M/S JINESH ASHWINGKUMAR MATALIA, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, 3(3)(1)., MUMBAI

CO 117/MUM/2022

AI Insights

The case involves multiple appeals by the Deputy Commissioner of Income Tax against M/s Jinesh Ashwinkumar Matalia concerning the assessment years 2011-12 to 2013-14 and 2015-16. The primary issue revolves around the additions made under section 69C of the Income Tax Act, which were contested based on the claim that the transactions involved penny stocks and lacked genuine substance. The CIT(A) had earlier ruled in favor of the assessee, leading to the current appeals by the revenue. The tribunal's decision focused on the absence of incriminating material directly linking the assessee to the alleged tax evasion through the transactions in question.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 129570 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 3 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-12-2022
• Assessment Year: misc
• Appeal Filed On: 26-08-2011
• Other Referred Cases: CIT vs. Continental Warehousing Corporation, Murli Agro Products Ltd Vs. CIT, CIT Vs Gurinder Singh Bawa, CIT Central-III vs. Kabul Chawla, Principal Commissioner of Income-tax, Central IT, New Delhi Vs. Meeta Gutgutia, Pr. CIT vs. Soumya Construction (P) Ltd., Pr. CIT vs. Devangi alias Rupa, CIT vs. IBC Knowledge Park (P.) Ltd., Pr. CIT vs. Salasar Stock Broking Ltd., Shri Kamal Kishore Soni Hyderabad Vs ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Search and seizure; Earning of tax free income; Accommodation entries; Penny stocks
• Section: 69; 69C; 143(3); 153A; 22; 153C

Judgement Text

ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 1 IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER ITA Nos. 1321 to 1324/Mum/2022 (A.Ys.2011-12 to 2013-14 & 2015-16) Deputy Commissioner of Income Tax-3(3)(1) Room No. 668, Aaykar Bhavan, M.K. Road, Churchgate, Mumbai 400020 Vs. M/s Jinesh Ashwinkumar Matalia, Adarsh Classic A-302, Adarsh Vihar, Off Marve Road Malad (W) 400064 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AGIPM8067F Appellant .. Respondent C.O. Nos. 117 to 120/Mum/2022 (A.Ys.2011-12 to 2013-14 & 2015-16) Jinesh Ashwinkumar Matalia, Adarsh Classic A-302, Adarsh Vihar, Off Marve Road Malad (W) 400064 Vs. Deputy Commissioner of Income Tax-3(3)(1) Room No. 668, Aaykar Bhavan, M.K. Road, Churchgate, Mumbai 400020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AGIPM8067F Appellant .. Respondent Appellant by : Shailesh Parmar Respondent by : Hemantkumar Chimanlal Leuva Date of Hearing 08.12.2022 Date of Pronouncement 16.12.2022 ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 2 आदेश / O R D E R Per Amarjit Singh (AM): All three appeals of the revenue vide ITA Nos. 1322 to 1324/Mum/2022 and Cross Objection of the assessee vide C.O. Nos. 118 to 120/Mum/2022 are directed against the combined order of the ld. CIT(A)-49, dated 30.03.2022. The appeal of the Revenue vide ITA No.1321/Mum/2022 is directed against the separate order of the Ld. CIT(A) dated 30.03.2022. All these appeals are baased on identical facts and similar issues therefore these appeals are adjudicated together by this combined order. Three appeals of the revenue vide ITA No.1322/Mum/2022 to 1324/Mum/2022 are unabated assessment based on identical issues and facts therefore these appeals are adjudicated by taking the ITA No. 1322/Mum/2022 as a lead case and its findings will be applied mutatis mutandis to other two apppeals. The revenue has raised the following grounds before us: “1. Whether on the facts and in the circumstances of the case na din alw, the Ld. CIT(A) is right in deleting addition made u/s 69C of the Act neglecting the fact that whatsapp chat between ShriBrijeshBhattad, Shri Raman Solanki and Shri Bharat Shah found on the mobile phones which are seized format he premise where warrant u/s 132 was executed shows that certain cash transactions entered between ShriJineshMatalia and BhattadGrop Companies. The Mobile Phones seized have the information which directly relates to and have direct bearing on the determination of total income of ShriJineshMatali. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CITA) is right in allowing the appeal of assessee neglecting the fact that M/s Gemstone Investment Limited is a Penny Stock Company and SEBI has banned the trading of M/s Gemstone Investment Limited (GIL) vide order No. WTM/RKA/EFD/-DRA-II/06/2016 for fraudulently pushing up the price and creating artificial volumes in shares. 3. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) is right in allowing the appeal of the assessee whereas the ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 3 Investigation Wing established the fact through analysing the share price pattern of GIC (BSE: 531137) that share price of GIC moved from Rs. 98 in May 2009 to Rs. 202 in July 2010, and there was a sharp fall in price again to Rs. 6 per share in the month of March, 2011 and thereafter, the price of the script stooped down to Rs. 0.57 per share," 4. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) is right in allowing the appeal of the assessee neglecting the facts that since the transaction of purchase and sale of shares of GIL were identified as no-genuine itself. the whole transactions entered into by the assessee in this scrip is sham transactions which were the base note of satisfaction drawn by the Assessing Officer u/s 153C of the Income Tax Act. 5. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in not appreciating that the prices of the shares were determined artificially by manipulations and cannot be a product of market factors and commercial principles. 6. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that M/s Gemstone Investment Limited was a penny stock companies, therefore the transitions of purchase and sale of shares of GIL was found to be not genuine as the script itself was a tool to provide accommodation entries.” 3. Fact in brief is that a search and seizure was conducted in the case of Bhattad Group on 18.11.2016. Subsequently, under the provision of Sec. 153C of the Act a notice u/s 153C of the Act was issued to the assessee on 10.09.2018. In response the assessee filed return of income on 26.09.2018. During the course of search interalia mobile phone Shri Brajesh Bhattad, Sri Raman Solanki & Shri Bharat Shah were seized. Whatsup chat of this mobile phone showed that there was certain cash transaction entered into between shri Jinesh Matalia, the assessee and Bhattad Group Companies. The Assessing Officer was of the view that the mobile phone seized during the course of search in the case of Bhattad group had incriminating information relating to the assessee and such information directly related to and had direct bearing on the determination of the total income of the assessee. Therefore A.O was of the view that the conditions enumerated in Sec. 153C of the Act were satisfied. ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 4 3.1 During the course of assessment the A.O stated that as per the information received from the assistant director of Income Tax (investigation), Mumbai that M/s Gemstone Investment Ltd. (GIL) was found to be a penny stock and SEBI has also listed the said company as a shell company and had also banned trading in the script of GIL. He further noticed that assessee had also traded in the said script and the purchase value of the script during the year under consideration was Rs.1,25,428/-. On query, the assessee explained that he was a trader in shares, securities and commodities listed on stock exchange and this purchase and sale of shares had been debited and credited to the profit and loss account which had been offered and formed part of his business income. The assessee also submitted that the purchase and sales of shares had been carried out and deliver was settled through renowned broker and through stock exchange. The assessee also contended that there was nothing on record to conclude that the transaction had been done to avoid tax. The assessee has also submitted that it had incurred loss of Rs.11,922/- in the trading of the script GIL. However, the A.O has rejected the contention of the assessee and found that assessee has purchased shares of GIL for a total amount of Rs.1,25,428/- during the year under consideration and treated the entire investment as unexplained investment u/s 69 of the Act and added to the total income of the assessee. 4. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee holding that addition of Rs.1,25,428/- was not based any incriminating material found during the course of search conducted u/s 132 of the Act. The relevant part of the decision of CIT(A) is reproduced as under: ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 5 “8.3 DECISION: 8.3.1 I have considered the facts of the case. Apart from making detailed submissions on merit, the assessee has also contended that the AO did not have jurisdiction to make this addition without having support of any incriminating material in the case of an assessment u/s 153C which was not abated. I, therefore, proceed to adjudicate the issue relating to validity of the addition, before considering the submissions on merit and other legal contentions raised by the assessee. The primary argument of the assessee in this regard, is that, the assessment was not abated at the time of issue of notice u/s 153C of the Act, and, therefore, no addition could have been made vide the impugned order without relying on any incriminating material found as a result of search. 8.3.2 On perusal of the impugned assessment order it is evident that the Ld. AO has not referred to any seized material found during the course of search or any other evidence gathered during the course of search in the case of Bhattad Group to make this addition. 8.3.3 In the present case at hand, the AO did not have time to issue notice u/s 143(2) of the Act on the date of issue of notice u/s 153C which is 10/09/2018 It is apparent from perusal of first proviso to section 153C(1) of the Act that the 'date of handing over of seized material has to be taken as 'date of initiation of search' for the purpose of determination of the years of abatement of assessment proceedings as provided in Second Proviso to Section 153A. Since, the AO has not mentioned the date of handing over of seized material in the case of the assessee, the same has to be taken as date of issue of notice u/s 153C, which is 10/09/2018, and, hence, the assessment for the year under reference was an unabated assessment. Further, since the proceedings for the year under reference had not abated, the contention of the assessee is that the AO was empowered only to make additions based on the incriminating material found and seized during the course of search operation. 8.3.4 It has been stated in the assessment order that the notice u/s.153C of the Act was issued to the assessee in pursuance of a search and seizure operation u/s.132 of the Act conducted in the case of Bhattad Group On perusal of the assessment order, it is evident that the learned AO has made the addition u/s.69 of the Act for the year under reference on the basis of the information contained in the report of the Investigation Wing on the investigation conducted by them in respect of trading in penny stock by various person and further enquiries made by him during the course of assessment proceedings u/s 143(3) read with Section 153C of the Act. The AO himself has noted that in this case the information was received from the ADIT(Inv) Unit-5(2), Mumbai Vide letter dated 16.03.2018, which is much after the search conducted in the case of Bhattad Group on the basis or which proceedings u/s 153C was initiated in the case of the assessee. It is also not the case of Id. AO that the report of the Investigation Wing.feferred to in the assessment order is in any manner related to the search conducted in the case of Bhattad Group or it could be co-related with any evidence found during the course of search in the case of Bhattad Group. Thus, it is evident that the findings of the learned AO is not supported by any evidence found during the course of the search in the case of Bhattad Group, In pursuance of which the notice u/s.153C was issued to the assessee. The AO has not referred to any incriminating material found during the course of the search in the case of ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 6 Bhattad Group while making the Impugned addition. On perusal of the fcats as evident from record, it is apparent that there cannot even be a presumption as to the impugned addition made during the year under reference having been based on any incriminating material found during the course of search in the case of Bhattad Group. 8.3.5 As there is no discussion in the assessment order about any specific incriminating material, which have been found during the course of search, the matter was referred back to the Id. AO vide a letter dated 10.03.2022, calling for a remand report for all the assessment years under reference as to the fact that whether the additions were based on any incriminating material found during the course of search. Copies of the said letter was also forwarded to the Addl.CIT and Pr.CIT concerned. The said letter is reproduced below for ready reference: “2. An appeal has been filed by the aforesaid assessee in respect of assessment orders dated 28.12.2018 for the aforesaid assessment years u/s 143(3) r.w.s. 153C of the Income Tax Act, 1961. 3. In the appeal filed the assessee has taken a ground that the addition made u/s.69 on account of unexplained investment being alleged penny stock was not based in any Incriminating material found during the course of search. As found from the assessment order, there was search conducted in the case of Bhattad Group on 18.11.2016 and notice u/s.153C was issued in the case of assessee on 10.09.2018 As such the claim of the assessee is that the aforesaid assessment years were not abated assessments and no addition could have been made without having reference to any incriminating material found during the course of search. 4. incriminating material found during the course of search with reference to the addition made on account of unexplained investment us 69 on perusal of the satisfaction note recorded for issue of notice u/s 153C, also it is found that there is no reference of the said transaction in the said satisfaction note. 5. You are therefore requested please explain whether there is any incriminating material found during the course of search which could be said to be supporting the additions made u/s 69 in these assessment years. A copy of the documents, if any relied upon in this regard may also be forwarded. 6. The remand report may accordingly be submitted by 21.03.2022. 7. Please note that if no report is received, it will be presumed that you have nothing more to say in this matter and the appeal will be decided on the basis of facts as apparent from assessment order. 8.3.6 The AO did not respond to the same that is neither any report was received nor any request was made for providing any further period of time for submissions of report, if any. It is, therefore, a material fact on record that the AO has failed to bring on record any incriminating material either during the course of the assessment proceedings or the remand proceedings, despite being provided with an opportunity during the course of appellate proceedings as well. ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 7 8.3.7 The Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation [374 ITR 645], has held that when the assessment has attained finality, then the AO while passing the independent assessment order us 153A of the Act can't disturb the assessment / reassessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s 132 of the Act establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of search operation. Further, upon perusal of SLP No. 18560 of 2015 dated 12/10/2015 admitted by Hon'ble Supreme Court against the decision of Hon'ble Bombay High Court rendered in CIT Vs. Continental Warehousing Corporation (supra), it is found that Hon'ble Apex Court has only admitted SLP against the ruling of the Hon'ble Bombay High Court's finding. However, it is seen that the Hon'ble Apex Court has not stayed or suspended the operation of the decision of the Hon'ble Bombay High Court in any manner and, therefore, at the moment, the decision of jurisdictional High Court is bindings 8.3.8 Furthermore, similar has been taken by the Hon'ble Bombay High Court (Nagpur Bench case of Murli Agro Products Ltd Vs. CIT 49 Taxman.com 172 in ITA No 36 of 2009, wherein it has been held that on initiation of proceedings U/s. 153A it is only the assessment proceedings that are pending on the date of conducting search u/s 132 of marketing requisition u/s. 132A of the Act that stand abated and not the assessments already finalized. This view was upheld in another decision of the Hon’ble High Court in CIT Vs Gurinder Singh Bawa [2016] 386 ITR 483/[2017]-79 taxmann.com 398. 8.3.9 The aforesaid findings are fortified by the decision of the Hon'ble Delhi High Court in CIT Central-lll vs. Kabul Chawla, 380 ITR 573 (Del). The Hon'ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia [2017-TIOL-1000-HC- DEL-IT] has affirmed the view that no addition can be made for a particular assessment year without there being an incriminating material that relates to the said assessment year which would justify such an addition. The Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax, Central IT, New Delhi Vs. Meeta Gutgutia [2018] 96 taxmann.com 468 (SC) has dismissed the SLP in the case and thus upheld the decision of Hon'ble Delhi High Court that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. As noted by the Hon'ble Delhi High Court in the case of Meeta Gutgutia (supra), several other High Courts have also come to a similar conclusion either by following Kabul Chawla (supra) or otherwise. This includes the decisions of the Hon'ble Gujarat High Court in Pr. CIT v. Soumya Construction (P) Ltd. [2016] 387 ITR 529/[2017] 81 taxmann.com 292 (Guj); Pr. CIT v. Devangi alias Rupa [Tax Appeal Nos. 54, 55 to 57 of 2017, dated 2-2-2017]; the Hon'ble Karnataka High Court in CIT v. IBC Knowledge Park (P.) Ltd. [2016] 385 ITR 346/69 taxmann.com 108 (Kar.); the Hon'ble Kolkata High Court in Pr. CIT v. Salasar Stock Broking Ltd. [GA No. 1929 of 2016, dated 24-8-2016] In Meeta Gutgutia (supra) the entire gamut of the case law had been analysed and the legal position was reiterated that unless there is incriminating material qua each of the AYS in which additions are sought to be made, pursuant to search and seizure operation, the assumption of jurisdiction under Section 153A of the Act would be vitiated in law. ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 8 8.3.10 The Hon'ble Delhi High Court in a recent decision in the case of PCIT, Central-3 vs Allied Perfumers (P.) Ltd. [2021] 124 taxmann.com 358 (Delhi) has reiterated the aforesaid position of law with following findings: "12. We have duly considered the contentions advance by Mr. Maratha, however, are unable to agree with him The TAT, aner perusing the rolovant records, including the orders passed by the venue Authorities, observed as follows: 10. We find that the additions made by the AO are beyond the scope of section 153C of the Income tax Act 961, because no incriminating material or evidence hath been found during the course of search so as to doubt the transactions it was noted that in the entire assessment order, the AO has not referred to any sered material for other material for the year under consideration having being found during the course of search in the case of assessee, leave alone The question of any incriminating material for the year under appeal We also find that the case laws cited by the Ld CIT(DR) are not relevant to the present case Therefore, in our considered opinion, the action of the AO is based upon conjectures and surmises and hence, the additions made is not sustainable in the eyes of law, because this issue in dispute is now no more res- integra, in view of the decision dated 29-8-2017 of the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax- III, Pune v. Sinhgad Technical Educational Society reported in (2017) 84 faxmann.com 290 (SC) as well as the decisions of the Hon'ble Delhi High Court passed in the case Commissioner of Income-tax v. Kabul Chawla reported (2016) 380 ITR 573 (Del) and in the case of Principal Commissioner of Income-tax (Central) -2 v. Index Securities (P) Ltd. 11. Respectfully following the precedents as aforesaid, as aforesaid, we quash the assessment made w/s.153(C)/143(3) of the I.T. Act, 1961 and decide the legal issue in favour of the Assessee and accordingly, allow the Cross Objection filed by the assessee. 12. Following the consistent view taken in the assessment year 2001-02 in the Assessee's Cross objection, as aforesaid, the another Cross objection filed by the Assessee relating to assessment years 2002-03 also stand allowed (Emphasis Supplied) 13. Upon reading of the aforesaid extracted portion of the impugned order, it is clearly discomible that the ITAT has given a finding of fact that the assessments make no reference to the seized material or any other material for the years under consideration that was found during the course of search, in the case of the assessee. Mr. Maratha is also unable to point out any incriminating material related to the assessee which could justify the action of the Revenue. Merely because a satisfaction note has ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 9 been recorded, cannot lead us to reach to this conclusion, especially when the Revenue has not laid any to support their contention. In the factual background as explained above, the assumption of jurisdiction under section 1530 cannot be sustained in view of the decision of this Court in the case of Kabul Chawla supra)" 8.3.11 In view of the aforesaid detailed discussion and respectfully following the judicial precedents, I am of the view that the AO does not have jurisdiction to make additions/disallowances which are not based on any incriminating material found during the course of search to conclude, in the case of completed/un-abated assessments, where no incriminating material is found during the course of search, the assessment-u/s 153A/153C of the Act is to be made on originally assessed returned Income and no addition or disallowance can be made de hors the incriminating evidences recovered during the course of search. 8.3.12 In this case, since the addition of Rs.1,25,428/-, made on account of unexplained investment is not based on any incriminating material found during the course of search conducted u/s 132 of the Act (in the case of Bhattad Group), the same is directed to be deleted. The Grounds are accordingly ALLOWED.” 5. During the course of appellate proceedings before us the ld. D.R submitted that decision of ld. CIT(A) that no incriminating material was found was not correct and submitted that what’s up chat found on the mobile phone between Shri Brajesh Bhattad, Sri Raman Solanki & Shri Bharat Shah were incriminating material. 6. On the other hand, the ld. counsel vehemently submitted that there was no relation between the what’s up chat mentioned by the assessee and the transaction pertaining to the M/s Gemstone Investment Ltd. The ld. Counsel submitted that no incriminating material was found during the course of search pertaining to the addition made by the assessee in respect of purchasing of shares of GIL to the amount of Rs.1,25,428/-. The ld. Counsel has also referred para 8.3 of the CIT(A) wherein he has elaborately discussed that Assessing Officer has failed to bring on record any incriminating material during the course of assessment proceedings or the remand proceedings. He also contended that no chat on the mobile phone was found pertaining to these transaction and the mobile ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 10 phone were also returned to the respective parties by the Income Tax Department. He also referred to the different pages of paper book and stated that assessee was engaged in the business of trading in securities and commodities on stock exchange over the period of 22 years and the assessee had carried out the trading in securities through remand broker Latin Manharlal Securities Pvt. Ltd. He also submitted that prior to issue of notice u/s 153C of the Act original assessment u/s 143(3) for the assessment year 2013-14 to 2015-16 were already completed after verification of the detailed submission of trading in securities made by the assessee and the A.O had accepted the same and no addition on account of the trading transaction were made. The ld. Counsel has also placed reliance on the various judicial pronouncements that in absence of incriminating material no addition u/s 153A and 153C can be made in case of completed assessment. 7. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above during the course of assessment the A.O made addition of Rs.1,25,428/- as unexplained investment u/s 69 of the Act vide order dated 28.12.2018 u/s 143(3) r.w.s 153C of the Act. The assessee was engaged in the business of trading of securities and commodities listed on stock exchange. The assessee has not claimed any long term capital gain/short term capital loss from sale and purchase from the shares of the script GIL during the year under consideration. It was also explained before both the authorities that the cash transaction referred to in the chat between the persons of Bhattad Group were not with reference to the transaction pertaining to the GIL script. Neither during the course of assessment nor during the course of appellate proceedings before the ld. CIT(A) the A.O substantiated that there was any incriminating material found in respect of the transaction ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 11 made by the assessee in respect of shares of GIL. Assessment u/s 143(3) r.w.s 153C made in the case of the assessee during the year under consideration was unabated assessment. The ld. CIT(A) has elaborately discussed in his decision that findings of the assessing officer was not supported by any incriminating material found during the course of search action in the case of Bhattad Group on the basis of which addition of Rs.1,25,428/- was made in the case of the assessee. Even during the course of appellate proceedings before the ld. CIT(A) he has categorically directed the A.O by remand report to substantiate if there is any incriminating material found during the course of search on the basis of which the impugned addition was made. However, the Assessing Officer has failed to disprove the facts pointed out by the ld. CIT(A) that addition was not made on the basis of any incriminating material found during the course of search in the case of Bhattad Group. Therefore, considering the above facts and decision of Hon’ble Jurisdictional High Court of Bombay in the case of CIT vs. Continental Warehousing Corporation (374 ITR 645) Murli Agro Products Ltd. VS. CIT 49 Taxman.com 172 vide ITA No. 36 of the 2009, CIT Vs. Guridner Bawa (2016) 386 ITR 483 (2017) and decision of Hon’ble High Court Delhi in the case of CIT Central-III Vs. Kabul Chawla 380 ITR 573 (Del) and other decisions as discussed in the finding of ld. CIT(A) as supra we don’t find any merit in the appeal of the revenue, therefore, we sustain the order of ld. CIT(A) that in the case of the assessee addition of Rs.1,25,428/- was not based on any incriminating material found during the course of search conducted in the case of Bhattad Group. Therefore, ground no. 1 of the revenue stand dismissed. 8. Since, we have dismissed the appeal of the revenue sustaining the order of the ld. CIT(A) that no incriminating material was found on the ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 12 basis of which impugned addition was made, therefore, other ground of appeal of the revenue from 2 to 6 are not required adjudication as held by the ld. CIT(A) in view of deleting the addition on the basis of no incriminating material found in the case of Bhattad Group. ITA Nos. 1323 & 1324/Mum/2022 9. As the facts and the issue involved in both these appeals are the same as supra in ITA No. 1322/Mum/2022, therefore, applying the same findings mutatis mutandis, these appeals of the revenue are also stand dismissed. ITA No. 1321/Mum/2022 10. As discussed supra on the basis of search & seizure action in the case of Bhattad Group, the A.O had issued a notice u/s 153C of the Act. During the year proceedings were already initiated by issuing of notice u/s 148 of the Act on 30.03.2018 and because of initiating of proceedings u/s 153C of the Act the said reassessment stand abated. As per the information received from ADIT, Investigation the assessee was traded in the said script of M/s Gemstone Investment Ltd. (GIL) and the purchase value of the script during the year was to the amount of Rs.2,17,794/- Similarly, the A.O has also received information from the DDIT that assessee has traded in the script SVC Resources limited, A.O treated that total investment made in both these scripts to the amount of Rs.18,61,434/- as unexplained and added to the total income of the assessee. 11. The assessee has filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision is as under: ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 13 “7.3 DECISION: 7.3.1 Grounds No.4 and 5 are in respect of addition made by the learned AO u/s 69C of the Act. In the assessment order, the learned AO has noted that in this case, an information was received from the ADIT(Inv.), Unit-5(2), Mumbai on 16.03.2018, stating that M/s Gemstone Investment Ltd.(GIL) was found to be a penny stock. As per the said information, the assessee had traded in the said penny scrip and the purchase value of the scrip during the year was found to be Rs.2,17,994/-. Similarly, another information was received from the ADIT (Inv.), Unit-2(2), Mumbai on 20.03.2018, wherein the AO was informed that a scrip SVC Resource Ltd. was found to be a penny stock, which was used for providing accommodation entries of LTCG/STCG/Business loss to various persons. The AO has discussed the facts and financials of both these scrips and finally held the investment of the assessee in both the scrips as bogus and made an addition of Rs 18,61,434/- as unexplained investment in penny stocks and added the same to the total income of the assessee u/s.69 of the Act. 7.3.2 In the submissions filed before me, the assessee submitted that he is engaged in the business of trading in securities and commodities listed on the Stock Exchange over a period of 22 years. He carries out trading in securities through renowned brokers. During the year also, the assessee had voluminous transactions in terms of number of scrips, number of shares and value of transactions. He trades in and around 700 to 1200 scrips. The turnover of the assessee for the year under consideration was Rs.129.27 Cr. It was further submitted that the assessee purchases and sells shares on the basis of various sources of information, in order to earn profit and returns on capital invested. 7.3.3 The assessee further submitted that it had purchased and sold the shares of Gemstone Investment Ltd. and SVC Resource Ltd. during the year itself. The assessee contended that he was a trader in shares, securities and commodities listed on Stock Exchange and that his purchase and sale of shares had been debited and credited to the Profit & Loss Account, which had been offered and formed part of his business income. It was further contended by the assessee that the purchase and sale of shares had been carried out and delivery was settled through renowned broker and through Stock Exchange. There was nothing on record to conclude that the transactions had been done to avoid any incidence of taxation arising out of the impugned transactions. Finally, it was contended by the assessee that he had incurred loss of Rs.26,836/- in the of the scrip of SVC and a profit of Rs. 40,001/- while trading in scrip of GIL resulting into a net loss of Rs. 13,165/- out of these transactions. The contention of the assessee is that even if those were penny stocks, the assessee invested in those shares unknowingly in the process of buying and selling shares through Stock Exchange. In the submissions, the assessee has put a lot of emphasis on the fact that it has not earned any exempt income, i.o., LTCG, out of the transactions of these shares. In the case of Gemstone Investment Ltd., the assessee had purchased 16,000 shares for Rs.2,44,190/- and had sold the same during the year itself for Rs.2,17,354/-, In the process, he had a marginal loss of Rs.26,836/-. It was submitted that the average purchase price of the share was Rs.15.26, whereas the average sale price was Rs.13.58. In the case of SVC Resource Ltd., the assessee had purchased 8,333 shares for Rs.16,17,244/-, which was sold for Rs.16,57,245/-. In the process, the assessee had earned a marginal profit of Rs ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 14 40,001/-. The average purchase price of this share was Rs.194.08, whereas the average sale price was Rs.198.88. The assessee submitted that the profit and loss from the transactions of these shares were shown as business income and no exemption was claimed in this regard. It was further submitted that he has had transactions in various scrips having total turnover of Rs.129.27 crore and there is no allegation of dealing in any penny stock besides the aforesaid two transactions during the year under reference. The assessee submitted that even if the transactions are viewed on the basis of preponderance of probabilities, there could be no question of taking any accommodation entry for a profit of Rs.13,165/-, which too has been shown as business income and taxable in the hands of the assessee. 7.3.4 In this regard, it is pertinent to note that whether a particular transaction is genuine or not has to be judged in the given facts of the case. In the case before me, the Id. AO, although has mentioned in the assessment order that an information was received from the Investigation Wing that the assessee was found to have invested in penny stocks, but there is no discussion as to the evidences which are specific to the assessee implicating him for making investments in such penny stocks with any motive of earning exempt income/loss. In the given facts of the case, it is imperative to look into the circumstances to consider whether the impugned transactions could be held as in-genuine so as to tax the investment of the assessee as his income. 7.3.5 In this case, the learned AO has added the investments of the assessee in Gemstone Investment Ltd. and SVC Resource Ltd. as not genuine. However, there has not been any doubt about the source of the money which has been invested for purchase of these shares, and, therefore, there could be no reason or occasion to make any addition on this account u/s 69C of the Act. So far as the consideration received by the assessee out of sale of shares of these scrips during the year is concerned, even if it is presumed and accepted that these two shares were penny stocks which were used by the accommodation entry operators for providing accommodation entries, there is no denying to the fact that these shares have been traded on the Stock Exchange and there can be a case that a genuine investor or trader would unknowingly buy and sell shares of the companies driven by the motive of his own business understandings. Hence, while considering the genuineness of the transaction in the hands of the assessee, what is of paramount importance is that whether any substantial gain or loss has happened out of these transactions in the hands of the assessee and whether such gain or loss was claimed as exempt and not taxable. In the case of the assessee, however, as discussed previously, there is a meagre loss of Rs 26.836/- in the transactions of shares of Gemstone Investment Ltd. and there is a marginal profit of Rs 40,001/- in the transactions of shares of SVC Resource Ltd, and if both the transactions are viewed together, the assessee has had a profit of Rs.13.165/-, which has been shown as business income. Hence, considering the fact that the assessee has a turnover of Rs.129.27 Cr. in trading in securities/commodities, it could reasonably be inferred that the investments and transactions of the assessee in these two scrips were not driven by a motive of taking any accommodation entries, as no such benefit has been found to have been derived by the assessee out of these transactions. ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 15 7.3.6 As far as the question of validity of the transactions are concerned, even if it is accepted that the stocks-in-question were penny stocks, as mentioned previously. there is no denying to the fact that these stocks were trading at the stock exchanges and hence, what is of utmost importance is that whether the assessee could be said to have invested in these stocks with any ulterior motive or intention to take any undue benefit out of these transactions. 7.3.7 Hon. Supreme Court in the case of Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) has emphasized on the theory of preponderance of probability. The Id. AO has referred to the report of Investigation Wing dated 16.03.2018 and 20.03.2018 wherein the impugned shares were identified as penny stocks, whereas the transactions of the assessee in these shares have happened during Financial year 2010-11 which is far earlier than the fact of these shares having been identified as penny stocks by the Investigation Wing. Hence, in a case where the assessee has entered into transactions in a stock which was subsequently found to be a penny stock and there is nothing on record to believe that the assessee has claimed any exempt income or any other undue benefit out of those transactions, that too when the transactions had happened before the Investigation conducted by the Investigation Wing finding these stocks as penny stocks, the preponderance of probability could be said to be in the favour of the assessee that his transactions in those stocks are not in- genuine, specially when there is no direct evidence on record to disbelieve the claim of the assessee as to the same. In this regard, am of the considered view that an explanation, prima facie reasonable cannot be rejected on capricious or arbitrary grounds or on mere suspicion or on imaginary or irrelevant grounds. In this regard, fruitfully refer to the decision in R.B.N.J. Naidu v. CIT. [1956] 29 ITR 194 (Nag.) and in the case of Lajwanti Slal v. CIT. [1956] 30 ITR 228 (Nag.) 7.3.8 Further to the above, find that on similar facts Hon'ble ITAT has decided the issue in the case of Shri Kamal Kishore Soni Hyderabad Vs ITO (ITAT Hyderabad), ITA No.1680/Hyd/2019, order dated 15.04.2021. In this case, the assessee has made the investment in the shares of a scrip naming Rockon Fintech in the year 2008-09, whereas the report of the investigation wing was dated 16.3.2018. The assessee has been engaged in the trading of shares of a number of companies and the said Rockon Fintech was not only one company whose shares the assessee has traded in. The Hon'ble Tribunal observed that the main reason for the disallowance was that the Rockon Fintech was a penny stock company and the assessee has invested in penny stock. After considering the facts and circumstances involved, the Hon'ble Tribunal held that the intention of the assessee was not to make any gain out of purchase and sale of shares of penny stock company. Thus, no disallowance could be e made, leave alone the disallowance of value of shares invested. Findings of the Hon'ble Tribunal as appearing in Para 5 of the said order is reproduced as below for ready reference: “5 Having regard to the rival contentions and the material on record, I find that the assessee has made the investment in the shares of Rockon Fintech in the year 2008-09 whereas the report of the investigation wing is dated 16.3.2018 Therefore, the argument of the assessee's counsel that the assessee could not have known that Rockon Fintech is a penny stock company in the year of purchase of shares is quite acceptable. It is also seen from the Paper Book filed by the assessee that the assessee has ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 16 been engaged in the trading of shares of a number of companies and Rockon Fintech is not only one company whose shares the assessee has traded in. Further, it is also seen that the assessee has sold all of his shares and has incurred loss of Rs.506/- on the sale of shares of M/s Rockon Fintech while short term capital gain of Rs 20,770/- was admitted in the IT. return of the assessee along with other income. Thus, according to him, even if there has to be any disallowance, it can be of Rs.506/- only and not the entire value of purchase of shares of the said company at Rs 2.35 644/ am convinced with the argument of the assessee that the shares were purchased as long as back in the year 2008 and sold immediately thereafter and the assessee has incurred a loss and only such amount can be disallowed. On going through the assessment order as well as the order of the CIT (A), find that that the main reason for the disallowance is that the Rockon Fintech is a penny stock company and the assessee has invested in penny stock. None of the authorities below have verified the sources for the investment From the details filed by the assessee before this Tribunal, it appears, that the assessee has used the sale consideration (after sale of other shares) for purchase of shares of Rockon Fintech and immediately thereafter, on sale of the said shares, the assessee has utilized the said sale consideration for purchase of other shares Further, the assessee has not made any gain from sale of those shares, nor has he claimed any exemption u/s 10(38) of the Act. Therefore, I am convinced that the intention of the assessee was not to make any gain out of purchase and sale of shares of penny stock company. Thus, no disallowance can be made, leave alone the disallowance of value of shares invested.” 7.3.9 In this case also, the assessee is engaged in business of share trading and have dealt in number of shares during the year. The turnover of the assessee from such business is more than Rs 129 crores. The assessee did not claim any exempt income out of the transactions of these two shares The investment of the assessee has been made much before the report of the Investigation Wing as to these two shares being penny stocks. Hence, in the given facts of the case, it could reasonably be inferred that the transactions of the assessee in these shares were not in-genuine. Hence, no disallowance could have been made leave alone the disallowance of value of shares invested as held by the Hon'ble Tribunal in the aforesaid decision. Grounds No. 4 and 5 of the appeal are accordingly ALLOWED.” 12. During the course of appellate proceedings before us the ld. D.R has supported the order of the A.O. 13. On the other hand, the ld. counsel contended that assessee has not claimed any long term capital gain and short term capital gain and the transaction were carried out as per the trading account under the business head. The ld. Counsel also referred CBDT Circular No. 23/2019 ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 17 that stock will be penny stock only if it is dealt as capital gain. The ld. counsel also referred the decision of ITAT Ahmedabad in the case of ITO Vs. Palak Chinubhai Patel (2022) 137 taxman.com 194 (Ahd Tribunal). Dhe ITAT Ahmedabad in the case of ITO Vs. Palak Chinubhai Patel 137 taxmann 194 held that circular No. 23 of 2019 dated 06.09.2019 read with office memorandum dated 16.09.2019 shall apply when assessee has earned/claimed bogus LTCG/STCL but would not be applicable to income declared under the head business or profession. The ld. Counsel further contended that no off market purchase and sale are made in the said script and same were dealt through stock exchange and meager income of net profit of Rs.13,165/- was generated from the transaction from the said script. He also submitted that sale and purchase price of these scripts were only to the amount of Rs.15.26/13.58 and Rs.12.85/Rs.15.96 which cannot be said to be a penny stock and there was a meagre margin between the sale and purchase price of these script. The ld. Counsel further submitted that no inquiry and no evidence has been made to establish that earning of these marginal amount of Rs.13,165/- was a kind of penny stock. 14. Heard both the sides and perused the material on record. Without reiterating facts as already elaborated supra in this order the nature of business of the assessee that he had been engaged in trading in securities and those over a period of 22 years. It is undisputed fact that assessee has not earned any exempt income i.e long term capital gain out of transaction of these shares. The assessee had incurred loss of Rs.26,836/- in the trading of script of SVC and profit of Rs.40,001/- while trading in script of GIL resulting into a net loss of Rs.13,165/- out of these transaction. It is also undisputed fact that average purchase price of the share was Rs.15.26 whereas the average sale price of the ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 18 share was Rs.13.58 only. It is undisputed fact that assessee had a turnover of Rs.129.26 crores in trading in security out of which the assessee had a meagre profit of Rs.13,165/- for trading in the aforesaid two commodities without any abnormal differences in the sale and purchase price of these two scripts. After taking into consideration the aforesaid facts and circumstances and the elaborated discussion made in the finding of the ld. CIT(A) about the nature of transaction, nature of business, nature of heads of income and the judicial findings, we don’t find any merit in the ground of appeal of the revenue, therefore, all the ground are stand dismissed. Cross Objection Nos. 117 to 120/Mum/2022 15. Regarding Cross Objection filed by the assessee ld. Counsel has submitted that these cross objection were consequential in nature if the order of the ld. CIT(A) is sustained the same are not pressed. Since, w have sustain the order of the ld. CIT(A), therefore, these Cross Objection filed by the assessee become infructuous and the same stand dismissed. 16. In the result, the appeals of the revenue i.e ITA Nos. 1321 to 1324/Mum/2022 are dismissed and the Cross Objection filed by the assessee i.e C.O. Nos. 117 to 120/Mum/2022 are also stand dismissed. Order pronounced in the open court on 16.12.2022 Sd/- Sd/- (Kavitha Rajagopal) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 16.12.2022 Rohit: PS ITA Nos. 132 to1324/Mum/2022 & C.O. 117 to 120/Mum/2022 Deputy Commissioner of Income Tax-3(3)(1) Vs. M/s Jinesh Ashwinkumar Matalia 19 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.