ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI V. PARU SECURITIES PVT LTD, MUMBAI CITY

ITA 885/MUM/2025

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The case involves Paru Securities Pvt. Ltd., a company engaged in trading shares and securities, which faced scrutiny from the Income Tax Department over transactions involving penny stocks, specifically shares of M/s PFL Infotech Ltd. The Assessing Officer (AO) disallowed a reported loss of Rs. 3,91,126, suspecting the transactions to be accommodation entries aimed at tax evasion. The First Appellate Authority (FAA) reversed the AO's decision, accepting the assessee's evidence including broker notes and bank statements, which demonstrated the transactions were genuine. The revenue appealed against this decision, arguing that the FAA overlooked substantial evidence and testimonies indicating the transactions were part of a scheme to manipulate stock prices. The Tribunal, after reviewing the evidence and arguments, sided with the assessee, dismissing the revenue's appeal and the CO filed by the assessee became infructuous.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780030 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2012-2013
• Appeal Filed On: 07-02-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ADITYA RAI
• Assessee Lawyers: HEMANG SHAH
• Keywords: Capital Gains; Accommodation entries; Penny stocks

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “J (SMC)” BENCH, MUMBAI BEFORE SMT BEENA PILLAI, JM & MS PADMAVATHY S, AM I.T.A. No. 885/Mum/2025 (Assessment Year: 2012-13) ACIT-4(2)(1), Room No. 669, Aayakar Bhavan, Churchgate, Mumbai-400051. Vs. Paru Securities Pvt. Ltd., C-10, Raji Building, R.B. Mehta Road, Ghatkoper East, Mumbai-400077. PAN: AACCP3336R Appellant) : Respondent) C.O. No. 107/Mum/2025 (Assessment Year: 2012-13) Paru Securities Pvt. Ltd., C-10, Raji Building, R.B. Mehta Road, Ghatkoper East, Mumbai-400077. PAN: AACCP3336R Vs. ACIT-4(2)(1), Room No. 669, Aayakar Bhavan, Churchgate, Mumbai-400051. Appellant) : Respondent) Revenue by : Shri Aditya Rai, Sr. DR Assessee by : Shri Hemang Shah, CA Date of Hearing : 01.10.2025 Date of Pronouncement : 09.10.2025 O R D E R Printed from counselvise.com 2 ITA No. 885 & CO 107/Mum/2025 Paru Securities Pvt. Ltd. Per Padmavathy S, AM: These appeals by the revenue and the Cross Objections (CO) of the assessee are against the order of the Commissioner of Income Tax (Appeals) /ADDL/JCIT (A)-2 Guwahati [In short FAA'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 10.12.2024 for Assessment Years (AY) 2012-13. The grounds raised by the revenue and the CO of the assessee are as under: Grounds of Revenue: “1. Whether, on the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs. 3,91,126/- disallowed by the Assessing Officer, despite substantial evidence indicating that the transactions in penny stocks were accommodation entries designed to evade taxes? 2. Whether on the facts and circumstances of the case, the CIT(A) was justified in disregarding the statement recorded under oath u/s 132(4) of Shri Naresh Jain, which explicitly described the modus operandi of providing accommodation entries through manipulation of stock prices, thereby justifying the disallowance made by t Assessing Officer? 3. Whether on the facts and circumstances of the case, the CIT(A) was justified in accepting the assessee's documentation, such as' broker notes and demat statements, without considering the broader circumstantial evidence and investigative findings indicating that the transactions were fictitious and lacked commercial substance?” Grounds of C.O.: “Being aggrieved by the appeal filled by Assessing Officer, DCIT 4 (2)(i), Mumbai, this objection petition is filled on the following grounds, which it is prayed may be considered without prejudice to one another. 1. On the facts, and in circumstances of the case, and in law, the Assessing Officer erred in making disallowance of loss 3,91,126 without appreciating the fact that, the trades for purchase and sale took place through authorized trading members on the Stock Exchange, without appreciating the evidence submitted. Printed from counselvise.com 3 ITA No. 885 & CO 107/Mum/2025 Paru Securities Pvt. Ltd. 2. On the facts, and in circumstances of the case, and in law, the Assessing Officer erred in establishing any evidence for any transaction with Naresh Jain. 3. Your Appellant craves leave to add to, amend, alter, modify, and / or delete any of the above grounds of objection at or before final disposal of appeal.” 2. The assessee is a private limited company engaged in the business of trading in shares and securities through BSE & NSE. The assessee filed the return of income for AY 2012-13 on 10.08.2012 declaring Nil income after adjusting the brought forward business loss. The Assessing Officer (AO) reopened the assessment based on information received from DDIT(Inv.) regarding alleged accommodation entries in penny stock in scrip M/s PFL Infotech Ltd. and that the assessee has made a loss of Rs. 3,91,126/- during the year under consideration from the sale of the said scrip. The assessee submitted various details pertaining to the purchase and sale of the scrip and submitted that the loss made by the assessee is genuine. However, the AO did not accept the submissions and disallowed the loss claimed by the assessee. On further appeal the FAA deleted the addition after considering the detailed evidences including broker notes, Demat A/c statement, bank statement and capital gains computation, etc. The revenue is in appeal before the Tribunal against the order of the FAA. 3. The ld. DR submitted that as per the search conducted and the statement recorded from one Mr. Naresh Jain where he has admitted that he has manipulated the share prices of the scrip M/s PFL Infotech Ltd. Therefore the ld. DR argued that the claim of the assessee that the loss arising out of the sale of the impugned scrip is genuine is not tenable. The ld. DR further argued that the FAA should have considered the circumstances around the impugned transaction and should not Printed from counselvise.com 4 ITA No. 885 & CO 107/Mum/2025 Paru Securities Pvt. Ltd. have deleted the addition merely based on the documentary evidences submitted by the assessee. Accordingly, the ld. DR supported the order of the AO. 4. The ld. AR on the other hand submitted that the assessee is in the business of dealing in shares and securities and has offered the net gain/loss under the head \"Profits & Gains from Business or Profession\" and has not claimed any exemption u/s. 10(38). The ld. AR drew our attention to the list of transaction entered into by the assessee during the year under consideration to substantiate the contention that the loss made by the assessee is in the regular course of business and cannot be held as non-genuine based on the report of the third party. The ld. AR further submitted that the AO did not record any adverse findings with regard to the various documentary evidences and therefore the AO is not correct in holding the transaction as non-genuine merely based on the report from the Investigation Wing. The ld. AR also submitted that the FAA has considered the various documentary evidences and the submissions and has correctly allowed the claim of the assessee. The ld. AR submitted that in the SEBI report no adverse finding has been recorded with regard to the broker or the assessee's name has not been mentioned. The ld. AR also drew our attention to the fact that the assessee during the Financial Year relevant to AY 2012-13 has purchased additional shares of M/s PFL Infotech Ltd. which goes to prove that the assessee is not in any way connected with the price rigging and is not involved in any alleged non-genuine transactions. The ld. AR also drew our attention to the SEBI report where the period of price rigging is stated to be from 01.07.2013 to 13.04.2016 and the transactions carried out by the assessee does not fall in the said period. In summary the ld. AR submitted that the transactions carried out by the assessee in the scrip M/s PFL Infotech Ltd. is genuine and the loss arising there from is genuine business loss that cannot be disallowed. Printed from counselvise.com 5 ITA No. 885 & CO 107/Mum/2025 Paru Securities Pvt. Ltd. 5. We heard the parties and perused the material on record. During the year under consideration the assessee has sold 14420 shares of M/s PFL Infotech Ltd. which resulted in a loss of Rs. 3,91,125/-. The AO held the loss to be non-genuine based on the Investigation Report where the scrip of M/s PFL Infotech Ltd. is held to be a penny stock. In this regard it is relevant to take note of the fact that the assessee being a trader in shares and securities has entered into the following transactions in the regular course of business. 6. From the perusal of the above we see merit in the submission that the assessee has incurred loss from the sale of the impugned scrip in the regular course of business. We further notice that the assessee has purchased 12000 shares of the impugned scrip during the year under consideration and that the assessee has submitted various documentary evidences with regard to the impugned transactions such as the broker note, bank statement, Demat A/c statement, etc. before the lower authorities. We also notice that in the SEBI report the period manipulation of price of the scrip was carried out from 01.07.2013 to 13.04.2016 Printed from counselvise.com 6 ITA No. 885 & CO 107/Mum/2025 Paru Securities Pvt. Ltd. and there is no specific finding with regard to assessee's involvement in price rigging etc. Considering the present facts and circumstances we are of the view that the assessee has discharged the onus of proving the genuineness of the transaction and the AO without recording any adverse findings with regard to the documentary evidences submitted or establishing the assessee's connection to the alleged price rigging cannot treat the transaction as non-genuine. Accordingly we see no infirmity in the order of the FAA in deleting the addition made by the AO towards loss arising out of the M/s. PFL Infotech Ltd. The grounds raised by the revenue are thus dismissed. 7. Since we have dismissed the appeal of the revenue the CO of the assessee has become infructuous and dismissed accordingly. 8. In result, appeal filed by the revenue and C.O. by the assessee are dismissed. Order pronounced in the open court on 09-10-2025. Sd/- Sd/- (BEENA PILLAI) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "