DCIT-2(1)(1), MUMBAI, MUMBAI V. INVENTURE GROWTH & SECURITIES LIMITED, MUMBAI

ITA 4163/MUM/2025

AI Insights

The case involves the Revenue's appeal against the CIT(A)'s decision to delete the addition made by the Assessing Officer, which was based on the allegation that the assessee had indulged in penny stock transactions to generate bogus long-term capital gains. The assessee, a registered stock broker and regular trader in shares, was accused of engaging in transactions with penny stocks that had artificially rigged prices. The Assessing Officer treated the proceeds from these transactions as unexplained cash credits under section 68 of the Income-tax Act. However, the CIT(A) found that the assessee had not availed any tax exemption on these transactions and had reported them as business income. The Tribunal concurred with the CIT(A)'s findings and dismissed both the Revenue's appeal and the assessee's cross-objection regarding the validity of reopening under section 147.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772787 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2013-2014
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S MAHAJAN
• Assessee Lawyers: DEVENDRA JAIN
• Keywords: Business income; Reassessment proceedings; Unexplained cash credit; Capital Gains; Accommodation entries; Earning of tax free income; Borrowed satisfaction; Penny stocks; Bogus
• Section: 147; 148; 144; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.4163/Mum/2025 (Assessment Year : 2013-14) DCIT-2(1)(1), Mumbai Vs. Inventure Growth & Securities Limited 201, Viraj Tower, Off Western Express Highway, Andheri (E) Mumbai – 400 069 PAN/GIR No.AAACI2044K (Appellant) .. (Respondent) CO No.199/Mum/2025 (Arising out of ITA No.4163/Mum/2025) (Assessment Year : 2013-14) Inventure Growth & Securities Limited 201, Viraj Tower, Off Western Express Highway, Andheri (E) Mumbai – 400 069 Vs. DCIT-2(1)(1), Mumbai PAN/GIR No.AAACI2044K (Appellant) .. (Respondent) Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 2 Assessee by Shri Devendra Jain Revenue by Shri Virabhadra S Mahajan, Sr. DR Date of Hearing 06/08/2025 Date of Pronouncement 28/08/2025 O R D E R PER AMIT SHUKLA (J.M): 1. The aforesaid appeal has been filed by the Revenue and the cross-objection has been filed by the assessee against the order dated 23.12.2024 passed by the National Faceless Appeal Centre, Delhi, arising out of the reassessment framed under section 147 read with section 144 of the Income-tax Act, 1961 for the assessment year 2013-14. 2. In the appeal, the Revenue has challenged the action of the learned Commissioner of Income-tax (Appeals) in deleting the addition of ₹2,39,15,667/- made by the Assessing Officer on account of alleged bogus long-term capital gains through penny stock transactions. According to the Revenue, the Assessing Officer had elaborately brought out the modus operandi of penny stock operators, demonstrated the artificial nature of such scrips, and having concluded that the assessee had indulged in such transactions, the CIT(A) was not justified in deleting the addition. Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 3 3. The assessee, in its cross-objection, has assailed the very validity of reopening under section 147, raising grounds that the reopening was without proper jurisdiction and based merely on borrowed satisfaction, and therefore contrary to law. 4. Briefly stated, the facts are that the assessee is a listed company duly registered with SEBI as a stock broker, carrying out share transactions both for clients and on its own proprietary account. It is undisputed that the assessee is a regular trader in shares and securities and in the relevant year had a huge turnover of more than ₹23,600 crores. The assessee filed its return of income declaring total income of ₹2,27,86,560/- under the normal provisions and book profit of ₹2,60,37,097/- under section 115JB. The return was initially scrutinised under section 143(3), and assessment was completed at ₹2,35,10,210/-. 5. Subsequently, based on information emanating from the Investigation Wing under ―Project Bogus Long-Term Capital Gain,‖ the case was reopened. The general information suggested that many assessees across the country had availed accommodation entries in penny stock companies to generate exempt long-term capital gains. It was noticed that the assessee had transacted in the scrips of M/s GFL Financials India Ltd. and M/s Diamant Infrastructure Ltd., Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 4 which were alleged to be penny stock companies with artificially rigged prices, not supported by financial fundamentals. Relying on this report, notice under section 148A(b) was issued on 26.05.2022. Thereafter, an order under section 148A(d) was passed on 30.06.2022, and notice under section 148 was issued. In response, the assessee filed its return of income on 29.07.2022, declaring the same income as earlier, without claiming any exemption under section 10(38). 6. The Assessing Officer, in his order, proceeded to hold that the assessee had booked bogus gains from penny stock transactions. He recorded that the assessee had purchased 8,00,000 shares of M/s. GFL Financials India Ltd. on 02.04.2012 through off-market transactions at ₹6.71 per share and later sold them at a substantial profit. He observed that the company had no worthwhile business to justify such a sharp rise in its share price, that the price rise was artificial, and that the counterparties lacked any creditworthiness. He concluded that the entire sale proceeds of ₹2,35,98,400/- (including brokerage) were unexplained cash credits under section 68. Similarly, he treated the sum of ₹3,17,287/- from transactions in M/s. Diamant Infrastructure Ltd. as sham and added the same. The Assessing Officer‘s findings, in essence, were that the assessee had engaged in transactions in penny stock companies lacking fundamentals, and therefore the impugned Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 5 sums represented accommodation entries in the guise of sale proceeds. 7. Aggrieved, the assessee preferred appeal before the learned CIT(A). After considering the submissions, the CIT(A) deleted the addition, observing in detail as under: • ―The appellant‘s business activity is trading in shares based on market analysis and parameters, and the present transactions were carried out in the course of such activity. The transactions in the alleged penny stocks constituted only a tiny fraction of the appellant‘s total turnover during the year.‖ • ―The main objective of the modus operandi of penny stock operators is to avail long-term capital gains or losses to claim exempt income. In the instant case, the appellant has not availed any such exemption. On the contrary, it has shown the receipts as business income.‖ • ―The transactions have been duly recorded in the books of account of the appellant and the income has been offered to tax under the head ‗business income.‘ Therefore, there is no evasion of tax.‖ • ―It is further noted that in the reassessment proceedings for the appellant‘s own case for A.Ys. 2016-17, 2018-19 and 2019-20, on similar issues, no adverse inference was drawn by the Assessing Officer and the explanation provided by the appellant was accepted.‖ Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 6 8. We have carefully considered the rival submissions and have also perused the material available on record, including the detailed observations made by the learned CIT(A). On a plain reading of the reassessment order, it becomes apparent that the Assessing Officer was unduly influenced by the general report of the Investigation Wing on penny stock transactions. He applied the modus operandi described therein, almost mechanically, without pausing to examine the peculiar facts of the assessee‘s case. The very foundation of the reassessment is a misconception, namely, that the assessee had claimed exempt long-term capital gains. This premise is demonstrably incorrect. The assessee, a registered stock broker with SEBI and a regular trader in shares, had never claimed exemption under section 10(38). On the contrary, it had itself disclosed the impugned transactions as business receipts, offered them as taxable business income in its Profit & Loss Account, and paid taxes thereon. 9. The CIT(A), in a well-reasoned and factually grounded order, has brought out this fundamental fallacy with clarity. He noted that the assessee‘s primary business is trading in shares on the basis of market analysis, technical study, and financial research, and the impugned transactions were carried out in the ordinary course of such business. He further emphasised that the trades in the alleged penny stock companies constituted only a tiny fraction of the assessee‘s colossal turnover. Against an exchange-traded turnover of Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 7 over ₹23,600 crores in the year, the disputed trades aggregated to barely ₹2.39 crores—a negligible proportion by any standard. This context is critical, for it highlights the implausibility of the assessee, a listed broker with massive operations, seeking to contrive accommodation entries of such a minuscule scale, particularly when no exemption or tax advantage was ever sought. 10. The CIT(A) also pertinently observed that the principal mischief of the penny stock modus operandi lies in the generation of exempt long-term capital gains or losses through contrived price rigging. However, in the assessee‘s case, there was no attempt to avail any such exemption. On the contrary, the assessee had consistently treated these transactions as part of its taxable business income. Thus, the very rationale underlying the suspicion of the Investigation Wing had no application here. When the income from such trades is already declared and taxed under the head ―Profits and Gains of Business,‖ there is no scope to treat the same receipts once again as unexplained credits under section 68. 11. The learned CIT(A) also highlighted that the transactions in the impugned scrips were duly reflected in the books of account of the assessee. The sales and purchases were properly recorded, and the resultant profits were credited to the Profit & Loss Account. This reinforces the conclusion that there was no attempt at suppression or evasion of income. Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 8 Section 68, by its very nature, is designed to address unexplained credits or receipts not forming part of declared income. It cannot be stretched to convert already taxed business receipts into unexplained cash credits. To do so would amount to taxing the same sum twice—an outcome impermissible in law and antithetical to the principles of taxation. 12. Another striking aspect noted by the CIT(A), which in our view fortifies the assessee‘s case, is that in reassessment proceedings for the assessee‘s own subsequent years, namely A.Ys. 2016-17, 2018-19 and 2019-20, where similar allegations of penny stock transactions were raised, no adverse inference was drawn by the Assessing Officer. The assessee‘s explanation was accepted in those years. This consistency in approach by the Department in the assessee‘s own case lends significant weight to the conclusion that the present addition was made on an erroneous assumption. Unless fresh incriminating material is unearthed, it would be wholly unjustified for the Department to single out one assessment year for a contrary view. The principle of judicial consistency, as emphasised in numerous judicial pronouncements, demands uniformity of approach unless distinguishable facts are brought to light. 13. Even if, for the sake of argument, one were to accept that the scrips in question bore the hallmarks of penny stock Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 9 manipulation in the market, that by itself does not incriminate the assessee. A company engaged in regular and bona fide trading cannot be saddled with adverse consequences merely because one or two scrips in its vast portfolio later acquired the reputation of being manipulated. In the absence of material linking the assessee to the alleged price rigging, and in the face of the fact that the gains were already subjected to tax, no addition can be sustained merely on account of the scrips‘ dubious reputation. 14. Thus, viewed holistically, the addition made by the Assessing Officer is unsustainable. The learned CIT(A) has examined the facts with precision, appreciated the legal position correctly, and deleted the addition for cogent reasons. We find ourselves in complete agreement with his reasoning. Once the receipts from the impugned transactions are already included in taxable business income, section 68 has no role to play. The suspicion entertained by the Assessing Officer is belied by the assessee‘s scale of operations, by the absence of any claim of exemption, by the proper recording of transactions in the books, and by the Department‘s own consistent stand in subsequent years. 15. Accordingly, we uphold the order of the learned CIT(A) deleting the addition of ₹2,39,15,667/-. The appeal of the Revenue, therefore, fails and is dismissed. Printed from counselvise.com ITA No.4163/Mum/2025 & CO No.199/Mum/2025 Inventure Growth & Securities Limited 10 16. As regards the cross-objection filed by the assessee challenging the reopening under section 147, once the addition itself has been found unsustainable on merits, the grounds questioning the validity of reopening become purely academic. We therefore dismiss the cross-objection as infructuous. 17. In the result, the appeal of the Revenue is dismissed and the cross-objection of the assessee is also dismissed. Order pronounced on 28th August, 2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 28/08/2025 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "