 Oberoi Esquire, Mohan Gokhale Road, Off W. E. Highway, Oberoi Garden City, Goregaon East, Mumbai- 400063 v/s. बिाम ACIT CC 4(3), Mumbai due to restructuring current jurisdiction of appellant lies with ACIT 41(4)(1), Mumbai Kautilya Bhawan, BKC, Bandra (E), Mumbai- 400051 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: ADMPA0248F Appellant/अपीलार्थी .. Respondent/प्रनिवादी निर्ााररती की ओर से /Assessee by: Shri Suchek Anchaliya, Ms. Ruby Srivastava & Shri Tushar Nagori राजस्व की ओर से /Revenue by: Shri Aditya Rai स िवाई की िारीख / Date of Hearing 09.06.2025 घोर्णा की िारीख/Date of Pronouncement 01.07.2025 आदेश / O R D E R PER SANDEEP GOSAIN [J.M.]:- This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai-52 [hereinafter referred to as “CIT(A)”] dated 22.08.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2011-12. P a g e | 2 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 2. Brief facts of the case are that during the year under consideration, the assessee had sold 11,80,000 shares of M/s. JMD Telefilms Ltd. and 368 shares of Adani Power Ltd., and as a result of which the assessee earned long-term capital gain (LTCG) of Rs. 6,59,65,834/-, which have been claimed as exempt income u/s 10(38) of the Act in her return of income. However, disregarding the submissions and documents placed on record by the assessee, the AO proceeded to make additions u/s 68 of the Act on account of alleged bogus LTCG and consequently made additions u/s 68 and also u/s 69 of the Act on account of alleged commission paid by the assessee to the brokers. 3. Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A), but the same was dismissed. Against this order, the assessee has preferred the present appeal before us on the ground mentioned hereinbelow: “1. Appellant contends that the Assessing Officer and the Appellate Authority erred in reopening of assessment proceedings just on the basis of information received from DGIT (Inv.) Kolkata without forming their own independent satisfaction/opinion which is bad in law and the assessment proceeding is liable to be quashed. Appellant contends that Assessing officer has reopened assessment proceedings solely on the basis of information received from DGIT (Inv.) Kolkata without making any further inquiries, without forming his own independent satisfaction that income has escaped assessment, further reopening of assessment proceedings was just on the basis of information received from DGIT (Inv.) Kolkata with due application of mind on the information received. 2. Appellant contends that the Assessing Officer and the Appellate Authority erred in making and upholding addition just on the basis of information received from DGIT (Inv.) Kolkata wherein it was mentioned that large number of beneficiaries has taken accommodation entries by way of transacting in penny stocks by manipulating the stock market, however P a g e | 3 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal appellant during the course of the assessment proceedings appellant has specifically requested assessing officer to provide them with the copy of said investigation report along with other tangible material on records on the basis of which he has ascertain that the appellant has taken accommodation entry, however the same was not provided to the appellant and hence assessment proceedings was completed on the back of the appellant without providing adequate opportunity to appellant to make necessary submission against the investigation report which form the basis of reopening of assessment proceedings. Appellant contends that the Assessing Officer and the Appellate Authority erred in making addition to the total income of the appellant solely on the basis of information received from DGIT (Inv.) Kolkata without taking into the accounts submissions made by the appellant, various facts brought to the kind attention to the Assessing Officer and the Appellate Authority during the course of hearing, from which it can be ascertain that the appellant was not involved in taking bogus accommodation entries and appellant was not part of the parties which were involved in taking bogus accommodation entries. 3. Appellant contends that, assessing officer and Appellate Authority erred in ignoring the fact that during course of assessment proceedings as well as in assessment order Ld.AO has reproduced detailed Investigation Report of SEBI in scrip of JMD Telefilms limited in which it is clear that assessee was not involved in any violation and no adverse finding has been reported against her by the SEBI in their investigation report. However assessing officer and Appellate Authority erred has grossly ignored the finding of SEBI report, which clearly indicates that the assessment proceedings was opened grossly with intention of making addition to total income of the appellant. 4. Appellant contends that, assessing officer and Appellate Authority erred in treating sales consideration received from sales of shares of M/s. JMD Telefilms Limited as unexplained cash credit and added it to the total income of the assessee under the head Income from other sources, without taking into the considering documents and legal submissions made by the A.R. of the assessee during the course of the assessment proceedings for justification of assessee appellant claim with respect to Long Term Capital Gain from the sales of Shares of M/s. JMD Telefilms Limited. 5. Appellant contends that, Assessing Officer and Appellate Authority has outrightly rejected appellant claim for Long Term Capital Gain from sales of shares of M/s. JMD Telefilms Limited of Rs. 6,59,81,605/- without bringing on to the records or in the assessment order any material evidence against the assessee that the assessee was one of the beneficiaries of bogus entries of capital gain in the scrip of M/s, JMD Telefilms Limited. 6. Appellant contends that, the Assessing Officer and the Appellate Authority erred in ignoring the fact that sale consideration from sales of shares of M/s. JMD Telefilms Limited has been duly reflected in return of income after reducing the cost of investment as Long Term Capital Gains and the same has been claimed as exempt income u/s. 10 (38) of the Income Tax Act, 1961. P a g e | 4 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 7. Appellant contends that, Assessing Officer and Appellate Authority erred in making adhoc addition of Rs. 26,69,703/- u/s 69C towards Unaccounted Commission Income on adhoc basis without bringing to record any corroborative evidence against the assessee in this regard.” 4. Ground Nos. 1 & 2 raised by the assessee are interrelated, interconnected and relate to challenging the order of the Ld. CIT(A) in upholding the reopening of the assessment proceedings. Thereafter, we have decided to adjudicate these grounds through the present consolidated order. 5. We have heard the counsels of both the parties and perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. 6. From the records, we notice that the AO vide his letter dated 17.07.2017 has communicated the reasons recorded for reopening of the assessment to the assessee and the same was reproduced hereinbelow: “i. Information has been received from the Director of Income Tax (Inv.), Kolkata that you have carried out transactions in penny stocks to the extent of Rs 9,75,08,667.65/- in A.Y. 2011-12 by means of 291 number of transactions. ii. The above transactions are bogus as evident from the statement of Shri Jaikishan Poddar recorded u/s 131 of the Income Tax Act 1961, in the case of Consortium Capital Private Limited. The Statement is enclosed as Exhibit II consisting of 09 pages. iii. These transactions form part of the penny stock scam unearthed by Investigation Wing of Kolkata.” 7. It is apparent that the reasons recorded by the AO for reopening of the assessment proceedings are factually incorrect, non-existing and not connected/linked with facts of the case on account of the fact that firstly, the name of the penny stock scrip has not been mentioned and secondly, the amount of Rs. 9,75,08,667.65/- has incorrectly been mentioned by the AO, P a g e | 5 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal whereas the assessee had specifically pointed out in his objection dated 23.08.2017, which at paper book on page No. 15 to 16, that the total exempt income claimed by the assessee u/s 10(38) of the Act is, in fact, only Rs. 6,59,81,605/-. Thirdly, the number of transactions, as mentioned while recording reasons for reopening, is only 77, whereas the assessee, in fact, carried out 291 transactions. Lastly, the statement of Mr. Jaikishan Poddar of Consortium Capital Pvt. Ltd. was recorded, wherein the AO has mentioned that the alleged transactions entered into by the assessee were confirmed from the statement of Mr. Jaikishan Poddar, whereas the name of Mr. Jaikishan Poddar of Consortium Capital Pvt. Ltd. does not appear anywhere in the order of assessment. 8. All these points/discrepancies were pointed out by the assessee in the reasons recorded by filing her objections vide letter dated 23.08.2017. It is important to mention here that although the AO had disposed of the objection filed by the assessee vide its order dated 30.08.2017, but stating the same figure of Rs. 9,75,08,667.65 as mentioned in reasons for reopening which goes to show that the AO had not applied his mind while disposing of the objections filed by the assessee. We are of the considered view that Section 147 of the Act empowers the AO to reopen the assessment if the additions prescribed therein are satisfied. The basic condition is that the AO has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year. But, P a g e | 6 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal in the present case, the AO, without applying his judicial mind, merely acted on the forwarded information of the DIT Investigation, Kolkata. Even after pointing out the mistake and the correct amount of LTCG by the assessee, the AO still mechanically disposed of the objections by stating the same figure as mentioned in the reasons for reopening, which shows that the AO had not considered the submissions or documents filed by the assessee while filing objections. 9. Even in the reasons for reopening, the AO has no reason to believe, and it is just mere roving enquires. The reasons recorded by the AO for reopening the assessment, as communicated on 17.07.2017, are factually incorrect. The AO alleged transactions in \"penny stocks\" worth Rs. 9,75,08,667.65 through 77 transactions, linked to Consortium Capital Private Limited and a statement by Shri Jaikishan Poddar. However, the assessee asserts they never traded in Consortium Capital Pvt. Ltd. and have no connection with Mr. Jaikrishan Poddar, and even the amount mentioned is incorrect 10. It goes to show that the AO relied solely on information from the Director of Income Tax (Investigation), Kolkata, without establishing a link to the assessee's transactions. The statement of Jaikishan Poddar and the alleged \"penny stock scam\" report are unrelated to the assessee's activities. 11. Reliance is being placed upon the decision of the Delhi High Court in Signature Hotels Pvt. Ltd. v. ITO Writ Petition (Civil) No. P a g e | 7 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 8067/2010, wherein it was held that reopening based on borrowed information without independent application of mind by the AO is invalid. The AO must demonstrate a rational connection between the material and the escapement of income. Here, the absence of a specific script name and reliance on an unrelated third-party statement weakens the AO's case. 12. Therefore, in our view, the AO’s reasons lack specificity, failing to mention the script name and citing an arbitrary figure (Rs. 9,75,08,667.65) without justification. Reliance in this regard is placed on the decision of the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar (2004) 190 CTR (BOM) 275, wherein the Hon’ble High Court ruled that reasons for reopening must be precise and based on concrete material. Vague or arbitrary allegations, as in this case, do not meet the threshold for \"reason to believe”. 13. Therefore, we are of the considered view that merely placing reliance on any other authority without recording own satisfaction or bringing any cogent substance on record shows that, without applying his mind, the AO has issued the notice, which is invalid. Since the AO has formed his reason to believe just on the basis of the information received from the Director of Income Tax (Inv.), Kolkata, that income has escaped assessment and not a reason to believe which is necessary for reopening of the assessment proceedings. In our view, the AO cannot reopen the assessment merely on the basis of information received P a g e | 8 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal without applying his independent mind to the information and forming an opinion. 14. Reliance is also placed in the case of PCIT 5. Mumbai vs. Shodiam Investment Private Limited ITA 1297 of 2015, wherein it has been held s under: \"14 Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re- opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction. 15. Therefore, in the above facts, the view taken by the impugned gned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law\". 15. It is well established that the reason recorded by the Ld. A.O. shall be concrete, specific and shall be recorded after making all necessary and independent enquiries and the AO should clearly ‘form his belief’ that the assessee has escaped income and only then can he reopen the assessment u/s 147 of the Act. The reopening for the purpose of fishing inquiries or to verify the details is not permitted u/s 147 of the Act. There is distinction between reason to believe and reason to suspect. Reliance is placed on the following judgements: a. Bhor Industries Ltd. v/s. ACIT - [(2004) 267 ITR 161 (Bombay High Court)] b. Ajanta Pharma Ltd. v/s. ACIT - [(2004) 267 ITR 200 (Bombay High Court)] с. CIT v. Maniben Velji Shah (2006) 283 ITR 453 [(Bombay High Court) d. Balakrishna H. Wani vs. ITO 321 ITR 519 (Bombay High Court) P a g e | 9 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 16. Therefore, in the view of the above facts and circumstances, the ground Nos. 1 & 2 stands allowed, and notice under 148 of the Act stands quashed. 17. Ground No. 3: This ground raised by the assessee relates to challenging the order of CIT(A) in upholding the order of the AO on the basis of the SEBI report. 18. In this regard, we have heard the counsels for both the parties and perused the material placed on record. 19. From the records, we notice that the AO in the assessment order relied on the SEBI Investigation Report in case of JMD Telefilm Limited received under section 133(6) of the Act from SEBI. The AO reproduced the entire confidential report and formed the opinion that the assessee's case is fit under such report. 20. However, we noticed that the SEBI investigation report, as reproduced in the Assessment Order, at pages 11-33 pertains to the trading activities in the scrip of M/s JMD Telefilms Industries Ltd. for the period from April 2, 2009 to December 31, 2010. The key points of the SEBI order are summarized as follows: • The company's financial performance during the investigation period (2009- 2012) showed increased net sales and profits. However, SEBI noted that the financial fundamentals did not justify the significant rise in the scrip's price during this period. • Key announcements included a preferential allotment of 50,00.000 equity shares at Rs. 17 per share to 45 non-promoter entities on April 2, 2009 (with a lock-in period until February 25, 2010) and a stock split on July 3, 2009, converting each Rs. 10 face value share into ten Rs. 1 face value shares. P a g e | 10 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal • SEBI's investigation revealed that certain entities engaged in price manipulation of the JMD Telefilms scrip during the specified period, violating provisions of the SEBI Act, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2013. Enforcement actions were initiated against specific entities/ person. Patch 1 Period 02.04.2009 – 12.06.2009 Not Assessee’s Period of Transaction Patch 2 Period 15.06.2009 – 12.07.2009 Not Assessee’s Period of Transaction Patch 3 Period 03.07.2009 – 14.08.2009 Not Assessee’s Period of Transaction Patch 4 Period 15.08.2009 - 03.12.2009 Not Assessee’s Period of Transaction Patch 5 Period 04.12.2009 – 08.03.2010 Not Assessee’s Period of Transaction Patch 6 Period 09.03.2010 – 30.04.2010 Period in which the assessee sold the Shares i.e. 09.03.2010 - 30.04.2010 Neither the name of the assessee is mentioned in the said patch (or rather anywhere in the SEBI Investigation Report), nor is the alleged modus operandi of the said patch is applicable to that of the transaction undertaken by the assessee. The Price range in this period varies from 143.05 to 47.6 and closed at 49.65 as per report. Assessee exited at lowest price in this period at avg. price of Rs. 54-55. By this time assessee was holding the shares for more than 3 years. 21. We also noticed that SEBI Investigation report divided the period into 8 parts, i.e. 8 Patches. The assessee trades fall in patch 6-Price Fall 09.03.2010 to 30.04.2010: - on deep analysis done by the SEBI, it reveals that the stock price during this period falls from Rs. 143.05/- to Rs. 47.6/-If the assessee is involved in manipulative trades, then she would have sold the shares at peak and not at the bottom. The assessee sold the shares of JMD Telefilm Private Limited at an average price of Rs. 54-55. P a g e | 11 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 22. However, the SEBI investigation report does not mention the assessee or assessee-specific transaction among the entities investigated for price manipulation or fraudulent practices. The concluding paragraph of the SEBI report (page 32 of the assessment order) explicitly identifies only five specific parties as violators of the SEBI Act, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations. 2013. Notably, no person or entity in Patches 1 to 6, including Patch 6, was found guilty of any offence under SEBI rules. The absence of the assessee's name or any direct link to her transaction underscores that her sale was not part of the manipulative scheme identified by SEBI. 23. Even though there is no evidence in the Assessment Order or SEBI report indicating that the assessee was subject to any direct enquiry or investigation by SEBI regarding her transaction in Patch 6. The assessee complied with all statutory notices issued during the reassessment proceedings, attending the office on November 9, 2017. and providing a statement under oath as per Section 131(1) of the Income-tax Act, 1961. Even no communication from SEBI implicates the assessee in any wrongdoing. 24. It is important to mention that the report does not suggest that every transaction in the scrip. particularly in Patch 6, was manipulative. Therefore, punishing the assessee, who is not named or implicated by the SEBI or any other P a g e | 12 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal agencies, for the actions of unrelated parties is contrary to the principles of natural justice and fairness. 25. We are of the considered view that just the modus operandi, generalization, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected. Reliance is placed on Hon'ble Mumbai ITAT bench in the case of Vijayrattan Balkrishan Mittal vs. DCIT CC- 8(1) [ITA No. 3427-29/Mum/2019], wherein it has been held as under: \"An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee's action giving his involvement in the scam should be established. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the Ld. AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the Ld. AO nor is it put before the assessee. The submissions of the assessee that he is just an investor and as he received some tips and he chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that he is not party to the seam etc., has to be controverted by the revenue with evidence when a person claims that he has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many beneficiaries of LTCG. Each case has to be assessed based on principles of legal import laid down by the Courts of law. 26. Therefore, the SEBI order, while identifying price manipulation by specific entities in the JMD Telefilms scrip, does not name or implicate the assessee in its findings. particularly for her transaction in Patch 6. Therefore, sale at a lower price Rs. 54-55 during a period of price decline, after holding the shares for over three years, contradicts the modus operandi of manipulative P a g e | 13 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal trades. The absence of any SEBI enquiry involving the assessee and the legitimate nature of her stock exchange transaction further affirm the genuineness of her LTCG claim under Section 10(38). 27. We noticed that the CIT(A) overlooked the crucial fact that the Assessee did not purchase shares in the scrip of Consortium Capital Ltd, a private company, nor was beneficiary in any manner. However, the AO relied on the specific report of Securities and Exchange Board of India on JMD Telefilm Ltd. 28. We are conscious of the fact that the Securities and Exchange Board of India has been accorded wide powers under the SEBI Act, 1992 ('SEBI Act') to ensure the fair functioning of the securities markets in the country. As the watchdog of the nation's bourses. SEBI takes enforcement action against those who violate the integrity of the market by indulging in synchronized trades with the intent of price/volume manipulation. 29. Now, in the present case, we found that the SEBI has not issued any notice to the assessee or broker of the assessee in relation to these trades. The assessee submits again that it has never received any notice for violating the SEBI Rules or regulations. 30. Therefore, the AO has made a baseless allegation and put reliance of the Investigation report, without any substance and corroborative evidences. The SEBI Report reproduced by the AO in the assessment order has nothing to do with the assessee. If some person manipulates the trades in JMD Shares does P a g e | 14 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal not mean that the assessee was also involved. There is no evidence from AO or in the report reproduced by the AO in assessment order. 31. Therefore, the addition made by placing reliance on the SEBI stands deleted, and the above-ground stands allowed. 32. Ground Nos. 4 to 7: All the grounds are interrelated and interconnected and relate to challenging the order of Ld. CIT(A) in upholding the additions made by the AO. Therefore, we have decided to adjudicate these grounds through the present consolidated order. 33. From the records, we notice that during the course of the assessment proceedings, the assessee submitted all the details and documents relating to the transactions conducted in the scrip of M/s. JMD Telefilms Limited to discharge the onus and to prove the genuineness of the said transactions. The assessee statement was recorded under section 131 of the Act where the assessee has explained the purchase and sale of JMD Telefilm Limited. The assessee during the course of the assessment duly submitted all the required documents. However, the AO concluded in the assessment order that the assessee's submission was untenable. 34. Further, in para 8.3 of the assessment order, the AO, analysed the fundamentals of the alleged scrip. JMD Telefilms Limited, for 6 years, wherein according to the AO, the net worth of the company was negligible. It is pertinent to mention that the assessee is a long term investor in a number of scrips and P a g e | 15 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal the fundamentals of a particular scrip is not of primary importance. Without prejudice to the above, even if the year wise financial comparison of the alleged scrip provided by the AO is considered, it can be clearly seen that there is substantial increase in the PAT (Profit after Tax) from 1.55 crore in FY 2009-10 to 2.86 crore in FY 2010-11 (relevant to the impugned AY 2011-12), which is almost double as compared to the previous year. Therefore, the theory of the AO. that the fundamentals of the company were not good, is incorrect and misplaced. 35. Further, in the para 9 and 10 of the Assessment Order, the AO mentioned that the assessee had sold the alleged scrip through the exchange in FY 2013-14 and further compared the returns of BSE/SENSEX of FY 2013-14, finding the assessee's returns in the scrip to be astronomical. Furthermore, the AO. categorically mentioned on multiple occasion in the ensuing paragraphs that the alleged scrip of the assessee was M/s Sunrise Asian Limited. However, the AO. failed to realise that the impugned year was AY 2011-12 (relevant to FY 2010-11) and that the assessee had sold the alleged scrip in AY 2011-12 and not FY 2013-14, and the assessee has never till date traded in the scrip M/s Sunrise Asian Limited, as mentioned by the AO, depicting complete ignorance in appreciating the facts of the assessee's case. 36. Furthermore, in the assessment order, the AO reproduced the SEBI Investigation Report (Para 12 of the Assessment Order page 10) in case of M/s P a g e | 16 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal JMD Telefilm Limited received from SEBI u/s 133(6) of the Act. The SEBI Investigation report neither mentioned the assessee name or the assessee's broker name. The Investigation report by SEBI was first reproduced in assessment order without giving the opportunity to the assessee to rebut the so called report of SEBI in case of JMD Telefilm Limited. 37. The AO, at the end, while completing the assessment proceedings, made the addition of Rs. 6,67,42.582/- u/s 68 of the Act to the total income of the assessee by treating the sales consideration received from the sales of shares of M/s JMD Telefilms Limited as ‘unexplained cash credit’ and added it to the total income of the assessee under the head \"Income from Other Sources\" even though the above sale consideration has been duly reflected in the return of income after reducing the cost of investment as \"Long Term Capital Gains\" and the same has been claimed as exempt income u/s 10(38) of the Act. 38. The assessee had sold the impugned shares through the recognised stock exchange through reputed registered brokers, wherein the purchasers and sellers are not aware of the other's identities. Accordingly, there was no way for the assessee to know the persons/entities to whom the impugned shares of JMD Telefilm Limited were sold. 39. The assessee has submitted the following documents to prove the genuineness of the transaction and claim of 10(38) in JMD Telefilm Limited: Concise paper book submitted during Hearing on 09.06.2025 Particular Page No. P a g e | 17 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal a. Ledger Account of JMD Telefilm declared in search 19 b. Statement shoing scrip wise LTCG and STCG 20 c. Contract notes for sale of JMD Telefilms Ltd. 21-32 d. Copy of Demat Account 33-34 e. Copy of Broker Ledger Account 35-36 f. Bank Statement reflecting the credit from sale of shares 37 g. Form 10DB 38-39 h. Share Holding Pattern of JMD Ventures as on March 2010 40-41 However, the Ld. CIT(A) linked the assessee's case with the decision of the Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj 446 ITR 56. However, the decision in the said case takes a different view from that of the other High Courts. It casts the onus of proving the genuineness of the transaction on the assessee. However, with utmost humility and respect, it is submitted that the decision in the case of Swati Bajaj cannot be followed on account of the fact that: (a.) There are several decisions of the Hon'ble Jurisdictional High Court of Bombay. which are in favour of the assessee in respect of the issue under consideration. It is a well-settled position in law that the decision of the Hon'ble Jurisdictional High Court would have higher precedence value than the decision of the Hon'ble Non-Jurisdictional High Court on the Tribunal. Reliance in this regard is placed on the decision of the Hon'ble ITAT, Mumbai in the case of Smt. Priyanka Miglani and others (ITA No. 2531/Mum/2021). The relevant operative extract is reproduced as under: \"5.23. We find that the Id. DR before us vehemently relied on the recent decision of Hon'ble Calcutta High Court in the case of PCIT vs Swati Bajaj reported in 139 taxmann.com 352 (Cal) which is an elaborate decision rendered after considering P a g e | 18 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal various decisions of various High Courts on the subject. In the said decision, it was held that assessee had to establish the genuineness of rise of price of shares within a short period of time that too when general market trend was recessive. But we find that when there are several decisions of Hon'ble Jurisdictional High Court as stated supra are already in favour of the assessee, the same would prevail over this tribunal and this tribunal need not take cognizance of the Hon'ble Non-hrisdictional High Court. The law is very well settled by the Hon'ble Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of Hon'ble Jurisdictional High Court would have higher precedence value than the decision of Hon'ble Non-Jurisdictional High Court on the Tribunal.\" (b.) The Ld. CIT Appeal in impugned order ignored the decision of the Hon'ble Jurisdictional High Court of Bombay in Shyam Pawar case 229 Taxmann 256, which have dealt with the burden of proof on the assessee and the revenue and concluded that without establishing by way of cogent evidence as to how the assessee was in collusion with the alleged operators, transactions on recognised stock exchanges proved with third party documents could not be faulted. “5. We have perused the concurrent findings and on which heavy reliance is placed by Mr. Suresh kumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus- operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted P a g e | 19 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1.30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20.000 shares of Mantra Online Ltd for the total consideration of Rs.25.93.150/-, These shares were sold and how they were sold on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available the transactions. The generated and prescribed by the Stock Exchange. From this material. In para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr.Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-, Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.” (c.) Once the assessee through submission of documents establishes that the transaction is fully supported by third-party evidence, unless the revenue is able to bring on record some document or evidence to establish that the assessee is P a g e | 20 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal connected with any wrongdoing/ collusion, the documents submitted cannot be ignored on the basis of ‘suspicion and surmises’. (d.) Reliance was also placed on a recent decision of Hon'ble Jurisdictional High Court of Bombay in the case of PCIT vs Indravadan Jain, HUF [Income Tax Appeal No. 454 of 2018]. wherein the deletion of capital gains on alleged penny stock u/s 68 of the Act was upheld by the Hon'ble Jurisdictional High Court. Therefore, in our view when there are conflicting judgements of various High Courts, the Hon'ble Supreme Court in the case of Vegetable Products [88 ITR 192 (SC) had held that the construction that is favourable to the assessee should be adopted. Hence, on the basis of this principle, in our view, the favourable decision of the Hon'ble Jurisdictional High Court of Bombay is followed. 40. In this case with regard to the so-called Penny Stock Capital Gain, the Hon'ble Mumbai ITAT \"F\" Bench has recently delivered judgment in Appeal No. 3801/Mum/2011 in the case of Ms. Farrah Marker vs. ITO 19(3)(1), Mumbai, wherein it was held that the Long-term capital gains on sale of \"penny\" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity. The fact of the case in this case is reproduced here: The assessee, an individual, filed her return of income for A.Y.2005-06 on 04/08/2005 declaring income of Rs. 1,19,653/- after claiming the income from long P a g e | 21 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal term capital gain (LTCG) of Rs.93,00,012/- on sale of listed equity shares and subjected to STT as exempt under section 10(38) of the Income Tax Act, 1961 (in short 'the Act'). The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. In the course of assessment proceedings, the Ld. AO observed that the shares of Shukun Constructions Ltd. (hereinafter referred to as 'the said shares') are nothing but penny stock and that the assessee has back dated the purchase of the said shares in transactions to generate artificial gain. He required the assessee to substantiate her claim of exemption on the capital gain arising on the sale of the said shares. After considering the details documents and submissions filed by the assessee in support of the claim of exemption from LTCG on sale of the said shares and discussion of available data on penny stocks, modus operandi generally adopted by interested persons to avail the arranged exemption of LTCG/STCG/speculation Profit/Loss, stock price movement of the said company and on the basis of the statement recorded from one Shri Niraj Sanghvi, the Ld. AO concluded that the LTCG shown by the assessee on Sale of the said shares of Shukun Construction Ltd. is not a genuine transaction but a fabricated one. In that view of the matter, the Ld. AO. while concluding the assessment, treated the entire sale proceeds of the said shares amounting to Rs.95.12.812/-as unexplained cash credit under section 68 of the Act and brought the same to tax in the assessee's hand. The assessment was accordingly completed under section 143(3) of the Act, vide order dated 31/12/2007 wherein the assessee's income was determined at Rs.96.32,470/- primarily due to the addition of the sale proceeds on sale of the said shares amounting to Rs.95,12,812/- under section 68 of the Act. Aggrieved by the order of assessment for A.Y. 2005-06 dated 31/12/2007, the assessee preferred an appeal before the CIT (A)-30, Mumbai. The learned CIT (A) dismissed the assessee's appeal vide the impugned order dated 24/02/2011 upholding the addition made by the Ld. AO under section 68 of the Act. The Hon’ble Bench held in Para 3.4.1 as under: \"3.4.1. We have heard the rival contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. From a perusal of the Paper Book (pages i to viii and pages 1 to 72) containing copies of written submissions, copies of documents placed before the authorities below, we find that documents pertaining to the purchase and sale of shares of M/s Shukun Constructions Ltd. Such as contract notes of brokers, copies of physical shares certificate, transfer of physical shares to the name of the assessee and consolidation by the company, the D-MAT account statement of the assessee with SHCIL confirming the said shares in the assessee's name, bank statements and summary thereof and financial statements of the assessee, viz., Balance Sheet of earlier years showing that the fact of holding these shares were furnished before the Ld. AO from 16/07/2007 onwards. Le. well before the assessment was concluded on 31/12/2007. It is also seen that the show cause notice issued by the Ld. AO to the assessee on 13/11/2007 as to why the transaction in the said shares be not treated as a bogus/arranged one was replied to by the assessee vide letter dated 21/11/2007 addressed to the Ld. AO. In our considered view after an appreciation of the material on record, we find that no proper investigation has been carried out by the Ld. AO to controvert the material evidence brought on record by the assessee. Even the statement recorded on 31/12/2007 by the Ld. AO from one Sir Niraj Sanghvi, which P a g e | 22 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal was strongly relied upon by the Ld. AO, we find has no evidentiary or corroborative value as it is of a person who has no role in the said share purchase transactions. Further, the said statement, recorded on the day the order of assessment was concluded, i.e. 31/12/2007, was recorded behind the back of the assessee and neither copy of the same was given to the assessee for rebuttal, nor was the assessee allowed due opportunity to cross-examine Shri Niraj Sanghvi. It is seen from the record that no statement was recorded from Smt. Charu Sanghvi, Proprietor, falgun Invest from whom the assessee purchased the said shares M/S. Shukun Constructions Lid. In this factual and legal matrix as discussed above, we find that the statement of Shri Niraj Sanghvi, which was so strongly relied upon to form the basis of the Ld. AO's conclusion, is fatally flawed and has no corroboratory or evidentiary value since it was recorded behind the back of the assessee and was used to arrive at an adverse finding in respect of the assessee's purchase of the 'said shares without putting the assessee on notice by affording her opportunity of rebuttal of the statement and/or cross-examination of Shri Niraj Sanghvi.\" 41. Therefore, considering the totality of facts and legal preposition as discussed above, we direct the AO to delete the additions and subsequently allow these grounds. 42. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 01.07.2025. Sd/- Sd/- PRABHASH SHANKAR SANDEEP GOSAIN (लेखाकार सदस्य/ACCOUNTANT MEMBER) (न्यानयक सदस्य/JUDICIAL MEMBER) Place: म ुंबई/Mumbai दिन ुंक /Date 01.07.2025 अननक ेत स ुंह र जपूत/ स्टेनो आदेश की प्रनतनलनि अग्रेनित/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai P a g e | 23 ITA No. 5473/Mum/2024 A.Y. 2011-12 Annu Anil Agrawal 5. गार्ड फाईल / Guard file. सत्यानित प्रनत //True Copy// आदेशािुसार/ BY ORDER, सहायक िंजीकार (Asstt. Registrar) आयकर अिीलीय अनर्करण/ ITAT, Bench, Mumbai. "