BIRENDRA SINGH NIRBHAY,SIRSI ROAD JAIPUR RAJASTHAN V. ITO WARD 3(1) JAIPUR, NCRB INCOME TAX DEPARTMENT STATUE CIRCLE JAIPUR RAJASTHAN

ITA 704/JPR/2024

AI Insights

The case revolves around the appeal by Shri Birendra Singh Nirbhay against the order of the Commissioner of Income Tax (Appeals), which confirmed the additions made by the Assessing Officer regarding alleged bogus long-term capital gains and unexplained expenditure. The assessee had claimed exemption under section 10(38) of the Income Tax Act for long-term capital gains from the sale of shares of Channel Nine Entertainment Ltd., which were acquired through a public IPO. The revenue contended that these gains were part of a scheme to launder unaccounted money and thus should be treated as bogus. The Tribunal examined the evidence, including the process of share acquisition through a legitimate IPO, and found the assessee's transactions to be genuine.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 777847 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 17-05-2024
• Other Referred Cases: Usha Chandresh Shah Vs ITO, Arvind M Kariya Vs ACIT, Somnath Mani Vs ITO, Mangilal Jain Vs ITO, CIT Vs Precision Finance P. Ltd., K.C.N. Chandrasekhar Vs ACIT, CIT Vs United Commercial & Industrial Co.(P) Ltd., N. K. Proteins Ltd. Vs DCIT, Vijay Proteins Ltd. vs. CIT, CIT vs. Mukesh Ratilal Marolia, DCIT vs. Sunita Khemka, ITO vs. Indravadan Jain (HUF), Nisarhusen Amdali Lakhani vs. ITO, Shri Gaurav Bagaria vs. ITO, Pramod Kumar Lodha vs. ITO, Shri Vivek Agarwal vs. ITO, Principal CIT-1 Vs Ritu Agarwal, CIT vs. Smt. Pooja Agarwal, Shri Pramod Jain and others Vs. DCIT, CIT vs. Smt. Sumitra Devi, CIT vs. Smt. Pushpa Malpani
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAUTAM SINGH CHOUDHARY; PRINTED FROM COUNSELVISE.COM
• Assessee Lawyers: DEEPAK SHARMA; OBSERVING AT PARA .; MAKING PAYMENT
• Keywords: Capital asset; Question of law; Corroborative evidences; Unexplained cash credit; Unexplained expenditure; Depreciation; Fair market value; Income from undisclosed sources; Cost of acquisition; Bogus purchase; Onus to prove; Capital Gains; Principle of natural justice; Search and seizure; Accommodation entries; Wrong claim; Earning of tax free income; Share purchase agreement; Opportunity of cross examination; Penny stocks; Bogus
• Section: 143(3); 271(1)(c); 132; 68; 131; 69C

Judgement Text

"vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’’SMC” JAIPUR Mk0 ,l- lhrky{eh]U;kf;dlnL; ,oaJhjkBksMdeys'kt;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihyla-@ITA No. 704/JPR/2024 fu/kZkj.ko\"kZ@AssessmentYear : 2015-16 Shri Birendra Singh Nirbhay 78, Officers Campus Extension Sirsi Road, Jaipur 302 012 cuke Vs. The ITO Ward 3(1) Jaipur LFkk;hys[kk la-@thvkbZvkjla-@PAN/GIR No.: ABXPN 5973 H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby :Shri Deepak Sharma, CA jktLo dh vksjls@Revenue by: Shri Shri Gautam Singh Choudhary, JCIT-DR lquokbZ dh rkjh[k@Date of Hearing : 18/09/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: : 09 /10/2025 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax, National Faceless Appeal Centre, Delhi[ for short CIT(A)] dated 30.03.2024 for the assessment year 2015-16 raising therein following grounds of appeal. ‘’1. Rs. 2787561/- The Id. CIT(A) has erred in law as well as on the facts of the case in confirming the long-term capital gain as unexplained cash credit amounting Rs. 27,87,561/ The provisions so invoked and confirmed by CIT(A), being contrary to the provisions of law and facts of the case may kindly be quashed and the consequent addition of Rs.27,87,561-may kindly be deleted. Alternatively and without prejudice to above the Id. CIT(A) erred in law as well as on the facts of the case in confirming the addition of Rs. 27,87,561/ In the matter Printed from counselvise.com 2 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR it is hereby submitted that the assessee has shown income from long term capital gain of Rs 27,87,561 which was claimed as exempted income under section 10(38) of the Act. In the case, the equity shares were allotted to the assessee by making payment through account payee cheque in favour of Company \"Channel Nine Entertainment Limited The equity shares so acquired have duly been sold online through Bombay Stock Exchange at real time price after paying the Security Transaction Tax (STT). It is also not in dispute that the purchase and sale of the shares were routed through banking channel. Moreover the name of assessee is no where enumerated by any investigation. Hence the addition so made and confirmed by the CIT(A) is contrary to the provisions of law and facts and hence the same may kindly be deleted in full 2. Rs. 123680/-: The Id CIT (A) had arbitrary assumed that assessee would have incurred 4% expenditure on sales proceeds of shares on account of commission and other expenses to realize such bogus capital gain and added Rs. 1,23,680/- As stated assessee had made real transactions of sales therefore no question arises of commission and other charges except STT and other brokerage charges paid on sale of shares which is already reflected in tax return filed for the year. Therefore, addition on account of unexplained expenditure is vague and should be deleted.’’ 2.1 Apropos Ground Nos. 1 and 2 of the assessee, it is noticed that the ld CIT(A) has dismissed the appeal of the assessee by observing at para 3.1 to para 5.3 of his order as under:- ‘’3.1 Commission Paid on Bogus LTCG entries. During the course of investigation, it was also emerged that the syndicate of entry providers charged commission from the beneficiaries in lieu of providing bogus entries. In fact, one of the beneficiaries Sh.Ajit Gupta of Delhi have categorically admitted in his statements recorded u/s 132(4) that he paid commission of 5-6% in cash in lieu of bogus entry of Long Term Capital Gains shown from artificial trading in penny stock bogus company Looking to such credible evidence on this issue, I estimate an amount equivalent to 6% of the bogus Long Term Capital Gains entry, which comes to 1,85,530/- (calculated on the sale proceeds shown at 30,92,166/-), as commission paid by you in lieu of entry of bogus Long Term Capital Gain of 27,87,561/-. Therefore an addition of 1,85,530/-, on this count, is proposed to be added to your total income for the year under consideration u/s 69C of the Income Tax Act, 1961 being unexplained expenditure incurred by way of commission paid to arrange bogus entry of Long Term Capital Gains. IV. REPLY TO THE SHOW CAUSE NOTICES Printed from counselvise.com 3 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR 4.1 in reply to the above show cause notice, the AR of the assessee vide letter dated 18.09.2017 & 2.11.2017 submitted detailed written submissions. The relevant contents of the same are reproduced as under. 4.2 In the present case, the assessee has shown income from long term capital gain for Rs.27,87,561/-which was claimed as exempted income under section 10(38) of the I.T. Act, 1961. The assessee has been receipt of show cause to treat such income as bogus, as made out from penny stock and routed in the disguise of long term capital gain. The notice being issued on the basis of information received from investigation wing and produced the same \"as it is \"without looking the facts and documents possessed with the assessee proving its valid claim. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The assessee has applied for 6000 equity shares of Rs.25 each and made payment through account payee cheque No.0792280 drawn on HDFC Bank Limited in favour of Company \"Channel Nine Entertainment Limited\" on 23/2/2013 cleared from the bank on 26/2/2013. The assessee was not dealing with any private broker rather he was having Demat account with HDFC Securities Limited. The company has allotted 6000 equity shares duly been made available in the demat account maintained by the assessee with HDFC Securities Limited. 4.3 The equity shares so acquired have duly been sold online through Bombay Stock exchange in the month of June 2014, in phases at average rate of Rs.490.36 comes out at Rs. 29,37,560/-. The sale consideration thereof has been credited in the bank account on 13/06/2014, 19/06/2014 & 27/06/2014. The copy of bank statement extracts evidencing of receipt of payment is annexed as annexure D. The sale of shares has duly been made online through Bombay Stock Exchange and brokerage, STT & other charges (as collected in listed shares) have duly been paid evidencing from the bill as annexed as annexure E. 4.4 In another case of Usha Chandresh Shah Vs ITO (ITA No.6858/Mum/2011) the Hon'ble ITAT Mumbai upheld the findings of the A.O. who concluded that the assessee has adopted the methodology of acquiring the Long Term Capital Gains in order to convert her black money into white and by applying the principle of human probabilities added the share sale receipts as other source income of the assessee from unexplained cash credits u/s 68. Similar findings were made by the ITAT Mumbai in the case of Arvind M Kariya Vs ACIT (ITA No. 7024/Mum/2010). Reliance is also placed in the case of Somnath Mani Vs ITO (100 TTJ 917), wherein the Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have to be held to be non-genuine. In this context Hon'ble High Courts of Madras and Calcutta has observed in the cases of Mangilal Jain Vs ITO (Mad) 315 ITR 105 & CIT Vs Precision Finance P. Ltd. (Cal) 208 ITR 465, that when the assessee has failed to prove the genuineness Printed from counselvise.com 4 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR of credit, mere proof of identity of creditor or that transaction was by cheque, is not sufficient. Addition u/s 68 was justified. Similar views have been taken in the following cases: K.C.N. Chandrasekhar Vs ACIT (ITAT, Bang) 66 TTJ 355 CIT Vs United Commercial & Industrial Co.(P) Ld. (Cal) 187 ITR 596 4.5 In view of detailed analysis, in foregoing Paras, of the evidences and the judicial pronouncements, it has been established beyond doubt and is therefore held that unaccounted income of Rs. 27,87,561/-routed back to the assessee, during the year under consideration, camouflaged as Long Term Capital Gains of Rs.27,87,561/-, has been proved to be a bogus entry and not satisfactorily explained. This way, the assessee was in receipt of cash credit of 27,87,561/-, for which it failed to offer any satisfactory explanation, especially in light of credible evidences gathered by the department. The sum of Rs. 27,87,561/- is therefore added u/s 68 to the total income of the assessee for the year under consideration treating it as unexplained cash credit. 4.6 The reply of the assessee on another issue i.e. commission paid in lieu of bogus entry of Long Term Capital Gains, has been considered but not found tenable. The submission of the assessee that he has not paid any commission for taking bogus entry of exempted LTCG, is far from truth. The assessee has failed to explain that why any syndicate which includes many members of different cities working in different capacity will take so much pain to arrange bogus entry of LTCG for the assessee without any benefit derived from him. In the search/ seizure operation conducted by the department, the whole scam of providing bogus LTCG was unearthed These syndicate members which include promoters/ Directors of penny stock company, share brokers etc., have admitted that they have provided bogus LTCG entry in lieu of commission. The gist of the statements of beneficiaries namely Sh. Sanjeev Kumar Agarwal, Sh. Ajit Gupta, Sh. Charchit Gupta and others, who categorically admitted in their statements under oath before Investigation Wing of the department that they paid commission for getting bogus LTCG entries, prove it beyond doubt the entry operators charged commission for providing bogus entry of LTCG V FINDINGS OF THE CIT(APPEALS) 5.1 In a judgment in the case of N. K. Proteins Ltd. Vs DCIT (SLA-CC No. 769 of 2017 dated 16.01.2017) which is a judgment on bogus purchases, the Hon'ble High Court of Gujarat has decided issue in favour of the revenue. The SLP filed by the assessee in this case has been dismissed by the Hon'ble Supreme Court. The relevant paragraph of Hon'ble High Court judgment in the case of N.K. Proteins Ltd. Le Para 6 are reproduced as under:- \"The Tribunal in the case of Vijay Proteins Ltd. vs. CIT has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in Printed from counselvise.com 5 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR respect of the undisclosed Income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of Mis. Indian Woolen Carpet Factory (supra) or M/s. Vijay Proteins Ltd. In the present case the Tribunal has categorically observed that the assessee had shown bogus purchase amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against The principles of section 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transactions have been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/-represented alleged purchases from bogus suppliers it was not Incumbent on it to restrict the disallowance to only Rs. 73,23,322/\" The above para analyses the case of Vijay Proteins Ltd and it is further held that when the purchases are treated as bogus, there is no point in restricting it to a certain percentage and a disallowance of 100% should be done. 5.2 Following the decision in the cases discussed above it is held that the profits shown from Long Term Capital Gain of Rs.27,87,561/- on a penny stock namely Channel Nine Entertainment Ltd was held to be bogus by the assessing officer. The reports of Investigation wing of New Delhi, Mumbai, Kolkata relating to actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangements and the investigations conducted by the department for long showed that certain share transactions in penny stock companies were fabricated one with a motive to launder the unaccounted money in form of bogus Long Term Capital Gains/Short Term Capital Gains with nil taxes or taxes at nominal rates. The addition on account of LTCG taxed u/s 68 at Rs 2787561 is upheld. During the course of investigation, it was also emerged that the syndicate of entry providers charged commission from the beneficiaries in lieu of providing bogus entries. The beneficiaries Sh.Ajit Gupta of Delhi have categorically admitted in his statements recorded u/s 132(4) that he paid commission of 5-6% in cash in lieu of bogus entry of Long Term Capital Gains shown from artificial trading in penny stock bogus company. The assessing officer estimated an amount equivalent to 6% of the bogus Long Term Capital Gains entry, which is restricted to 4% which comes to Rs 123686 rounded to 123680. Commission paid in lieu of entry of bogus Long Term Capital Gain was added to the total income for the year under consideration u/s 69C of the Income Tax Act, 1961 being unexplained expenditure incurred by way of commission paid to arrange bogus entry of Long Term Capital Gains. The addition is restricted to 123680 5.3 In the result the appeal is dismissed.’’ Printed from counselvise.com 6 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR 2.2 During the course of hearing, the ld. AR of the submitted that the ld. CIT(A) is not justified in confirming both the additions (supra) and dismissed the appeal of the assessee for which the ld. AR of the assessee has filed a detailed written submission praying therein to consider the same and allow the appeal of the assessee. ‘’GROUND OF APPEAL 1. Rs 2787561/- The Id. CIT(A) has erred in law as well as on the facts of the case in confirming the long term capital gain as unexplained cash credit amounting Rs. 2787561/-. The provisions so invoked and confirmed by CIT(A), being contrary to the provisions of law and facts of the case may kindly be quashed and the consequent addition of Rs.2787561/-may kindly be deleted. Alternatively and without prejudice to above the Id. CIT(A) erred in law as well as on the facts of the case in confirming the addition of Rs. 2787561/-. 2. Rs. 123680/-: The ld CIT (A) had arbitrary assumed that assessee would have incurred 4% expenditure on sales proceeds of shares on account of commission and other expenses to realize such bogus capital gain and added Rs. 123680/- Brief facts of the order: The assessee aggrieved with the order of the Ld AO has filed appeal with CIT (A) on 12/12/2017 The CIT(A) under faceless regime had issued notice of hearing on 01/11/2022 and 27/07/2023. The assessee has complied with the notice and submitted its detailed reply incorporating the facts and relevant information, whatever was able to provide under faceless regime, to justify the entire case and begged for justice. The Ld CIT(A) had neither asked for any clarification nor being allowed VC and passed the order under section 250 of the Income Tax Act,1961 on 30/03/2024. The order at first instance was shocking for the assessee where-in, judgement was “Appeal dismissed”. Upon review of the order it came into knowledge that the Ld CIT(A) has given relief for an amount of Rs 61850/- in the addition made by the Ld AO on account of commission as unexplained expenditure by assuming commission @ 4% instead assumed by the Ld AO @6%. While going through the main contents of the order, it was really surprising for the assessee that the Ld CIT(A) has passed the order without considering any of the submissions even without giving any reference of the submissions made before him and the order seems to be passed like ex-parte order. The Ld CIT (A) while passing the order had copied the entire contents of the order of the Ld AO and even copied the findings of the Ld AO as it is, which seems to be the finding made by the Ld CIT (A) upon plain reading. Reference is Printed from counselvise.com 7 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR drawn on the relevant para of the order of the CIT(A) (Page no 2 of the order) at page no 30 of the paper book, which is reproduced here-under:- “In addition to above observations, the undersigned has also gone through the reports of Investigation wing of New Delhi, Mumbai, Kolkata relating to actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangements.” Apart from it, the Ld CIT (A)after making cut and paste had simply made new para V titled as “FINDING OF THE CIT (APPEALS)”, (at page No 7 of the order) at Page No 35 of the paper book, where-in, it had without discussing anything as higher authority had simply given reference of one of the Judgement as under:- 5.1 In a judgment in the case of N. K. Proteins Ltd. Vs. DCIT (SLA-CC No. 769 of 2017 dated16.01.2017) which is a judgment on bogus purchases, the Hon'ble High Court of Gujarat has decided issue in favour of the revenue. The Ld CIT (A) had also put the para 6 of the aforesaid order , where-in, the entire purchases shown on the basis of fictitious invoices debited in the trading account is disallowed by the court. It is ample clear that the aforesaid case law is no where relevant to the case under appeal. The Ld CIT (A) himself agreeing that the aforesaid judgment is on bogus purchases then it is again matter of question that how this judgement being applied in the instant case and solely based on this had dismissed the appeal. It is worthwhile to mention that as per section 250 (5) and Section (6) of the act, which state that: (4) The Commissioner (Appeals) may make further enquiry or direct the assessing officer to undertake further inquiry before disposing of the appeal and reports the results of the inquiry to the commissioner (Appeals) (6) The order of the Commissioner (Appeals) shall state the point of determination, decision and the reasons for such decision while disposing of the appeal in writing. From the plain reading of the above sections, the CIT (A) shall, by himself or through an assessing officer, make a necessary inquiry before dismissing the appeal. Further, the CIT (A) is under an obligation to decide on each point of the appeal, i.e. grounds on merits also need to be discussed even passing ex-parte order. Reliance is placed in the case CIT v. Premkumar Arjunda(2107) 297 CTR 614 (Bombay) where-in, the court states that a plain reading of Section 251 (1) (a) and (b) & explanation of Section 251 (2) of the act mandates that CIT (A) shall apply its mind to all the issues which arise from the order before him, whether or not the appellant has raised the same before him. Therefore, it is held by the court that CIT (Appeal) has no power to dismiss appeal for non-prosecution. In another case of Pawan Kumar Singhal v. ACIT, 2019, wherein the Delhi ITAT holds the same views and held that CIT (A) has no power to dismiss appeal Printed from counselvise.com 8 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR of the assessee for non–prosecution without deciding the case on merits through an order in writing, stating points for determination, decision and reason thereon. The Delhi ITAT takes a similar opinion in the case of Swati Pawa v. DCIT,2019, wherein it is held that in terms of Section 250, the CIT (A) has no power to dismiss appeal of assessee for non-prosecution and is obliged to dismiss the appeal only on the merits of the case by passing a speaking order. In the case of Nisarhusen Amdali Lakhani, ITA 532/Ahd/2018, wherein the Ahmedabad ITAT has set-aside the order of the CIT (A) as the order shows that CIT (A) has failed to address various points of determination and dismissed the appeal of the appellant for his non–appearance. The Ahmedabad tribunal relies on Section 250 (6) of the act and states that the CIT (A) shall pass the order based on points of determination accompanying the reasons thereon. Thus, the CIT (A) has no power to dismiss appeal of assessee without deciding the merits of the case. In the instant case, despite of submitting the detailed submissions, the Ld CIT (A) had not considered any one of the submissions and put the AO finding as it is and therefore failed to pass the speaking order. In view of it, the said order deserved to quash. Without prejudice the above and before submitting the detailed submissions, we put the instant case in a summarized way as under:- a. The Assessee is regular assessee under Income Tax Act, 1961 and filed its return of income tax by taking long term capital gain of Rs 2787561/- exempt u/s 10(38) of the I T Act,1961 b. The Assessee is not new for the share transactions and generate income or incur loss in the share market on year to year basis. c. The assessee has subscribed for equity shares of the Company “Channel Nine Entertainment Limited” and consideration was paid through banking channel and these shares have duly been credited in the Demat account with HDFC Securities Limited. d. The equity shares so acquired have duly been sold online through Bombay Stock Exchange at real time price after paying the Security Transaction Tax (STT). e. The Company “Channel Nine Entertainment Limited” is listed company with Bombay Stock Exchange, which was active and shares thereof were available for trade online at the time of assessment proceedings itself sufficient proof of Printed from counselvise.com 9 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR existence and duly authorized, permitted and valid script freely tradable in public at large. f. The shares of the company were available at online trading plate-form even at the time of assessment proceedings and the price thereof was Rs 12.12 on 17- 09-2019 The snap shot evidencing this trading was also submitted to the Ld CIT (A) at the time of appelant proceedings. g. The governing and regularity body ‘SEBI’ had issued an order dated 29/06/2015 and 04/01/2016, where-in it had restrained in the dealing of equity shares of various companies, which includes CHANNEL NINE ENTERTAINMENT LIMITED. The SEBI had not pointed any violation of provisions of SEBI ACT and SEBI (Prohibition of fraudulent and unfair trade practices relating to Securities market) Regulation 2003 and had revoked the earlier order issued in the case. In view of the above itself, there was no case of penny stock. We are submitting the detailed submissions before the bench as under:- GOA:-1Long term capital gain as unexplained cash credit amounting Rs. 2787561/- In the matter it is hereby submitted that the assessee has shown income from long term capital gain of Rs 2787561/- which was claimed as exempted income under section 10(38) of the Act. In the case, the equity shares were allotted to the assessee by making payment through account payee cheque in favour of Company “Channel Nine Entertainment Limited”. The equity shares so acquired have duly been sold online through Bombay Stock Exchange at real time price after paying the Security Transaction Tax (STT). It is also not in dispute that the purchase and sale of the shares were routed through banking channel. Moreover the name of assessee is no where enumerated by any investigation. As per Income Tax Act, the treatment of long term capital gain of equity shares is as given here-under as per section 10(38) :- “Long-term capital gain arising on transfer of equity share or units of equity oriented mutual fund or units of business trust is not chargeable to tax in the hands of any person, if following conditions are satisfied:  The transaction i.e. the transaction of sale of equity shares or units of an equity oriented mutual fund or units of business trust should be liable to securities transaction tax.  Such shares/units should be long-term capital asset.  Transfer should have taken place on or after October 1, 2004. Printed from counselvise.com 10 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR In the instant case, all the conditions have duly been fulfilled and was eligible to claim the benefit of long term capital gains as envisaged u/s 10(38) of Income Tax Act,1961 as given here-in-after:- a. The sale of equity shares were liable to securities transaction tax and also been paid. b. The equity shares sold was long-term capital asset. c. The Transfer of equity shares has taken place in the FY 2014-15 i.e. after October 1, 2004. Now, it is also equally important to discuss in brief of entire journey of acquisition of shares and then sale thereof. The assessee has duly been applied for allotment of shares through public issue as usually made by the investors. The copy of duly filled application form is annexed at P.No 66. The assessee has applied for 6000 equity shares of Rs 25 each and made payment through account payee cheque No 0792280 drawn on HDFC Bank Limited in favour of Company “Channel Nine Entertainment Limited” on 23/02/2013 Cleared from the bank on 26/02/2013 The copy of bank statement extracts evidencing of clearance of the cheque is annexed at P.No 67. The assessee was not dealing with any private broker rather he was having Demat account with HDFC Securities Limited. The Company has allotted 6000 equity shares duly been made available in the Demat Account maintained by the assessee with HDFC Securities Limited. The copy of holding report of shares in the Demat account is annexed at P.No 68-69. The equity shares so acquired have duly been sold online through Bombay Stock Exchange in the month of June 2014 , in phases at average rate of Rs 490.36 comes out at Rs 2937560/-. The sale consideration thereof has been credited in the bank account on 13/06/2014, 19/06/2014 & 27/06/2014 The copy of bank statement extracts evidencing of receipt of payment is annexed at P.No 70. The sale of shares has duly been made online through Bombay Stock Exchange and brokerage, STT & other charges (as collected in listed shares) have duly been paid evidencing from the bill as annexed at P.No 71-82. The shares are still available online and can be purchased / sold in Bombay Stock Exchange. The share price exist on 09/10/2024 is Rs. 12.12 per share. The snapshot of online share price is annexed at page no.69 (at http://money.rediff.com/companies/Channel-Nine-Entertainment- Ltd/17040646?srchword=Channel+Nine+Entertainment+Ltd.&snssrc=sugg ) herewith for your reference and records. The sale of shares and capital gain thereon has duly been shown by the assessee in his return of income tax as per Income Tax law as annexed at P.No 26-28. Printed from counselvise.com 11 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Further, the Company is “active” as per the Governing body “Ministry of Corporate Affairs” as on 08/10/024 and filing its ROC returns regularly evidencing from extracts of company details available at MCA Site (http://www.mca.gov.in/mcafoportal/companyLLPMasterData.do) , copy of which is annexed herewith P.No 84-85 While going through the statements of Mr Sanjay Vora director of the Company M/s Channel Nine Entertainment Limited, on the sole basis of which, our case is being taken in scrutiny being recorded by the Investigation Wing of Income Tax Department, it is noticed that except few points though general in nature, nothing pertains to the equity shares of the Company Channel Nine Entertainment Limited. The points and our submissions in the matter are as given here-in-after the same had been put before Ld CIT (Appeal) annexed at P.No 18-22 The assessee in the instant case has made the transactions for the purchase and sale of the shares of a company available online to public at large and through a valid and reputed stock broker “HDFC Securities Limited”, whose reputation and goodwill can’t be doubted and in case have any doubt then can be called for statements independently. Therefore, the question about stock broking house or private broker or trading of shares indulging any broker in the case doesn’t arise. There are “n” number of cases, where-in, the additions were made due to suspicious share broker and reversed by the ITAT and high courts. For example in the case of CIT versus Carbo Industrial Holdings Limited reported in 116 taxman159 where the Hon’ble jurisdictional High Court has held as under: “If the share broker, even after issue of summons does not appear, for that reason, the claim of the assessee should not be denied, especially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied.” Furthermore, the Company “Channel Nine Entertainment Limited” is listed company with Bombay Stock Exchange, which is still active and shares thereof are available for trade online seems to have sufficient proof of existence and duly authorized, permitted and valid script freely tradable in public at large. The merely information received from Investigation wing on the basis of statement of the director of the company does not prove the allegation as made against the assessee and the more important, it has no- where proved. Still any company make any manipulation in market prices of shares doesn’t mean that all shareholders / applicants have made part of it and then face harassment in income tax proceedings. The complete documents and information with valid real time proof of purchases and sale of shares and trade through renowned share broker namely “HDFC Securities Limited” is another reliable proof of genuine transaction and valid claim. The following case law also supports the assessee’s case as given here-in-after:- a. CIT vs. MukeshRatilalMarolia (Bombay HC) (2012) 80 CCH 0407 Printed from counselvise.com 12 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR The Fact that a small amount invested in \"penny\" stocks gave rise to huge capital gains in a short period does not mean that the transaction is \"bogus\", if the documentation and evidences cannot be faulted. b. DCIT vs. SunitaKhemka (ITAT Kol) - [2016-ITRV-ITAT-KOL-057] AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. He has to bring material on record to support his finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and demat statements and Account Payee Cheques cannot be treated as bogus. c. ITO vs. Indravadan Jain (HUF) 47 CCH (2016) Mumbai Trib Long-term capital gains arising from transfer of penny stocks cannot be treated as bogus merely because SEBI has initiating an inquiry with regard to the Company and the broker, if the shares are purchased from the exchange, payment is by cheque and delivery of shares is taken and given. A. We may further point out that similar addition were made by treating the sale of shares of various other companies as bogus wherein the matter went up to the ITAT. The Hon’ble ITAT Jaipur Bench in the following cases held that transactions of sale of share is genuine and supported by various evidences and therefore deleted the addition. Few instance of such cases are as under:- 1. DCIT vs. Saurabh Mittal (2018) 53 CCH 530 (Jaipur) (Trib.) Reliance by AO on statements recorded by the Investigation Wing to conclude that the capital gains are bogus without giving an opportunity of cross examination is a complete violation of principles of natural justice as held in CCE Vs Andaman Timber Industries 127 DTR 241(SC). The AO has not controverted the evidence of purchase bills, payment of consideration through bank, dematerialization of shares in the DEMAT account, allotment of amalgamated shares, sale of shares through stock exchange at prevailing price, payment of STT etc. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing, Kolkata is not sufficient to establish the fact that the transaction is bogus. 2. Pramod Kumar Lodha vs. ITO (2018) 53 CCH 539 (Jaipur) (Trib.) The transaction cannot be treated as bogus until and unless a finding is given that the shares were acquired by the assessee from the person other than the broker claimed by the assessee. The enquiry conducted by the Investigation Indore is not a conclusive finding of fact in view of the fact that the shares were duly materialized & held in the d-mat account. Merely supplying of statement to the assessee at the fag end of the assessment proceedings is not sufficient to meet the requirement of giving an opportunity to cross examine. The AO cannot proceed on suspicion without any material evidence to controvert or disprove the evidence produced by the assessee. 3. ITO vs. Shri Gaurav Bagaria in ITA No. 550/JP/2019 vide order dated 10.07.2019 after considering the facts and various decisions has dismissed the appeal filed by the Revenue by holding as under: Printed from counselvise.com 13 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR “The same facts were considered in above cited cases regarding purchase of shares of M/s Careful Projects Advisory Ltd. which was subsequently merged with M/s Kailash Auto Finance Ltd. and after analyzing the relevant documentary evidence which includes purchase bill, payment consideration through bank, dematerialization of shares, allotment of the shares amalgamated new entity in lieu of earlier company, the Tribunal has held that in the absence of any contrary evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus Long Term Capital Gain. The Tribunal also followed the decision of Hon’ble Jurisdictional High Court in case of CIT vs. Pooja Agarwal (supra) wherein the Hon’ble High Court has also upheld the finding of the Ld. CIT(A) and this Tribunal when the assessee produced all the relevant details and evidences in support of the transaction of purchase and sale of shares. Accordingly, in view of the facts and circumstances as discussed above, when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. The assessee has also produced the financial statements of M/s Kailash Auto Finance Ltd. to show that the company has earned a handsome profit. Further, the alleged SEBI order was also subsequently revoked. Therefore, all these facts established the genuineness of the transaction. Hence, we do not find any error or illegality in the order of the Ld. CIT(A) in deleting the addition made by the AO under section 68 of the IT act by treating the Long Term Capital Gain on sale of shares as unexplained cash credit. The addition of Rs.1,51,869/- being the deemed commission for taking the accommodation entry, is consequential to the main issue. Hence, the same is also not sustainable”. 4. Shri Vivek Agarwal vs. ITO (2017) 292/JP/2017 (ITAT Jaipur) Order dt. 6/4/18 5. The brief facts of the case are that the assessee is an Individual & has claimed exempt income of Rs. 4,78,38,157/- under the head Long Term Capital Gains on account of shares. The AO while passing the assessment order under section 143(3) has held that the long term capital gains claimed by the assessee is bogus as the assessee has arranged the accommodation entries from the persons who are engaged in providing bogus accommodation entries of capital gains. The Hon’ble ITAT held that the facts of the present case acquiring of shares of M/s. Paridhi Properties Ltd. under private placement directly from the company and subsequently on merger of the said company with M/s. Luminaire Technologies Ltd. the shares of the new entity were allotted to the assessee which were duly dematerialized and then sold from the Demat account are identical to the case of ShriPramod Jain & Others vs. DCIT & others. In view of the finding of the Coordinate Bench on the identical issue, it was found that when the payment of purchase consideration paid through cheque directly to the company and the subsequent merger of the company as per the scheme of merger approved by the High Court, then the transaction and sale of shares in question cannot be held as bogus. The AO has passed the impugned order on the basis of the statement of Shri Deepak Patwari which is identical as in the Printed from counselvise.com 14 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR case of ShriPramod Jain & others vs. DCIT. Accordingly, following the order of the Coordinate Bench of this Tribunal, we hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account.Shri Purushotam Soni vs. ITO(2017) 288/JP/2017 (ITAT Jaipur)Order dt.6/4/18 The facts of this case are that assessee claimed long term capital gain on sale of shares of Luminare Technology Limited. The AO on the basis of the information received from investigation wing treated the same as bogus & made the addition. The CIT(A) confirmed the same. On further appeal, the Hon’ble ITAT by following the decision of Pramod Kumar Jain & others vs. DCIT ITA No. 368/JP/2017 as well as in the case of Meghraj Singh Shekhawat vs. DCIT 443 & 444/JP/2017 allowed the appeal of the assessee. (6) Shri Meghraj Singh Shekhawat vs. DCIT (2017) 443 & 444/JP/2017 (JP) order dated 7-03-2018Brief facts are that the assessee is an individual and engaged in the business of retail sale of IMFL/Beer. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of Rs. 1,32,56,113/- which is claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Rutron International Ltd. The AO received information from Investigation Wing, Kolkata that during the search conducted u/s 132 of the Act on 12.04.2015 at the business premises of one Shri Anil Agarwal Group it was found that Shri Anil Agarwal is one of the promoters of M/s Rutron International Ltd. The shares were sold by the assessee from his D-mat account through the broker M/s AnandRathi Share and Stock Brokers Ltd. and therefore, the assessee denied any involvement of availing the bogus of long term capital gain. Consequently the AO made an addition of Rs. 1,32,56,113/- to the total income of the assessee u/s 68 of the Act. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of Rs. 10/- each without charging any premium under preferential issue. The assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made by the assessee is duly reflected in the bank statement of the assessee. The shares were dematerialized on 18.06.2012 and thereafter the shares were sold from 13.03.2013 onwards on various dates through M/s AnandRathi Shares & Stock Brokers Ltd. The assessee has produced all the relevant evidence to show the allotment of shares, payment of consideration through cheque at the time of allotment of shares dematerialization of the shares and thereafter, sale of shares from the D-mat account. The Assessing Officer has not produced any material or record to controvert the evidence produce by the assessee. Considering all these facts the Hon’ble ITAT held that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable & deleted the same. Printed from counselvise.com 15 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR B. . In the following cases matter of penny stock went up to Rajasthan High court wherein the High court has dismissed the appeal of the department by confirming the deletion of the addition made by the Hon’ble ITAT:- 1. Principal CIT-1 Vs Ritu Agarwal Shree Ram BhawanITA No 54/2021 order dated 10/05/2022 (Jaipur) It has been held that before rendereing the judgement the learned ITAT has considered entire facts of the case in hand the assessee produced all the documentary evidence to establish the genuineness of the transaction, The learned assessing officer as per the learned ITAT has failed to produce the contrary material evidence to rebut the claim of assessee and documents produced by him. Learned ITAT has considered the bank statement, Demat account, books of accounts which were external documents and were not in the control of assessee and therefore the claim of manipulation and for treating the transaction in question is as sham and bogus were not proven and hence untenable. 2. CIT vs. Smt. Pooja Agarwal (2017) 160 DTR 198 (Raj.) (HC) (PB 81-86) Assessee having produced relevant details viz., copy of contract note regarding purchases and sale of shares, account with the share broker and copy of demat account and shown the receipts/payments through account payee cheques and there being no evidence that cash has gone back to the assessee, the share transactions cannot be treated as non-genuine. AO was rightly directed to accept the short-term capital gain as shown by the assessee. 3. Shri Pramod Jain and others Vs. DCIT ITA No.368/JP/2017 order dated 31.01.2018 (Jaipur) (Trib.) Section 10(38)/69 r.w.s 143(3)- Long term capital gain claimed exempt u/s 10(38)- AO denied exemption and assessed it as unexplained income u/s 68/69 by treating the transaction of purchase and sale of shares as not genuine by relying on the information received from DIT, Kolkata that in survey/search carried out in office of broking house certain entry operators including Shri Deepak Patwari, they have stated in the statement recorded u/s 131 that they were merely an operator and buying shares by using the money provided by other operators for creating bogus entry of long term capital gains– Held that assessee produced all relevant records and evidences right from the purchase bills, certificates issued by the registrar about the change of name, the communication between the assessee and the seller of shares and thereafter amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. duly approved by the High Court, dematerialization of physical share certificates into the demat account- Once holding of shares issued by M/s Oasis Cine Communication is not disputed then the holding of shares of the M/s Gravity Barter Ltd also cannot be disputed- The purchase consideration unless paid in cash cannot be doubted in the absence of any corroborative evidence- AO has not disputed the fair market value of shares of M/s Gravity Barter Ltd.- Assessee Printed from counselvise.com 16 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR might have anticipated the exceptional appreciation in the share price due to extraordinary event of merger/amalgamation because of some internal operation with him- Similarly the assessee was allotted shares of M/s Paridhi Properties in private placement in Rs.10/- for which payment is made by cheque cannot be termed as penny stock- this company got merged with M/s Luninaire Technologies Ltd in which assessee was allotted one equity share of Rs.1 in swap ratio of 1:1.These shares were subsequently dematerialized and credited in the demat account of assessee- It has produced all the relevant records and evidences to substantiate its claim that transactions of purchase and sales are genuine including the share application, payment of share application money through bank, allotment, share certificate, demat account etc. The AO did not offer the opportunity to the assessee to cross examine Shri Deepak Patwari- In the matter of examination of principal officers of companies, it was improper on the part of the AO to ask the assessee to produce the principal officers, when the AO himself was having the authority to summon them- Purchase consideration paid by assessee cannot be doubted in absence of any corroborating evidence, when the AO has not brought on record any material to show that assessee has brought his own unaccounted money back as long term capital gain, therefore the addition made by AO is deleted as it is based on mere suspicion and surmises. Section 69C- Addition on account of payment of commission to Shri Deepak Patwari for transaction of long term capital gain- Held when the transaction of sale and purchase of share and consequent long term capital gain cannot be treated as bogus then the addition made by AO is not sustainable and hence deleted. C. Reliance is also placed on the following cases:- CIT Vs. Smt. Sumitra Devi (2014) 102 DTR 0342 (Raj.) In this case, assessee had shown LTCG from the sale of shares and same was claimed as exempt u/s 10(38). AO observed that companies, whose shares were allegedly dealt with, were not very well known and it was entirely unlikely that there was a huge rise in prices of their shares in a very short span of time. AO treated huge rise in price as manipulation by stock broker and made additions in income of assessee towards transactions of purchase and sale of shares and undisclosed commission paid in cash.CIT(A) observed that shares were sold by assessee for consideration through named stock broker and appellant furnished all the evidence like broker’s note, contract note, extract of cash book, balance- sheet, share certificate etc. to establish the genuineness of transactions. The AO failed to bring any evidence in rebuttal nor was it proved that documents produced by assessee were false, fabricated or fictitious. ITAT upheld the order of CIT(A) that AO proceeded only on presumptions and was not justified in making additions u/s 68 of the Act. Held, findings of AO were based on presumptions rather than on cogent proof. CIT(A) and ITAT found that the AO failed to show that the material documents placed on record by assessee like broker’s note, contract note, relevant extract of cash book, copies of share Printed from counselvise.com 17 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR certificate, de-mat statement etc. were false, fabricated or fictitious. The appellate authorities have rightly observed that the facts as noticed by the AO, like the notice u/s 136 to the company having been returned unserved; delayed payment to the brokers; and de-materialisation of shares just before the sale would lead to suspicion and call for detailed examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary. The findings as recorded by the appellate authorities, after thorough consideration of material on record that the transaction of purchase and sale of shares could not be treated as non-genuine was justified. No substantial question of law worth consideration in present case. The findings as concurrently recorded by the CIT(A) and the ITAT, that addition under Section 68 of the Act was not sustainable, remain essentially in the realm of appreciation of evidence. The Appellate Authorities have returned the finding of fact in favour of the assessee after due appreciation of evidence on record, on relevant considerations, and on sound reasoning. The finding neither appears suffering from any perversity nor is of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal. CIT Vs. Smt. Pushpa Malpani (2011) 49 DTR 0312 (Raj.) In this case, the assessee sold 20,000 shares of M/s Nageshwar Investment Ltd. Those shares were purchased by assessee on 9th May, 2002 @ Rs. 2.02 per share through broker Shri V.K. Singhania& Co. of Calcutta, which were sold on 22nd July, 2003 @ Rs. 109.50 per share. The AO held that the total transactions in shares were only 1,331 during the period from December, 2002 to April, 2003 but sale price of shares shot up dramatically within a short span of time. Assessee having not furnished any supporting evidence like balance sheet/final statement of M/s Nageshwar Investment Ltd. proving worth of the company, sale consideration of its shares was liable to be treated as income from other sources. It was held that whether or not sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003.Therefore, the present appeal does not raise any question of law, much less any substantial question of law. D. It is a settled law that the decision of the Hon’ble Jurisdictional High Court are binding on the lower authorities like the AO, Ld. CIT/Pr. CIT and the Ld. CIT(Appeals) and the Hon’ble ITAT working in the jurisdiction of the Hon’ble High Court. For this reliance is placed on the following cases:- Printed from counselvise.com 18 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR CIT -vs.- Ralson Industries Ltd. (2007) 288 ITR 322 (SC) the Hon’ble Apex Court held that when an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. Russell Properties (P.) Ltd. -vs.- Addl. CIT (1977) 109 ITR 229 (Cal.) the Hon’ble High Court, relying on the decision of the Hon’ble Supreme Court in the case of East India Commercial Co. Ltd. -vs.- Collector of Customs AIR 1962 SC 1893, held that whenever there is a decision of the higher appellate authority, the subordinate authorities are bound to follow the said decision to maintain judicial discipline. E. We may further point out that where two reasonable constructions of a taxing provision are possible, then the construction which favours the assessee must be adopted as held by Supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192. Moreover, I would like to submit that The SEBI had issued an order on dated 29/06/2015 and 04/01/2016, where-in restrained in the dealing of shares of following companies.(Copy Enclosed P.No. 86-96) A. ECO FRIENDLY FOOD PROCESSING PARK LIMITED B. ESTEMM BIO ORGANIC FOOD PROCESSING LIMITED C. CHANNEL NINE ENTERTAINMENT LIMITED D. HPC BIO SCIENCES LIMITED Subsequent to the said order and after conducting investigation for look into the role of debarred entities in price manipulation and IPO manipulation of the scrips SEBI had not pointed any violation of provisions of SEBI ACT and SEBI (Prohibition of fraudulent and unfair trade practices elating to Securities market) Regulation 2003. The SEBI had revoked the earlier order issued. Now no enquiry is pending against above company. The CBDT had taken the shares as panny stock on the basis of directions issued by SEBI Since SEBI had not pointed out any irregularity in the operation of the company therefore cognizance as panny stock by CBDT is not valid. GOA-2 Unexplained expenditure u/s 69C of Income Tax Act, 1961 amounting Rs. 123680 The ld CIT (Appeal) had arbitrary assumed that assessee would have incurred 4% expenditure on sales proceeds of shares on account of commission and other expenses to realize such bogus capital gain and added Rs. 123680/- as unexplained expenditure. The Ld CIT (Appeal) had restricted the addition to the extent of Rs 123680 which was primarily assumed by Ld ITO ward 3(1) as 6% and amounting Rs 185530/- As stated assessee had made real transactions of sales therefore no question arises of commission and other charges except STT and other brokerage charges paid on sale of shares which is already reflected in tax return filed for the year. Therefore addition on account of unexplained expenditure is vague and should be deleted. Printed from counselvise.com 19 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR In view of the above, it is very much clear that the impuged order passed by Ld CIT (Appeal) was without looking the facts and documents and as such, deserved to be void. (CA Manish Jain) 2.2.1 Further, the ld. AR of the assessee has filed the submission of certified copies dated 17-12-2024 whose details are as under:- Dated: 17-12-2024 To, The Hon’ble Member Income Tax Appellate Tribunal Jaipur-01 Subject :- Submission of Certified Copies Assessee : Sh. Birendra Singh Nirbhay (PAN No. ABXPN5973H) for the AY 2015- 16 ITA NO.704/JPR/2024 Hon’ble Sir, This is in reference to above, an appeal is being filed against the order passed by CIT (A) Unit 3, Coimbatore (NATIONAL FACELESS APPEAL CENTER) for the AY 2015-16. In the last hearing on dated 03/12/2024 your honor had directed to file certified copy of P.No 66, 67 & 68 of Paper Book. In this endeavor we are hereby enclosing certified copy of bank statement (Paper book page no 67) and certified copy of holding report (Paper book paper no 68-69). It is kindly prayed that share application could not be certified as the appellant had deposited the share application form in State Bank of Bikaner & Jaipur which were merged in State Bank of India. Now State Bank of Bikaner & Jaipur is no longer exists. Further it is kindly prayed before your honor that in holding report at P.Book P.No 68 it had been clearly mentioned as IPO credit. We are hereby enclosing the certified copy of P Book. P. No 67, 68-69 and zerox copy of P.Book P.No 66.’’ 2.2.2 The ld.AR submitted the following paper book dated 10-10-2024 and 18-09-2025. Printed from counselvise.com 20 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Paper Book dated 10-10-2024 S.N Particulars Page No. 1. Submision 1-17 2. Copy of statement of Sanjay Vora recorded by Investigation Wing of Income Tax Department alongwithour submission 18-22 3. Copy of Income Tax Return for AY 2019-20 & 2015-16 23-28 4. Copy of order passed by CIT(A) 29-37 5. Copy of order passed by AO 38-65 6. Copy of Share application 66 7. Copy of Bank Statement (2012-13) 67 8. Copy of holding report with Depository 68-69 9. Copy of Bank Statement (2014-15) 70 10. Copy of Equity Shares Bill 71-82 11. Snap shot of company 83 12. Company mast sheet 84-85 13. Copy of SEBI order 86-96 14. Recent Judgement of Jurisdictional High Court 97-105 Paper Book II dated 18-09-2025 S.N. Name and Citation of the case Page No. 1. PCIT vs Pramod Jain and Ors DBITA No.209/2018 1-7 2. Pr. CIT Jaipur-2 vs Shri Sanjay Chhabra DBIT Appeal No.22/2021 8-11 3. Pr. CIT -12 vs Krishna Devi and Ors [2021] 431 ITR 361 (Delh) 12-17 4. ACIT vs Maveerick Commodity Brokers Pvt.Ltd ITA No. 27/JP/2020 18-79 5. Shri Parasmal Bhandari vs ITO, Ward 6(2), Jaipur ITA No. 95/JP/2023 80-89 6. Amit Rastogi and Ors vs ITO, Ward 1(1), ITA Nos. 2128,2129, 2131 and 2132/Del/2018 90-94 2.3 On the other hand, the ld. DR supported the order of the ld.CIT(A) and submitted following submissions in this case. ‘’BEFORE THE HON'BLE ITAT, 'SMC' BENCH, JAIPUR IN THE MATTER OF BirendraSingh Nirbhay - PAN-ABXPN5976H A.Y. 2015-16 (ITA NO.704/JPR/24) The submission is having two parts. Part ‘A’ is brief of assessment order and part ‘B’ is submission on the case. Printed from counselvise.com 21 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR PART A Background of the case and Findings by the Ld.AO 1. Return Filing and Assessment: i. The assessee e-filed its return on 09-10-2015, declaring total income of ₹3,89,720/-. ii. The assessment under Section 143(3) was completed on 02.11.2017, with the income finally assessed at ₹33,62,810/-. 2. Scrutiny and Reopening Proceedings: i. The case was selected for scrutiny under CASS. ii. A notice under Section 143(2) was issued on 28-07-2016 and duly served. 3. Business Background and Investment in Shares: i. The assessee is an individual and drew salary from AmitRishabH.Builder Pvt. Ltd. and also deriving income from capital gain and house property. ii. Although not engaged in regular share trading, the assessee has invested in shares of companies. iii. The assessee claimed a long-term capital gain (LTCG) exemption under Section 10(38) for the sale of shares of Channel Nine Entertainment Ltd. The gain claimed was ₹27,87,561/-. iv. Details provided indicate that the assessee purchased shares in a very low cost per share (₹25.00 per share) and subsequently sold them at prices reaching up to ₹490.36 per share—a rise of over 1900% in just 15-16 months. 4. Market and Transaction Analysis: i. The investigation, supplemented by public information (including SEBI reports), revealed that several syndicates and brokers manipulate transactions in penny stocks. ii. These companies, such as M/s Channel Nine Entertainment Ltd., have a negligible capital base but command a market capitalization many times larger, driven by insider trading rather than genuine business performance. iii. The extreme price fluctuation and abnormal trading volume—especially following the assessee’s purchase and subsequent sale—suggest that the transactions were engineered to create bogus LTCG entries and convert unaccounted cash into tax-exempt income. 5. Examination of Transaction Details: Printed from counselvise.com 22 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR i. The assessee provided details of the share sale, showing that all exempt LTCG proceeds were derived from a single script. ii. The provided purchase and sale details reflect a lack of fundamental justification for such extraordinary gains. iii. The assessee's assertion of “deep study” and reliance on hearsay and rumours is found to be absurd, as prudent investment decisions are not based on speculation but on sound financial analysis. 6. Adverse Findings and Penalties: i. The Assessing Officer (AO) concluded that the alleged LTCG is bogus. ii. Consequently, the gain of ₹27,87,561/-was added to the assessee’s income from other sources and taxed at 30% under Section 115BBE. iii. Additionally, it was determined that an 6% commission (₹1,85,530/-, calculated at a reasonable 6% rate on the sale) is to be treated as undisclosed expenditure under Section 69C. iv. Separate penalty proceedings under Section 271(1)(c) were initiated for furnishing inaccurate particulars of income and for concealment. 7. Legal and Judicial Reasoning: i. The assessment order emphasizes that in assessing whether a transaction is genuine or sham, the surrounding circumstances, human conduct, and the preponderance of probabilities are relevant. ii. The Hon’ble ITAT Delhi in Hersh Win Chadha vs. DCIT and subsequent decisions (e.g., SumatiDayal vs. CIT, UshaChandresh Shah vs. ITO, Arvind M Kariya vs. ACIT) have established that the revenue is entitled to consider circumstantial evidence along with documentary proof. iii. The Supreme Court, in McDowell vs. CTO, stated that “colourable devices cannot be part of tax planning,” reinforcing that the assessee’s scheme is a mere subterfuge to convert unaccounted cash into tax- exempt income. iv. The decision in CIT vs. P. Mohankala further supports that unexplained credits in the books must be considered income when no satisfactory explanation is provided by the assessee. Part -B Submission in Support of the Revenue’s Position on the Lack of Investment Worth, Non-Substantiation of Profitability Logic, Poor Financial Position, and the Absence of Genuine Economic Substance in the Purported Investment – I respectfully submit the following comprehensive submission on behalf of the Revenue. This submission sets forth the Revenue’s position that the assesses claims relating to Printed from counselvise.com 23 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR investment in the penny stock company are unsustainable. In particular, it demonstrates that: i. The company has negligible inherent worth, making it unworthy of genuine investment. ii. The assessee has failed to substantiate any logical basis for expecting profitability from a non–profit-making entity. iii. The AO’s financial analysis clearly shows that the company is in a poor financial position. iv. The principle of genuine investment requires that investments must create real economic value and yield projected returns—a standard not met by the assesses claims. v. Orders of SEBI and SAT. vi. The Swati Bajaj decision reinforces that the onus is on the assessee to prove that the investment is genuine, which has not been discharged. vii. Recent judgment by the Hon’ble Bench ITAT Bench –‘A’ in the case of Chandra Prakash Jain ITA No. 66(AY 2012-13/JPR/20215), as facts are replica of this case. 1. Lack of Inherent Investment Worth 1.1 Negligible Intrinsic Value: i. As a penny stock, the company’s asset base is extremely limited and its market capitalization is minimal. ii. Available financial data confirms that the company does not possess the requisite intrinsic value to attract serious investor interest. 1.2 Poor Financial Position: i. The Assessing Officer’s analysis reveals a persistently low asset base, minimal revenue, and ongoing losses. ii. This weak financial position confirms that the company cannot sustain long-term growth or generate significant future returns. 2. Failure to Substantiate Profitability Logic 2.1 Unsubstantiated Claims: i. The assessee has not provided any credible evidence or detailed explanation to support the notion that a company, which is consistently non–profit-making, can yield sustainable returns. ii. Financial projections offered are speculative and lack corroboration from historical data or industry benchmarks. Printed from counselvise.com 24 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR 2.2 Insufficient Supporting Evidence: i. Despite multiple opportunities, no robust documentation has been produced to demonstrate that the investment in the company will generate future income in line with its face value. 3. Genuineness of Investment and Real Investment 3.1 Definition of Investment: i. Investment refers to the allocation of funds into an asset or venture with the expectation of generating future returns, measured by the asset’s face (nominal or book) value as recorded in the financial statements. 3.2 Definition of Real Investment: i. Real Investment goes beyond the face value by reflecting the asset’s productive capacity and its ability to yield projected returns such as cash flows, dividends, or capital appreciation. ii. It is a measure of the asset’s intrinsic economic value and its contribution to long- term wealth creation. 3.3 Application to the Present Matter: i. The assessee contends that the investment in the company will yield attractive returns; however, the company’s financial records demonstrate a negligible asset base and poor operational performance. ii. There is no evidence to indicate that the funds have been employed in a manner that creates genuine economic value. iii. Consequently, the purported investment fails to meet the criteria for a real investment—i.e., one that is capable of generating meaningful future returns. 4. The poor financial health of Company The Assessing Officer discussed in detail in the assessment order that the health of the company in which assessee has invested was not good. He reproduced the financial data of company from which following figures noticed- Profit & Loss account Profit & Loss account Printed from counselvise.com 25 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR (In Crores) Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 Sales Turnover 2.61 2.60 00 00 0.07 Depreciation and Amortisation Exp. 0.40 0.28 0.11 0.01 0.01 Profit/Loss Before Tax 0.17 0.15 0.09 0.03 0.00 Total Tax Expenses 0.11 0.05 0.02 0.02 0.02 Profit/Loss for the Period 0.05 0.12 0.07 -0.04 -0.02 Basic EPS 0.03 0.08 1.39 -0.90 -0.35 Dividend and Dividend Percentage 0 0 0 0 0 Balance Sheet Balance Sheet of Unno Industries (In Crores) Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 Capital work in progress 00 00 00 00 00 Total Resrves and Surplus 7.34 7.29 5.03 0.30 0.34 Long Term Provisions 0.03 0.06 00 0.07 0.05 Printed from counselvise.com 26 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Net Current Liabilities 5.42 0.94 0.10 0.94 0.83 Fixed Assets 0 0 0 0 0 Current Investments 2.99 2.69 0.30 0.30 0.30 Cash and Cash Equivalents 0.16 0.66 0.03 0.02 0.03 Bonus Equity Share Capital 15.53 15.53 0.53 0.47 0.47 Capital Structure of Company Channel Nine Entertainment Ltd. Capital Structure Period Instrument Capital PAIDUP From To Authorised Issued Shares No. Face Value Capital 2013 2014 Equity Share 155.26 155.26 155.26 1 155.26 2012 2013 Equity Share 155.26 155.26 155.26 1 155.26 2011 2012 Equity Share 5.30 5.30 5.30 1 5.30 2010 2011 Equity Share 4.67 4.67 4.67 1 4.67 2009 2010 Equity Share 4.67 4.67 4.67 1 4.67 Financial Ratio of the Scrip Key Financial Raito Printed from counselvise.com 27 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 Face Value 1 1 1 1 10 Asset Turnover Ratio -- 809.77 4,097.05 -- -- Earnings per share 0.03 0.08 1.39 -0.90 -0.35 Book Value 14.73 14.69 104.96 16.38 17.28 5. To assess whether the investment in M/s Channel nine Entertainment Ltd. is worthwhile, let's break down and analyse the financial data from the Profit & Loss account and the Balance Sheet of the company, along with the provided financial ratios. Key Points to Analyse: Profit & Loss Account: 1. Profitability:  The company shows minimal profit over the years, with profits ranging from ₹0.12crore (March 2013) to ₹0.05 crore (March 2014).  There is a consistent fluctuation in profits, with the company reporting a loss in some years (e.g., March 2011, -₹0.04crore, March 2010, - ₹0.02crore).  The EPS (Earnings Per Share) is negative in some years, indicating poor profitability, especially in 2010 and 2011.  There is a consistent fluctuation in operating profits also, with the company reporting aoperating losses in some years (e.g., March 2011 to March 2013,(-₹0.04, -₹0.06& -₹0.11crore). 2. Tax Expenses:  The company incurs tax expenses in most years, but these are minimal, indicating either lower profits or tax planning strategies.  The profit margin is low, and the company's tax burden seems light, which could suggest issues with taxable profits or business growth. 3. Dividend:  The company has not declared any dividends in the available years, indicating that the company is either reinvesting its earnings or has limited cash flow for dividend payouts. Balance Sheet: 1. Reserves and Surplus: Printed from counselvise.com 28 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR  As per balance sheet of company, work in progress is nil for mar 2010 to march 2014. There is nil fixed assets and current assets also in negative trend form ₹ 13.12 Crores in March 2013 to ₹ 13.08 crores in March 2014.  This negative trend suggests the company has been operating with losses, possibly impacting its financial health and stability. 2. Fixed Assets:  The company has no investments in tangible assets, and the value remains relatively nil across several years. This suggests limited capital investment or reinvestment in the business.  The company’s growth potential may be hampered if it is not investing enough in its infrastructure or assets. 3. Cash and Cash Equivalents:  Cash and cash equivalents have fluctuated over the years, with a notable decrease in cash flow from ₹0.66crore (March 2013) to ₹0.16crore (March 2014). The low cash reserves might indicate liquidity problems. 4. Current Investments:  Investments are small and vary year by year, with some years showing no current investments. This inconsistency might suggest a lack of strategic financial planning. Capital Structure:  The company maintains consistent low equity share capital (₹15.53crore) across last two years, indicating no major changes or new equity issues. Key Financial Ratios:  Operating Profit per Share: o Negative or near-zero in recent a year, which suggests poor operational performance.  Net Operating Profit per Share: o Decreasing in compare to previous years and consistence very low performance in most years, indicating poor operational efficiency.  Asset Turnover Ratio: o Low asset turnover ratios across the years, suggesting that the company is not efficiently utilizing its assets to generate revenue. This indicates a potential underperformance in operations.  Earnings Per Share (EPS): o The EPS shows fluctuation with negative values in some years, highlighting instability in profits and earnings. Printed from counselvise.com 29 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Conclusion: The financial data suggests that Chennel Nine entertainment lt.was not a promising investment at that time. The company is reporting low profits, negative reserves, poor asset utilization, and low liquidity, which are indicators of financial instability. Additionally, the lack of dividend payments and minimal reinvestment in assets signals that the company may be struggling to generate consistent growth. While the investment might be viable for speculative purposes or under specific turnaround conditions, based on the current financial health, it does not seem to be a worthwhile long-term investment. Further improvements in profitability, capital investments, and asset utilization would be necessary to make it a more attractive investment option. 5. Reference to SumatiDayal, Swati Bajaj and Chandra Prakash Jain ITAT JAIPUR/ITA No. 66(AY-2012-13)/2025 Dated 13/03/25 Related Precedents 5.1 SumatiDayal Judgment (i) Supreme Court of India in SumatiDayalvs Commissioner of Income-Tax, Bangalore on 28 March, 1995, held the Principles of Human Probability Test. It has been pointed out that knowledge of business or investment must be with Know -How Knowledge. Luck is rare. It has been said by the Hon’ble court that ‘The appellant's knowledge of racing is very meagre.’ Implications for the Present Case i. Assessee invested in a company which has no good history of financial growth, ii. Assessee had not invested earlier in shares, iii. Assessee invested in only one particular share, iv. There was no big announcement by the company to attract investor, v. There were numbers of companies,butassessee failed to establish investment in this particular company, vi. Hence the gain is beyond human probabilities 5.2. Swati Bajaj Judgment: i. In Principal CIT v. Swati Bajaj [2022] 446 ITR 56 (Cal.), the Hon’ble Calcutta High Court held that when dealing with investments in penny stocks, the onus is on the assessee to establish the genuineness of the transaction. Printed from counselvise.com 30 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR ii. The Court observed that modest gains or inflated book values do not validate an investment when the underlying asset lacks real economic substance. Implications for the Present Case: i. In light of Swati Bajaj, the Revenue contends that the assessee’s claim rests on speculative assumptions unsupported by tangible evidence. ii. The financial data, coupled with the weak asset base and poor performance, confirms that the company’s valuation is artificially inflated. iii. Thus, the assessee has not discharged its burden to prove that the investment is genuine or capable of producing future returns. 5.3. Chandra Prakash Jain ITAT JAIPUR/ITA No. 66(AY-2012-13)/2025 Dated 13/03/25 Implications for the Present Case:  The facts are same as of present case, and assessee has no past history in investing in shares. Summary of the Order of Prakash Chand Jain:  Background: The assessee appealed against the NFAC, Delhi order dated 07.01.2025, which had disallowed the long-term capital gain (LTCG) exemption claimed under Section 10(38) of the Income Tax Act. The disputed transaction involved shares acquired through an amalgamation, later sold at a significant profit, with the assessee claiming an exempt LTCG.  Grounds of Appeal: 1. Disallowance of LTCG Exemption: The assessee argued that the LTCG exemption should be allowed, as all share transactions were genuine and supported by documentary evidence (contract notes, Demat statements, bank transactions, and STT compliance), contrary to the AO and CIT (A)’s presumption of non-genuineness. 2. Violation of Natural Justice: The assessee contended that his right to cross-examine witnesses was denied, as the additions were based on unverified third-party statements and an investigation report, without affording him a fair opportunity to challenge the evidence. 3. Incorrect Bifurcation of Transactions: The assessee maintained that the AO wrongly aggregated the sale amounts without appropriately distinguishing between long-term gains and short-term losses, resulting in an inflated gain figure. 4. Arbitrary Addition of Fictitious Commission: The assessee challenged the addition of commission expenses that were not substantiated by any tangible evidence.  Facts and Findings: Printed from counselvise.com 31 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR i. The assessee had initially filed his return for AY 2012-13, claiming LTCG exemption on the basis of transactions involving shares of a paper company (M/s. Twenty First Century India Ltd) that underwent an amalgamation. ii. An investigation revealed a larger scheme involving manipulated transactions by syndicates using penny stocks, wherein a significant number of individuals/HUFs were implicated. iii. The AO and CIT (A) treated the entire sale consideration as bogus LTCG based on these findings and the inadequacy of the assessee’s evidence to counter the allegations.  Judicial Reasoning and Outcome: i. The orders of the Assessing Officer and CIT (A) were largely upheld, with reference to various judicial precedents that stressed the need for the assessee to prove the genuineness of the claim under the “Human Probability Test.” ii. While the appeal raised valid points regarding the method of computation and the right to cross-examination, the evidence supported the view that the transactions were part of a broader scheme of manipulated share trading. iii. Consequently, the Court declined to interfere with the additions made by the revenue. However, it was clarified that not the entire sale consideration should be taxed—only the net LTCG of Rs. 83,25,364 (i.e., the amount claimed exempt under Section 10(38)) would be subject to taxation. 7. Conclusion and Prayer For the reasons stated above, it is respectfully submitted that: i. The company, as a penny stock, lacks inherent worth due to its negligible asset base and poor financial performance. ii. The assessee’sprofitability logic is unsubstantiated and speculative, failing to demonstrate any sustainable future returns. iii. The principle of real investment—which requires that investments create genuine economic value—has not been met by the assessee’s claims. iv. The Swati Bajaj decision confirms that the burden is on the assessee to prove the genuineness of an investment, a burden that remains unmet. Accordingly, the Revenue prays that this Hon’ble Tribunal dismiss the assessee’s claims for an inflated valuation and any associated tax benefits, and uphold the assessment based on the actual, unimproved financial position of the company. Submitted Most Respectfully, Printed from counselvise.com 32 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR Enclosures: 1. Financial Data and AO’s Report on the Company’s Poor Financial Position 1. Relevant Extracts from the Swati Bajaj Judgment ([2022] 446 ITR 56 (Cal.)) 2. Chandra Prakash Jain ITAT JAIPUR/ITA No. 66(AY-2012-13)/2025 Dated 13/03/25’’ The ld.DR also submitted the case laws as under:- S.N Particulars Page No. 1. In the Income Tax Appellate Tribunal ‘’A’’ Bench, Kolkata , ITA No. 1077/KOL/2024 Narayan Suppliers Pvt. Ltd.138, Canning Street, Burrabazar, Kolkata vs ITO,Ward 6(3), Kolkata 1-28 2. [2022] 139 Taxmann.com 352 (Calcutta) High Court of Calcutta, Principal Commissioner of Income Tax vs Swati Bajaj 29-77 3. [2018] 89 Taxmann.com 196 (Bombay) High Court of Bombay Sanjay Bimalchand Jain vs Pr. CIT-1, Nagpur 78-80 4. [2025] 175 Taxmann.com 348 (Delhi – Trib), Udit Kalara vs ITO 81-85 5. [2022] 138 Taxmann.com 150 (SC) Pr. CIT vs Krishna Devi 86-87 2.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee had e-filed his return of income on 9-10-2015 declaring total income of Rs.3,89,720/-. The case of the assessee was selected for scrutiny and notice u/s 143(2)of the Act was issued on 28-07-2016 which was duly served on the assessee. Statutory notice as required under law were issued and in compliance to those notice assessee attended from time to time and filed various required details and documents. From the assessment order, it emerges out that the AO during the course of assessment proceedings noticed that there was substantial increase in the capital of the assessee wherein the assessee Printed from counselvise.com 33 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR had shown Long Term Capital Gain of Rs.27,87,561/- and claimed exemption u/s 10(38) of the Act. The AO noticed that the profits are shown from Long Term Capital Gain of Rs.27,87,561/- on a Penny Stock namely Channel Nine Entertainment Ltd. The transaction of purchase/ sale of shares leading to Long Term Capital Gains exempted u/s 10(38) enjoying beneficial rate of taxation is tabulated as under:- Name of scrip Date of purchase Cost of purchase Date of sale / No of shares Date & Amount of Proceeds Long Term Capital Gains Channel Nine Entertainment Ltd. 23.02.2013 [ IPO Application] 6000 equity share were applied Share were credited in the demant account on 07.03.2013 1,50,000 11.06.2014 3000 17.06.2014 1000 25.06.2014 2000 13.06.2014 14,58,084 19.06.2014 4,94,485 27.06.2014 9,84,990 ------------- 29,37,559 ======== 27,87,559/- [ 29,37,559 less 1,50,000 ] As is evident from the above table the assessee, being a retired person invested a sum of Rs. 1,50,000/- in the initial public offer (IPO) by way of an application form no. 11000403. The shares were thus applied in the public offer and were held in the demate account on allotment of share in that IPO process. Thus, the stand taken by the ld. AO based on the report of Investigation Wing of New Delhi, Mumbai, Kolkata relating to actions conducted by them in the case of Bogus LTCG/STCG/STCL/Loss entry providers and in case of beneficiaries of this arrangement. It is noted from Printed from counselvise.com 34 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR the assessment order where the AO made deep analysis in the case of the assessee and made addition of Rs.27,87,561/- u/s 68 of the Act in the hands of the assessee by observing at para 10 of his order as under:- ‘’10. In view of detailed analysis, in foregoing para, of the evidences and the judicial pronouncement, it has been established beyond doubt and is therefore held that unaccounted income of Rs.27,87,561/- routed back to the assessee, during the year under consideration, camouflaged as long term capital gains of Rs.27,87,561/- has been provide to be a bogus entry and not satisfactory explained. This way, the assessee was in receipt of cash credit of Rs.27,87,561/- for which it failed offer any satisfactory explanation especially in light of credible evidence gathered by the department. The sum of Rs.27,87,561/- is therefore, added u/s 68 to the total income of the assesee for the year under consideration treating it as unexplained cash credit. In first appeal, the ld. CIT(A) has confirmed the action of the AO by observing as under:- 5.2 Following the decision in the cases discussed above it is held that the profits shown from Long Term Capital Gain of Rs.27,87,561/- on a penny stock namely Channel Nine Entertainment Ltd was held to be bogus by the assessing officer. The reports of Investigation wing of New Delhi, Mumbai, Kolkata relating to actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangements and the investigations conducted by the department for long showed that certain share transactions in penny stock companies were fabricated one with a motive to launder the unaccounted money in form of bogus Long Term Capital Gains/Short Term Capital Gains with nil taxes or taxes at nominal rates. The addition on account of LTCG taxed u/s 68 at Rs 2787561 is upheld. On careful consideration of orders of both the lower authority, the bench noted that the issue that has been discussed while confirming / making Printed from counselvise.com 35 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR addition was of the report of the investigation wing wherein the purchases were made from the brokers and there is no reference to the application of made by the public at large on IPO application. The payment of the application money were by an account payee cheque for an amount of Rs. 1,50,000/- drawn on HDFC Bank. There is no finding that the money so paid by normal banking channel has reached in that IPO process. No statement of the broker or that of the entry provider states that the IPO process were not in accordance with the law. Even there is no finding of the SEBI on that process of IPO being held not genuine. The revenue alleged broker undertake off market sale, pre IPO sale, purchase through fake contract note. All these allegations are not applicable to the present case as the assessee purchased the share through a process of IPO. Here the counter part is traceable as the application is made by a valid process of IPO. How a retired person not having any source of business can pay in advance and thereby the sale proceeds received in his bank account this allegation is mere here say and no evidence were supplied or placed on record. Every company who make the IPO cannot be said to shell company when that come through IPO process. The assessee based on the prospect and advertisement in public domain has availed the offer of IPO and thereby the assessee was allots shares. There is no involvement of Printed from counselvise.com 36 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR any broker and fake contract note for this purchase. Thus, the allegation of the revenue is general without considering the facts of the case on hand. Even the shares that the assessee received were remain available for more than 12 months in the demant account itself and that is sufficient proof to avail the benefit as available as per provision of section 10(38) of the Act. We are afraid if such a way, we take a view that the gain arrived by a valid process be considered as bogus gain and unexplained then the mess will be created no corporate entity will get the capital and the purpose of capital market will vanish. The contention of the revenue that the assessee never met to the broker is also not correct because the assessee has sold the shares through a mediator HDFC Securities Limited the assessee may not met that broker but definitely after completing the KYC process opened the demat and trading account with that broker and there is no finding of the investigation team that the HDFC Securities Limited were part of the price ragging process. Thus, the based on the presumption and assumption the additions were made are not prevailing the in facts of the case discussed herein above and therefore, the facts of the case of the Swati Bajaj and other relied upon by the revenue has different facts are not related to the process of sales through the IPO. Thus, based on the evidence as discussed herein above revenue could not discharge there burden that Printed from counselvise.com 37 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR based on the evidence placed on record by the assessee how the gain earned by the assessee be considered as bogus where there is no evidence placed on record on the allegation that has been made by the revenue and thereby merely based on the surmises and conjectures as reported in the investigation report and that too without looking to the facts of the case simply the facts of the investigation report cannot be applied when the facts are totally different. Thus, the long term capital gain that that is claimed as exempt u/s 10(38) of the Act cannot disbelieved in the hands of the assessee. The assessee has subscribed for equity shares of the Company “Channel Nine Entertainment Limited” and consideration was paid through banking channel and these shares have duly been credited in the Demat account with HDFC Securities Limited. The equity shares so acquired have duly been sold online through Stock Exchange at real time price after paying the Security Transaction Tax (STT). The Company “Channel Nine Entertainment Limited” is listed company, which was active and shares thereof were available for trade online at the time of assessment proceedings itself sufficient proof of existence and duly authorized, permitted and valid script freely tradable in public at large. The shares of the company were available at online trading plate-form even at the time of assessment proceedings. The screenshot evidencing this Printed from counselvise.com 38 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR trading was also submitted by the assessee to the Ld CIT (A) at the time of appellant proceedings. It is pertinent to mention that the governing and regularity body ‘SEBI’ had issued an order dated 29/06/2015 and 04/01/2016, where-in it had restrained in the dealing of equity shares of various companies, which includes CHANNEL NINE ENTERTAINMENT LIMITED. The SEBI had not pointed any violation of provisions of SEBI ACT and SEBI (Prohibition of fraudulent and unfair trade practices relating to Securities market) Regulation 2003 and had revoked the earlier order issued in the case and thus it does not appear as Penny Stock not only that the capital acquired by that capital through process of IPO was not considered as invalid. Hence, in view of the facts and circumstances of the case, we do not concur with the findings of the ld.CIT(A) on the issue in question. Thus the Ground No. 1 of the assessee is allowed. 3.1 As regards the Ground No. 2 of the assessee wherein the AO made addition of Rs.1,85,530/- u/s 69C of the Act, in the hands of the assessee by observing as under:- ‘’Looking to the facts & circumstances of the case, it is held that the assessee has paid commission @ 6% of sale value of shares of M/s. Channel Nine Entertainment Limited and paid a sum of Rs.1,85,530/-,equal to 6% of the amount of sale proceeds of bogus share transaction and the assessee has not offered any explanation about the source of the same. This sum of Rs.1,85,530- Printed from counselvise.com 39 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR is treated as unexplained expenditure u/s 69C of the Income Tax Act,1961 and added to the total income of the assessee for the year under consideration.’’ In first appeal, the ld.CIT(A) reduced the addition from Rs.1,85,530/- to 1,23,680/- i.e. from 6% to 4% by observing as under:- ‘’……. The beneficiaries Sh.Ajit Gupta of Delhi have categorically admitted in his statements recorded u/s 132(4) that he paid commission of 5-6% in cash in lieu of bogus entry of Long Term Capital Gains shown from artificial trading in penny stock bogus company. The assessing officer estimated an amount equivalent to 6% of the bogus Long Term Capital Gains entry, which is restricted to 4% which comes to Rs 123686 rounded to 123680. Commission paid in lieu of entry of bogus Long Term Capital Gain was added to the total income for the year under consideration u/s 69C of the Income Tax Act, 1961 being unexplained expenditure incurred by way of commission paid to arrange bogus entry of Long Term Capital Gains. The addition is restricted to 123680.’’ 3.2 After hearing both the parties and perusing the materials available on record, it is noted from the available record that the assessee had made real transactions of sales and thus no question arises of commission and other charges except STT and other brokerage charges paid on sale of shares which is reflected in the Income Tax Return filed by the assessee for the year under consideration. Thus, we do not concur with the findings of the ld. CIT(A) on this issue and the same is directed to be deleted. Hence, Ground No. 2 of the assessee is allowed. Printed from counselvise.com 40 ITA NO.704/JPR/2024 SHRI BIRENDRA SINGH NIRBHAY VS ITO, WARD 3(1), JAIPUR 4.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 09/10/2025. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09 /10/2025 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Birendra Singh Nirbhay, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward 3(1), Jaipur 3. vk;djvk;qDr@Theld CIT 4. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZQkbZy@ Guard File (ITA No.704/JP/2024) vkns'kkuqlkj@ By order, lgk;diathdkj@Asstt. Registrar Printed from counselvise.com "