DINESH MAHESHWARI,MUMBAI V. ACIT, THANE

ITA 3009/MUM/2023

AI Insights

The case revolves around an appeal by Dinesh Maheshwari against the order of the National Faceless Appeal Centre (NFAC), Delhi, which had made additions to his income for the Assessment Year 2014-15. The additions were based on the suspicion that the long-term capital gains claimed by the assessee from the sale of shares were part of a penny stock scheme and thus not genuine. The Tribunal examined the detailed transactions, the background of the shares involved, and the evidence provided by the assessee, including his status as a Chartered Accountant and habitual investor. The Tribunal noted that the shares were traded through a recognized stock exchange and all transactions were conducted through a demat account, which added to their credibility.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361116 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2014-2015
• Other Referred Cases: ITO vs. Chirania Trading LLP, Karishma Ajay Agarwal Vs. ITO, Manoj Kumar Agarwal vs. ITO, ITO vs. Jimeet Vipul Modi
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVINDRAO J. NINAWE; DR
• Assessee Lawyers: DINKLE H. HARIYA
• Keywords: Set aside; Unexplained cash credit; Income from undisclosed sources; Sham transactions; Valuation report; Share purchase agreement; Penny stocks; Bogus
• Section: 68; 69C; 10

Judgement Text

"| आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 3009/Mum/2023 Assessment Year: 2014-15 Dinesh Maheshwari, Mumbai 1801, Granduer Tower Near Magathane Telephone Exchange Maharashtra - 400066 [PAN: ACRPM4972C] Vs ACIT, Thane अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Ms. Dinkle H. Hariya, Advocate Revenue by : Shri Govindrao J. Ninawe, Sr. D/R सुनवाई की तारीख/Date of Hearing : 08/05/2025 घोषणा की तारीख /Date of Pronouncement: 20/05/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dated 04/07/2025 by NFAC, Delhi [hereinafter “the ld. CIT(A)”] pertaining to AY 2014-15. 2. The grievance of the assessee reads as under:- “1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in making additions to the returned income without appreciation of facts of the case and without application of mind to the discussions/ submissions filed by the appellant during the course of assessment proceedings. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in making addition in income of Long Term Capital Gain of Rs. 26,88,625 which are exempt U/s 10 (38) mere on the allegation that this is the part of Penny Stock of Companies. I.T.A. No. 3009/Mum/2023 2 3. The Ld. CIT(A) has erred on the facts and in the circumstances of the case and in law in not appreciating that the aforesaid LTCG has been earned by the appellant in the normal course and should not be added as unexplained Cash Credit u/s 68 of the Act.” 3. Representatives of both the sides were heard at length. Case records carefully and the relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated the facts of the case are that the assessee electronically filed his return of income on 27/03/2015 declaring total income at Rs. 61,19,320/-. The return was processed u/s 143(1) of the Act and subsequently selected for scrutiny assessment under CASS and accordingly statutory notices were issued and served upon the assessee. 5. During the course of scrutiny proceedings, the AO noticed that the assessee has claimed long term capital gain on sale of shares of KDJ Holidayscapes & Resorts (formerly known as Gomti Finlease) and M/s. Jayanta Mercantile. The transactions can be understood from the following chart:- Particulars M/s. KDJ Holidayscape and Resorts (formerly known as Gomti Finlease) M/s. Jayant Mercantile Total Amount (in rupees) Quantity Amount (in rupees) Quantity Amount (in rupees) Sales 7300 22,59,908/- 33500 7,12,559/- Purchase 7300 (out of purchase of 7700 shares) 1,64,162/- 33500 1,19,680/- Long Term Capita] Gain 20,95,746/- 5,92,879/- 26,88,625/- I.T.A. No. 3009/Mum/2023 3 5.1. Since the long term capital gain is claimed as exempt u/s 10(38) of the Act, the AO became suspicious and investigated in detail. 6. The AO found that Kolkata Investigation Directorate had undertaken investigation into 84 penny stocks and has given detailed findings indicating bogus long term capital gain/short term capital loss entries claimed by large number of beneficiaries. The investigation also examined the modus operandi involving operators, intermediaries and the beneficiaries. Taking a leaf from the investigation report of Kolkata investigation wherein, the AO formed a belief that long term capital gain of Rs. 20,95,746/- on the sale of shares of M/s. KDJ Holidayscapes & Resorts and Rs. 5,92,879/- on the sale of shares of M/s. Jayanta Mercantile totalling to Rs. 26,88,625/- was pre-arranged method employed by the assessee in connivance with the operators to evade taxes. Having formed such belief, the AO treated the entire long-term capital gain as unexplained and made an addition u/s 68 of the Act. 6.1. The assessee carried the matter before the ld. CIT(A) but without any success. 7. We have given a thoughtful consideration to the orders of the authorities below. Merely because the assessee had the windfall gain from the sale of the impugned scrips would not suggest that the assessee has indulged in some clandestine activity. 8. The assessee is a Chartered Accountant well-versed with the stock- exchange activities and is a habitual investor. Statement of the assessee recorded on 13/12/2016 shows that the assessee has categorically I.T.A. No. 3009/Mum/2023 4 explained the purchase and sale of the impugned scrips. The manner in which the shares were purchased, name of the broker. In his statement, the assessee also explained that the entire transaction was done through D-mat account, copy of which is available on record. The assessee also explained why he purchased shares of M/s. KDJ Holidayscapes & Resorts and M/s. Jayanta Mercantile. Since the assessee was a qualified Chartered Accountant, he was purchasing shares of other companies also as is evident from the answer given to Query 15 and explained that he has been buying shares through Indianivesh Securities Ltd., and being a Chartered Accountant, was familiar with investments in shares. 9. Other than the general report of the investigation wing Kolkata, the AO has not brought any evidence on record to suggest that the assessee was actively engaged in manipulating the share prices of the impugned shares nor is it the case of the AO that the shares were not traded on the stock-exchange at the given sale-price nor it is the case of the AO that the shares were transacted offline and not from D-mat account. The only adverse finding given by the AO is because of the windfall gains made by the assessee. 10. In our considered opinion, the suspicion of the AO cannot partake the colour of sham transactions. We also find that there is no investigation done by SEBI neither in respect of the impugned scrips nor in respect of the broker i.e., Indianivesh Securities Ltd. 11. The Co-ordinate Bench in the case of ITO vs. Chirania Trading LLP, Mumbai in ITA No. 150/Mum/2024; AY 2012-13, order dated 30/10/2024, had I.T.A. No. 3009/Mum/2023 5 the occasion to consider the case of KDJ Holidayscapes & Resorts Ltd. and interalia held as under:- “In our view, the Assessee had discharged the primary onus by explaining the purchase/sale transaction and filing all supporting documents and details. We note that the Assessee had furnished Share Purchase Agreement, Open Offer document, contract notes for sale of shares, demat account statement, ledger accounts, and bank statements to substantiate the genuineness of the purchase/sale transactions. The Appellant had also filed valuation report of Yashvi Securities Limited, CRISIL Report dated 31/03/2016, financial projections, loan sanctioning letter dated 14/03/2014 issued by State Bank of India etc. to show business operation of KDJH. We note that the Assessing Officer has also failed to point out any defect or infirmity in the aforesaid documents/explanation furnished by the Assessee. The Assessing Officer has also failed to bring on record any material to shift the onus back to the Assessee. On the other hand the CIT(A) has observed that the shares were purchased in the normal course and were duly reflected in the financial statements of the Assessee for corresponding period. We note that it is not even disputed by the Revenue that the shares were sold through stock exchange and/or that the same were held for more than 12 months. (h) Further, the CIT(A) has granted relief to the Assessee and deleted the addition by placing reliance, inter alia, upon the decision of Co-ordinate Bench of the Tribunal in the case of ITO v Jimeet Modi [ITA 4297/M/2018, dated 29.07.2021] and Karishma Ajay Agarwal Vs. ITO, Ward - 21(2)(1), Mumbai [ITA No. 2586/Mum/2022, dated 02.03.2023] wherein additions in respect of consideration from sale of shares of KDJH in somewhat similar circumstances were deleted by the Tribunal. In our view, the Assessee stands on a better footing as per the recitation of relevant facts hereinabove. 10.11. Thus, there is nothing before us to persuade us to take a different view of the matter than what has been taken by the CIT(A). Accordingly, we do not find any infirmity in the order passed by the CIT(A) deleting the addition of INR. 15,43,84,188/- made under Section 68 of the Act. Since we have concluded as aforesaid, the question of overturning the decision of the CIT(A) to delete the addition made under Section 69C of the Act on account of alleged commission expenses incurred by the Assessee to take bogus accommodation entry does not arise. Therefore, the order of CIT(A) deleting addition of INR. 71,95,167/- made under Section 69C of the Act is also confirmed.” I.T.A. No. 3009/Mum/2023 6 11.1. Again the Co-ordinate Bench in ITA No. 4682/Mum/2024, AY 2014- 15, in the case of Sangeeta Sanjaykumar Agarwal vs. ITO, considered the sale of shares of KDJ Holidayscapes & Resorts Ltd., and held as under:- “We have heard the rival submissions and examined the documents available on record. The assessee has filed an appeal against the addition made in respect of the sale of shares of M/s KDJ amounting to Rs.4,66,63,794/-, along with an addition of unexplained commission on LTCG calculated at 5%, amounting to Rs.23,33,190/-. The sale transaction of shares, amounting to Rs.4,88,63,794/-, was executed through the Bombay Stock Exchange (BSE). We observe that the entire addition was confirmed solely on the basis of the report of the Investigation Wing of the Income-tax Department, Kolkata, which alleged that the rise in share price was manipulated and that the assessee had introduced unaccounted income in the guise of LTCG through a circular transaction. During the assessment as well as appellate proceedings, the assessee submitted all requisite documentary evidence, including the demat account statement, bank statement, sale bill, and share allotment documents. All such documents have been placed on record in the assessee's paper book. Regarding the rise in share price, the Ld. AR has adequately explained that M/s KDJ had plans to invest in its proposed subsidiary, KDJ Hospital Ltd., and that an amalgamation took place between Two Up Financial Services Ltd. and KDJ pursuant to the order of the Hon'ble Bombay High Court. This amalgamation was carried out through a proper legal process. It is further noted that the assessee is a regular investor in stocks and securities. As reflected in the balance sheet as of 31\"March 2012, the assessee had investments in equity shares and mutual funds amounting to Rs.2,22,59,604/-, which increased to Rs.4,31,76,951/- as of 31*March 2013. This indicates consistent investment activity in the equity market. Importantly, the documents submitted by the assessee during the assessment proceedings were neither challenged nor discredited by the Revenue authorities. Therefore, the assessee has discharged the primary onus of proving the genuineness of the transactions. Furthermore, confirmations from the stock brokers, M/s B.R. Jalan Securities Pvt. Ltd. and M/s Shilpa Stock Brokers Pvt. Ltd. are placed on record at pages 16 to 19 of the APB. The LTCG proceeds were received by the assessee through regular banking channels. The purchased shares were credited to the assessee's demat account, and the entire transaction was routed through the BSE. No evidence has been brought on record by the Revenue to demonstrate that the assessee was involved in any price manipulation or rigging with respect to the shares of KDJ. We also note that the co-ordinate bench of the ITAT has taken a similar view in relation to the same scrip, 'KDJ', in favour of the assessee. Accordingly, we respectfully rely on I.T.A. No. 3009/Mum/2023 7 the decisions of the co-ordinate bench in the cases of Mrs. Karishma Ajay Agarwal (supra) and Manoj Kumar Agarwal (supra). A similar view was also taken by the ITAT in the case of ITO vs. Jimeet Vipul Modi in ITA No. 4297/Mum/2018, order dated 29/07/2019. In view of the above, the order passed by the Ld. CIT(A) is hereby set aside. The additions made by the Ld. AO under Section 68 of the Act, amounting to Rs.4,66,63,794/- on account of LTCG, and under Section 69C amounting to Rs.23,33,190/- on account of alleged commission, are hereby deleted.” 12. Considering the facts of the case in totality as discussed hereinabove, in light of the decisions of the Co-ordinate Bench (supra), we do not find any merit in the impugned additions made by the AO and the same are directed to be deleted. 13. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 20th May, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE-PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 20/05/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 3009/Mum/2023 8 आदेश की \u0017ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीला थ\u0016 / The Appellant 2. \u0017 थ\u0016 / The Respondent 3. संबंिधत आयकर आयु! / Concerned Pr. CIT 4. आयकर आयु! ) अपील ( / The CIT(A)- 5. िवभा गीय \u0017ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड' फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "