BHARATKUMAR GADODIA,MUMBAI V. ACIT CIRCLE 31(1)(1), MUMBAI

ITA 6362/MUM/2025

AI Insights

The case revolves around the appeal by Bharat Kumar Gadodia against the order of the National Faceless Appeal Centre (NFAC), Delhi, which was initially based on the assessment order by the Assistant Commissioner of Income Tax, Mumbai. The primary contention was regarding the treatment of the sale of shares of KDJ Holiday Scapes & Resorts Limited as a sham transaction, leading to the addition of LTCG to the assessee's income. The Tribunal examined the documentary evidence provided by the assessee, including contract notes, bank statements, and Demat account statements, which substantiated the genuineness of the transactions. The Tribunal also considered precedents where similar transactions were upheld, leading to the decision in favor of the assessee.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835909 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 07-10-2025
• Other Referred Cases: Sumitra Surendra Gadodia vs ITO, DCIT Vs. Viral Saraf Mittal, ITO vs. Jimeet Vipul Modi
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: AJAY R. SINGH; AKSHAY PAWAR
• Keywords: Set aside; Income from undisclosed sources; Onus to prove; Capital Gains; Sham transactions; Accommodation entries; Source of fund; Penny stocks; Bogus
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No.6362/Mum/2025 (Assessment year: 2014-15) Bharat Kumar Gadodia 901/0-2, Rustamjee O Zone, Near MTNL Office Goregaon (West), Mumbai-400062 PAN:AABPG1081E vs ACIT Circle 31(1)(1) Kautilya Bhavan, G Block, Bandra Kurla Complex, Bandra (E), Mumbai-400050 APPELLANT RESPONDENT Assessee by : Shri Ajay R. Singh,Adv & Akshay Pawar, Adv Respondent by : Shri Leyaqat Ali Aafaqui (Sr. Ar.) Date of hearing : 29/01/2026 Date of pronouncement : 12/02/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity ‘the Ld. CIT(A)], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for assessment year 2014-15, date of order 02.09.2025. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income Tax 31(1)(1), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 147 of the Act date of order 28.12.2017. Printed from counselvise.com 2 ITA No.6362/Mum/2025 Bharat Kumar Gadodia 2. The brief facts of the case are that the assessee has been engaged in investment in shares since the year 2009 and has been a regular investor for the past six years. The consistent investment activity is evident from the share portfolio of earlier years, copies of which are placed in the paper book. During the relevant period, the assessee purchased 20,000 equity shares of Rs.10/- each of Two-Up Financial Limited on 23.12.2011 through a recognized stock exchange broker, Joindre Capital Services Ltd., for a total consideration of Rs.6,54,450/-. The purchase was executed on the Bombay Stock Exchange (BSE) with due payment of Securities Transaction Tax (STT) of Rs.815/-, brokerage, and applicable cess. The consideration for purchase of the said shares was paid by account payee cheque No. 383930 dated 24.12.2011, drawn on Saraswat Co-operative Bank Limited, thereby establishing the genuineness of the transaction. Subsequently, the name of Two-Up Financial Limited was changed to KDJ Holiday Scapes Private Limited on 12.08.2013. Out of the total 20,000 shares acquired, the assessee sold 7,800 equity shares during the period October to December 2013. Thereafter, on 26.12.2013, the company undertook a share split in the ratio of 1:5, whereby one equity share of Rs.10/- was converted into five equity shares of Rs.2/- each. Consequently, against the balance 12,200 shares of Rs.10/- each, the assessee received 61,000 equity shares of Rs.2/- each of KDJ Holiday Scapes & Resorts Limited, which were fully sold by January 2014. Upon acquisition, the shares were duly credited to the assessee’s Demat account, and on sale, the shares were debited from the same account. The shares remained in the Demat account maintained with Joindre Capital Services Ltd. for a period of nearly two years and were consistently reflected as assets in the Statements of Affairs for A.Ys. 2012-13 and 2013-14. The sale transactions were executed through recognized share Printed from counselvise.com 3 ITA No.6362/Mum/2025 Bharat Kumar Gadodia brokers, namely Joindre Capital Services Ltd., on the BSE, with due payment of STT amounting to Rs.9,613/- and service tax of Rs.2,375/-, at the prevailing market rates. On transfer of shares through the BSE mechanism, the assessee duly received the net sale consideration through account payee cheques, which were deposited in the assessee’s savings bank account with Saraswat Co- operative Bank Limited. During the course of scrutiny proceedings, the assessee furnished all primary and supporting documentary evidence, including contract notes, Demat statements, bank statements, and other relevant records. The company, namely KDJ Holiday Scapes & Resorts Limited (in short ‘M/s KDJ’), was a listed company on the BSE, and no adverse action had been initiated against the said company by SEBI during the relevant period. The Ld.AO treated the transaction scrip, M/s KDJ as sham transaction and entire sales amount to Rs. 95,80,971/- is treated as bogus transaction. From the said sales of share assessee earn Long Term Capital Gain (LTCG) amount to Rs. 89,26,521/- which was claimed exemption U/s 10(38) of the Act in the return of income. But the entire sales amount to Rs. 95,80,971/- is added back total income of the assessee. Being aggrieved the assessee filed an appeal before the Ld. CIT(A) but remained failed. Being aggrieved the assessee filed an appeal before us. 3. The Ld. AR advanced arguments and filed a paper book comprising pages 1 to 169, which has been taken on record. The Ld. AR submitted that during the course of the assessment proceedings, the assessee, vide letter dated 10.11.2017, furnished the following documents before the Ld. AO, copies of which are placed at APB pages 23 to 52, namely: Printed from counselvise.com 4 ITA No.6362/Mum/2025 Bharat Kumar Gadodia (a) Details of Long-Term Capital Gain (LTCG) claimed as exempt under section 10(38) of the Act; (b) Copies of contract notes evidencing purchase and sale of shares, along with bank statements reflecting payment for purchase and receipt of sale consideration; (c) Copies of transaction statements; (d) Demat account statements; and (e) Copy of the Global Report for the period from 14.01.2013 to 31.03.2014. The Ld. AR further contended that the assessee was denied access to the documents relied upon by the Ld. AO, and even the opportunity for cross- verification or cross-examination was not afforded. He submitted that the judicial precedents relied upon by the department are factually distinguishable, as in those cases the concerned scrips generated abnormal returns of nearly 500 times within a short span of 1–2 years. In contrast, in the present case, the return earned by the assessee over a period of approximately two years was only about 14.64 times, which cannot be regarded as extraordinary or unnatural. Accordingly, it was contended that the impugned addition has been made purely on the basis of assumptions and surmises, relying upon reports of the investigation authorities, without any independent enquiry or corroborative evidence. 4. The Ld. AR advanced his argument and stated that same issue is already delt by the Coordinate Bench of ITAT, Mumbai in the case of Sumitra Surendra Printed from counselvise.com 5 ITA No.6362/Mum/2025 Bharat Kumar Gadodia Gadodia vs ITO, ITA No.4519/Mum/2025 date of pronouncement 04.12.2025 the relevant para no.6.1 to 7 is reproduced below: “6.1. The Ld. DR has not been able to controvert the observations of this Tribunal wherein categorically this Tribunal observed that the nature of the business activities and the financial statements of KDJ Holiday scapes Resorts Limited, along with justification of increase in share prices were filed before the authorities below and the AO has failed to examine the company profile and made addition on conjectures and presumptions. This Tribunal has also relied on a previous decision in the case of Shri JimeetVipul Modi(supra), wherein it is held that once assessee has discharged his onus to prove the transactions of purchase of shares including the source of funds for purchase unless the revenue has any evidence of any cash transactions, to support the gains were not genuine, additions could not have been made. 7. In the facts of the present case also, we note that, the revenue has not been able to establish any of the requirements to justify the addition u/s 68 of the Act. We, therefore, do not find it fit to confirm the addition made by the Ld.AO. Accordingly, the additions made in relation to transactions with KDJ Holidayscapes Resorts Limited, stands deleted.” 5. The Ld. DR, on the other hand, supported the orders of the revenue authorities and submitted that the entire transaction was bogus in nature, and that the assessee had earned the alleged capital gains through accommodation entries. Accordingly, the Ld. DR contended that the assessee was not entitled to exemption under section 10(38) of the Act. The Ld. DR drew our attention to the relevant paragraphs of the impugned appellate order, which are reproduced hereunder. “The appellant relied on various judicial pronouncements, the facts are distinguishable to the facts of the present case. Further, the appellant relied on the decision of Hon'ble ITAT, Mumbai- G Bench, Mumbai in the case of SurendraRameshwardasGadodia in favour of the appellant. The Hon'ble ITAT Bench followed the decision of co-ordinate bench in the case of DCIT Vs. Viral Saraf Mittal in ITA No. 1843/Mum/2022. The Hon'ble bench had not gone into the merits of the case. As discussed in the para investigation in to the facts of the case elsewhere in the order, I have Printed from counselvise.com 6 ITA No.6362/Mum/2025 Bharat Kumar Gadodia gathered the information pertaining to the financials of the company and tabulated the same in that para. These are the facts brought out in addition to the facts mentioned in the assessment order in the case of KDJ Holidays. Therefore, the case of Surendra Rameshwardas Gadodia, is of no assistance to the appellant. In view of the above, it is prudent to apply the 'Theory of Human Probabilities' & concepts of 'substance over form' and 'lifting corporate veil' aided with various case laws mentioned above, I treat the transactions made by the assessee through penny stocks as sham transactions and, therefore, the resultant loss cannot be considered as loss under the head Profit and Gains of Business or Profession. Accordingly, in terms of the provisions of section 10(38) of the Act, the same is not entitled claim any exemption u/s 10(38) of the Act Ground nos.1,2a,b,c,d & e,3,4a,b,c,d,e,f,g,& h are dismissed.” 6. We have heard the rival submissions and examined the documents available on record. The assessee has filed an appeal against the addition made in respect of the sale of shares of M/s KDJ amounting to Rs.95,80,971/-. The sale transaction of shares, amounting to Rs. 95,80,971/-, was executed through the BSE. We observe that the entire addition was confirmed solely on the basis of the report of the Investigation Wing of the Income-tax Department, Kolkata, which alleged that the rise in share price was manipulated and that the assessee had introduced unaccounted income in the guise of LTCG through a circular transaction. During the assessment as well as appellate proceedings, the assessee submitted all requisite documentary evidence, including the demat account statement, bank statement, sale bill, and share allotment documents. All such documents have been placed on record in the assessee’s paper book. Regarding the rise in share Printed from counselvise.com 7 ITA No.6362/Mum/2025 Bharat Kumar Gadodia price, the Ld. AR has adequately explained that M/s KDJ had plans to invest in its proposed subsidiary, KDJ Hospital Ltd., and that an amalgamation took place between Two Up Financial Services Ltd. and KDJ pursuant to the order of the Hon’ble Bombay High Court. This amalgamation was carried out through a proper legal process. It is further noted that the assessee is a regular investor in stocks and securities and dealing the shares from the year 2009. This indicates consistent investment activity in the equity market. Importantly, the documents submitted by the assessee during the assessment proceedings were neither challenged nor discredited by the revenue authorities. Therefore, the assessee has discharged the primary onus of proving the genuineness of the transactions. Furthermore, confirmations from the stock brokers, M/s Joindre Capital Services Ltd is placed on record at pages 48 to 50 of the APB. The LTCG proceeds were received by the assessee through regular banking channels. The purchased shares were credited to the assessee’sdemat account, and the entire transaction was routed through the BSE. No evidence has been brought on record by the Revenue to demonstrate that the assessee was involved in any price manipulation or rigging with respect to the shares of KDJ. We also note that the co-ordinate bench of the ITAT has taken a similar view in relation to the same scrip, ‘KDJ’, in favour of the assessee. Accordingly, we respectfully rely on the decisions of the co-ordinate bench in the case of Sumitra Surendra Gadodia (supra). A similar view was also taken by the ITAT in the case of ITO vs. Jimeet Vipul Modi in ITA No. 4297/Mum/2018, order dated 29/07/2019. In view of the above, the order passed by the Ld. CIT(A) is hereby set aside. The additions made by the Ld. AO under Section 68 of the Act, amounting to Rs.95,80,971/- on account of LTCG, is hereby deleted. Printed from counselvise.com 8 ITA No.6362/Mum/2025 Bharat Kumar Gadodia 7. In the result, the appeal of the assessee bearing ITA No.6362/Mum/2025 is allowed. Order pronounced in the open court on 12th day of February 2026. Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 12/02/2026 SAUMYASr.PS Copy of the Order forwarded to: 1. अपीलाथŎ/The Appellant , 2. Ůितवादी/ The Respondent. 3. आयकरआयुƅ CIT 4. िवभागीयŮितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाडŊफाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI Printed from counselvise.com "