ASST. COMMISSIONER OF INCOME TAX, BANDRA EAST V. RAVINDRA SHANKAR SAWANT, DAHISAR WEST

ITA 5192/MUM/2024

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A), which had deleted the additions made by the Assessing Officer concerning unexplained cash credits and expenditures related to transactions in penny stocks by the assessee, Ravindra Shankar Sawant. The Assessing Officer had initially added these amounts to the assessee's income, suspecting that the transactions were artificial and intended to create short-term capital losses to offset genuine capital gains. However, the CIT(A) found that the assessee had provided sufficient documentary evidence to substantiate the legitimacy of the transactions. The Tribunal agreed with the CIT(A)'s findings, noting that the Revenue failed to provide any substantive evidence to support their claims of manipulation or sham transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126341 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained expenditure; Tax effect; Capital Gains; Accommodation entries; Penny stocks; Bogus; Dismissed; National Faceless Appeal; Purchases; Transfer; Transactions; Share brokers; Deleted; Adverse view; Department; AY 2011-12; Explanation
• Section: 143(3); 68; 22; 69C; 2

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 5192/MUM/2024 Assessment Year: 2013-14 Asst. CIT, R. No. 732, Kautilya Bhavan, BKC, Bandra Kurla Complex, Bandra East, Mumbai-400051. Vs. Ravindra Shankar Sawant, Dahisar West, A-101, Radharaman Apartment, Kandarpada, Dahisar West, Mumbai-400068. (PAN : AMNPS4817Q) (Appellant) (Respondent) Present for: Assessee : Mr. Rajiv Khandelwal, CA (Virtually) Revenue : Shri R. R. Makwana, Addl. CIT Date of Hearing : 22.01.2025 Date of Pronouncement : 21.04.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2023-24/1061827856(1), dated 07.08.2024, passed against the assessment order by Assessing Officer, Circle 6(2)(1), ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 2 Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 23.05.2023, for Assessment Year 2013-14. 2. Grounds taken by the Revenue are reproduced as under: 1. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made of Rs. 1,27,35,801/- on account of unexplained cash credit u/s 68 of the IT. Act, 1961 by the AO in respect of bogus loss claimed by the assessee by way of transacting in penny stocks namely M/s VAS Infrastructures Ltd and M/s Neha International Ltd. On the facts and circumstances of the case and in law, the La.CIT(A) erred in deleting the addition made of Rs. 1,27,358/- on account of unexplained expenditure u/s 69C of the IT. Act, 1961 by the AO in respect of cash commission paid to get accommodation entry in the form of penny stocks by the assessee to the share brokers and promoters. On the facts and in the circumstances of the case, the Hon'ble ITAT is requested to entertain this appeal, though, the tax effect is below the monetary limit prescribed in the CBDT Circular no. 05/2024 dated 15.03.2024, however, the case falls under the exception as laid down in Para 3.1(h) of the Circular. 4. The appellant craves leave to amend or alter or add a new ground which may be necessary.\" 3. Brief facts from the records are that assessee filed his return on 30.09.2013, reporting total income at Rs.6,81,860/-. Subsequently, return was revised on 31.10.2013, with revised total income reported at Rs.23,51,190/-. In the instant case, ld. AO observed based on information received from DDIT(Inv.), Unit-5(1), Mumbai, that assessee is indulged in taking accommodation entries in respect of sale of shares in stock market and derived an artificial short term capital loss and the same was set off with short term capital gains. Ld. AO thus, noted that assessee sold shares of the company Neha International Ltd and VAS Infrastructure Ltd. for Rs.22,37,904/- and Rs.45,11,826/-, respectively on which assessee accounted for short term capital loss for setting it off with short term capital gain. ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 3 3.1. From the facts, it is seen that assessee bought 50,329 shares of Neha International Ltd during August, 2011 for average price of Rs. 104/- and sold during April, 2012 for average price of about Rs. 57/-. Likewise, assessee bought 2,00,000 shares of the company VAS Infrastructure Ltd. during June, 2011 for average price of about Rs. 106/- and sold 1,44,000 shares during the relevant AY for Rs.48,66,688/-. Because of these transactions, assessee incurred short term capital loss of Rs. 1,27,35,801/-. This short-term capital loss was set off with other short term capital gains derived from sale of other scrips. Ld. AO analyzed the financials of both the companies and relied upon statements recorded by the promoter of the VAS Infrastructure, Shri Jayesh V. Valia and other intermediaries and finally came to the conclusion that this is only a sham transaction and it is nothing but artificial capital loss arranged to set off with genuine short term capital gains. Accordingly, claim of assessee was denied by the ld. AO to make the addition of entire short term capital loss of Rs.1,27,35,801/-. He also made addition of Rs. 1,27,358/- as incidental expenses incurred for arranging the above transactions by applying provisions of section 69C. 4. Assessee explained the nature of transaction undertaken by it in respect of shares of both the said companies on which it has incurred short term capital loss and duly reported in his return. Assessee corroborated his contentions by furnishing documentary evidences which included copies of broker contract notes, statement of purchase and sale of shares, settlement account with the broker giving details of contract note number, quantity, scrip, price per unit, scrip-wise transaction, date of transaction, amount of sale and purchase as well as holding of shares. ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 4 4.1. Assessee also submitted that he is a regular investor in the stock market, dealing in several scrip. In this respect, for the year under consideration itself, it was submitted that assessee had reported short term capital gain u/s 111A of Rs.20,17,307/- which was arrived at after setting off short term capital loss in certain scrips. In this respect, the details as furnished and forming part of the Paper Book are extracted below: ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 5 4.2. Further, out of the above tabulated details, assessee extracted the transactions pertaining to the two scrips in which ld. AO had taken an adverse view i.e. Neha International and VAS Infrastructure in which assessee incurred short term capital loss, viz. Rs.23,58,781/- for Neha International and Rs.1,05,24,693/- for Vas Infrastructure, totaling to Rs.1,28,72,474/-. The same are also extracted below for ready reference: 5. Ld. CIT(A) objectively considered the submissions made by the assessee, duly corroborated by documentary evidence and came to factual conclusion to delete the additions so made by the ld. AO. His observations and findings in this respect are extracted below: ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 6 “In this ground, the assessee contested the addition made on account of short term capital loss as unexplained cash credits. I have gone through the assesse's submissions and considered the facts and circumstances of the case. From the facts, it is seen that the assessee purchased 50,329 shares of Neha International Ltd. in the month of August, 2011 at average price of Rs.104/-. The assessee sold the same in the month of April, 2012 and average sale price is at Rs.57.57/-. Thus, the assessee arrived at short term capital loss at Rs. 23,58,781/-. Likewise, the assessee also traded in the shares of M/s VAS Infrastructure Ltd. and purchased 1,44,000 shares in the month of June, 2011 for Rs. 1,53,91,381/- and sold the same in the month of May, 2012 at Rs.48,66,688/-. Thus, the assessee derived short term capital loss to Rs.1,05,24,693/-. The AO rejecting the assesse's explanations simply held that they are only bogus accommodation entries and made the addition u/s 68. The assessee has submitted sufficient information before the AO which was once again submitted during the course of appellate proceedings. The assessee transacted in the purchases and sales of above scrips through one of its SEB! registered stock brokers by name Alacrity Securities Ltd and payments were made through banking channels. The assesse's broker transacted the above purchases and sales in Bombay Stock Exchange and STT was paid. The assessee also submitted Form 10DB and payments were subsequently transferred by Stock Exchange to broker and broker to the assessee. (i) VAS Infrastructure Ltd.: Regards to this scrip, the AO states that one of the promoters has confessed that they have indulged in manipulation of the shares. I have gone through the promoters' statements available at pg. no. 22 of assessment order but the promoter never confessed any such thing about that. He simply replied that \"I can offer no explanation to such behaviour in the stock price. My exposure to the scrip was very limited and I am hereby, submitting the details.\" The AO further states that he has relied on statement of some intermediaries. But, none of the intermediaries who purported to be involved in accommodation entries have given any categorical statement with regard to manipulation of the stock prices. Even verification of financials reveals that during AY 2011-12, profit of the company was at Rs. 1.63 crores, whereas in AY 2012-13, it has ended up with loss of Rs. 2.32 crores. Thus, the stock movement is very much commensurating with the performance of the company and it has decreased from Rs. 106 to Rs. 33.79 which is only decrease of about 02 times which is quite common in the stock market and is not very unusual fall. Thus, none of the AO's findings justify the circumstances which may imply that the assessee was indulged in manipulation of stock prices. Moreover, in the stock ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 7 market, purchasers and sellers are totally unknown to each other and it was only handled by the brokers through Bombay Stock. Exchange. Therefore, there is no scope for any manipulation and the AO has also not brought any specific adverse material against the assessee to prove that the stocks are manipulated. Accordingly, the AO's addition is not justified ii) Neha International Ltd.: In this case also verification of financials shows that for the AY 2011-12 profit was at 17.99 lakhs profit before tax and for AY 2012-13 it is at Rs. 6.52 lakhs and for AY 2013-14 it is loss of Rs. 1.5 crores. Thus, the assesse's financials proves that performance of the company was decreasing. Accordingly, stock prices were decreased from Rs. 104 to Rs.57 which is fall of only 100% which is nothing much unusual in the stock market and the AO did not bring any adverse material to justify his addition. The assessee filed all relevant contract notes, bank statements, STT paid challans, 10DB reports etc. Therefore, the addition made by the AO u/s 68 is totally unwarranted in this case, accordingly the addition is hereby deleted.” 6. We have heard both the parties and perused the material placed on record along with paper book filed by the assessee containing 96 pages. We note that transactions were undertaken through the SEBI registered broker on the stock exchange platform on which STT was levied and the consideration was routed through normal banking channel. The entire flow of these transactions is corroborated by relevant documentary evidences placed on record. While making the addition, there are no discrepancies pointed out by the Assessing Officer in the documents and the details furnished by the assessee. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. At any stage of the present case, Revenue has not brought on record any material about participation of the assessee with any such dubious transactions relating to accommodation entry, price rigging or exit providers. To our mind, Ld. ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 8 AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office. Once the assessee has produced documentary evidence to establish the veracity of his claim, the burden would shift on the Revenue to establish its case. 6.1. On the perusal of records, it is discernible that ld. Assessing Officer had proceeded on the basis of analysis of the financials of the company. According to him, sharp movement in the share prices of the aforesaid scrip is not justified. He has relied upon the search and survey operations conducted by the investigation wing of the Department at various locations in respect of alleged penny stock which sets out the modus operandi adopted in the business of providing entries for bogus capital gains. The conclusion drawn by the ld. Assessing Officer of implicating the assessee is un-supported by any cogent material on record. It is also a fact on record that assessee is a regular investor, transacting and holding shares in several scrips. The finding arrived at by the ld. Assessing Officer is thus purely an assumption based on conjectures and surmises. In our thoughtful considerations to the facts and circumstances of the case, it is not in controversy that assessee has discharged his burden by submitting the relevant documents, details of which are already noted above, forming part of the paper book. 6.2. Reliance placed by the ld. Assessing Officer on the report of investigation wing without further corroboration based on cogent material does not justify the conclusion that the impugned transaction is bogus, sham and part of racket of accommodation entries. It does not prove that the assessee has carried out the impugned transactions of ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 9 purchase and sale of shares in connivance with the people who were involved in the alleged rigging of share prices. In absence of any such material, enquiry and examination, the addition made pertaining to receipt of sale consideration of the impugned transaction cannot be sustained. In our considered view, ld. Assessing Officer has not established that the assessee was involved in price rigging. 6.3. We have perused the order of ld. CIT(A) to note his factual observations and findings on addition made by the ld. AO. The same has already been extracted above for ready reference. 7. Considering the totality of facts and circumstances of the case, factual matrix and submissions of parties narrated as well as detailed factual findings arrived at by ld. CIT(A), we have no reason to interfere with the first appellate order whereby addition made towards short term capital loss on the share transactions of two scrips viz. Neha International and VAS Infrastructure which was set off from the short- term capital gains on other scrips. Accordingly, grounds taken by the revenue in this respect are dismissed. 8. Addition made by the ld. Assessing Officer on estimate basis towards commission for arranging alleged artificial capital loss amounting to Rs.1,27,358/- is consequential to the addition made towards short-term capital loss on the aforesaid two scrips. Since we have upheld the deletion of the said addition towards short-term capital loss on the aforesaid two scrips in terms of above stated observations and findings, this consequential addition also receives the same fate, ITA No. 5192/Mum/2024 Ravindra Shankar Sawant AY: 2013-14 10 affirming the finding of ld. CIT(A) to this effect. Accordingly, grounds taken by the revenue in this respect are dismissed. 9. In the result, appeal of the revenue is dismissed. Order is pronounced in the open court on 21 April, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 21 April, 2025 Rahul Sharma, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "