ITO WARD 3(4), THANE, THANE V. SUNIL KUMAR BAGARIA, THANE

ITA 7/MUM/2025

AI Insights

The case revolves around an appeal by the Income Tax Department against the decision of the CIT(A), which had deleted the additions made by the Assessing Officer (AO) regarding alleged bogus long-term capital gains claimed by the assessee, Sunil Kumar Bagaria, from the sale of shares of Tilak Venture Ltd. The AO had treated these gains as bogus based on information from the Insight Portal suggesting price manipulation of the scrip. The CIT(A) found that the AO had not provided sufficient evidence to establish that the assessee was involved in any manipulation or that the gains were not genuine. The Tribunal upheld the CIT(A)'s decision, noting the lack of direct evidence linking the assessee to the alleged fraudulent activities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126056 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Other Referred Cases: CIT v/s. Shyam R. Pawar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYKUMAR G. SUBRAMANYAM
• Assessee Lawyers: NEELKANTH KHANDELWAL
• Keywords: Question of law; Unexplained cash credit; Income from undisclosed sources; Onus to prove; Capital Gains; Accommodation entries; Bogus
• Section: 147; 148; 250; 68; 22; 69C; 13

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.7/MUM/2025 (Assessment Year 2014-15) ITO, Ward-3(4), Room No.9, B-Wing, 6th Floor, Ashar IT Park, Wagle Industrial Estate, Thane West - 400604 ............... Appellant v/s Sunil Kumar Bagaria B-305 Jay Rushubh CHS Modi Patel Road Bhayander West, Thane – 401101 PAN: AEQPB2022P ……………… Respondent Assessee by : Shri Neelkanth Khandelwal Revenue by : Shri Vijaykumar G. Subramanyam, Sr.DR Date of Hearing – 19/02/2025 Date of Order - 22/04/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The Revenue has filed the present appeal against the impugned order dated 24/10/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2014-15. ITA No.7/Mum/2025 (A.Y. 2014-15) 2 2. In the interest of justice, the slight delay of 1 day in filing the appeal by the Revenue is condoned. 3. In this appeal, the Revenue has raised the following grounds: – “The CIT(A) while concluding the appellate order has observed that the AO has failed miserably to the extent that there is nothing on record, no enquiries, no cross-reference of incriminating documents, not even a statement which connects the assessee to such modus operandi. The CIT(A), being the first fact finding authority, has erred in not using his co-terminus powers u/s.250(4), equivalent to that of the Assessing Officer, to arrive at the correct facts or directing the AO to ascertain the correct facts. 2. It is prayed that present appeal may be filed in accordance with the CBDT's Circular No.5/2024 dated 15.03.2024 as- per para 3.1(h) of the said circular. Therefore, the order of the CIT(A) may kindly be vacated and that of the AO may be restored.\" 4. The sole grievance of the Revenue in the present appeal is against the deletion of the addition on account of the alleged transaction of bogus long- term capital gains. 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and for the year under consideration filed his return of income on 17/09/2017, declaring a total income of ₹ 6,57,620, after claiming exemption of ₹ 1,28,27,860 being long- term capital gains from transactions on which Security Transaction Tax was paid. Subsequently, on the basis of the information received from Insight Portal that the price of the scrip of Tilak Venture Ltd. was manipulated to provide accommodation entry of bogus long-term capital gains/short-term capital loss to beneficiaries, and the assessee is one such beneficiary, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 31/03/2021. In response, the assessee ITA No.7/Mum/2025 (A.Y. 2014-15) 3 filed a letter submitting that the return of income filed on 05/04/2019 may be treated as a return of income filed in response to the notice issued under section 148 of the Act. After receipt of the reasons recorded for reopening the assessment, the assessee filed his objections, which were disposed off vide order dated 26/02/2022. During the re-assessment proceedings, the assessee submitted that he was allotted 1,00,000 shares of Tilak Venture Ltd. under his application for the preferential issue of equity shares at face value of ₹ 1 per share and a premium of ₹ 22 per share. The assessee further submitted that out of these 1,00,000 shares received by the assessee under preferential allotment, he sold 49,300 shares on different dates during the year through his share broker, namely, Nirmal Bang Securities Pvt. Ltd., and all the transactions of sale were through the stock exchange. Accordingly, the assessee submitted that all the transactions made by him were purely genuine. 6. The Assessing Officer (“AO”), vide order dated 30/03/2022 passed under section 147 read with section 144B of the Act, noted that there is no intrinsic value, no assets and no income of the company, therefore there is no net worth of the company for selling shares at high rate. In the absence of any response from the assessee as to how the shares without any net worth have fetched and gained a high return, the AO treated the scrip of Tilak Venture Ltd. as a penny stock. The AO further held that merely producing documentary evidence containing contract notes for purchase, DEMAT account, contract note of the sale and proceedings in the bank account is not enough to discharge the burden of proof that the purchase and sale ITA No.7/Mum/2025 (A.Y. 2014-15) 4 transaction were genuine. The AO held that the onus is on the assessee to explain the astronomical rise in prices of the scrip, which was purchased by him, without any financial rationale. The AO also took into consideration the modus operandi adopted by penny stock companies for rigging the price of the shares through circular trading. The AO, after analysing the financials of Tilak Venture Ltd., held that there was no substantial change in the financials of the company to support such a huge share price movement. The AO also referred to the statement of a few exit providers who had named the director of Tilak Venture Ltd., alleging that on his instructions, credentials of various exit providers were obtained and trading was done in their accounts. By referring to the statement of directors of the company, the AO held that the director failed to provide the details of the content of the presentation, which was presented to the prospective allottees, convincing them to invest in the company. Accordingly, the AO held that the scrip of Tilak Venture Ltd. was used to provide bogus long-term capital gains to various beneficiaries. Thus, the AO held that earning huge tax-exempt gains within a short span of time fails the test of both genuineness and human probabilities. As a result, the AO disallowed the long-term capital gains of ₹ 1,28,27,860 claimed as exempt under section 10(38) of the Act by the assessee from the sale of scrip of Tilak Venture Ltd. and the total sale consideration on sale of stock of ₹ 1,29,61,760 was added to the total income as unexplained cash credit under section 68 of the Act on the basis that same is nothing but the manipulation by the assessee for routing his own un-accounted income in the guise of bogus long-term capital gains. Further, the AO also made an addition on account of commission expenditure of ₹ 6,41,393, being 5% of the bogus long-term capital gain, ITA No.7/Mum/2025 (A.Y. 2014-15) 5 under section 69C of the Act for taking accommodation entry in the form of bogus long-term capital gains. 7. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee and deleted the addition made by the AO under section 68 and section 69C of the Act. The learned CIT(A) held that the AO has not established that there was any incriminating material pertaining to the assessee specifying his role in the manipulation of scrip of Tilak Venture Ltd. or even arranging accommodation entries. The learned CIT(A) further held that there is no material to hold that the assessee indulged in the manipulation of scrip and obtained an accommodation entry on a commission basis, which is liable to be considered as bogus capital gains. The learned CIT(A) held that there is nothing on record, no inquiries, no cross-reference of incriminating documents and not even a statement which connects the assessee to such modus operandi. Being aggrieved, the Revenue is in appeal before us. 8. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the Insight Portal regarding price manipulation in scrip of Tilak Venture Ltd. to provide accommodation entry of bogus long-term capital gains to its beneficiaries, proceedings under section 147 of the Act were initiated in the case of the assessee. During the assessment proceedings, the assessee filed documentary evidence, such as contract notes for purchase, DEMAT account, contract note of the sale and proceedings in the bank account in order to prove the genuineness of the transaction. However, as is evident from the record, the AO disagreed with the submissions of the assessee and ITA No.7/Mum/2025 (A.Y. 2014-15) 6 held that mere production of these documents does not discharge the obligation on the assessee to prove the genuineness of the transaction. The AO, noting the rise in price of the scrip, held that the assessee has not explained the price rise, which is without any financial rationale. Thus, referring to the modus operandi adopted in the case of providing accommodation entry in penny stock and financials of Tilak Venture Ltd., the AO concluded that the scrip is a penny stock, which was used by the assessee to accommodate his unaccounted money. In this regard, the AO also referred to the statement of some exit providers who alleged that the directors of the company had instructed them to carry out the manipulation. Accordingly, the AO not only disallowed long-term capital gains claimed as exempt by the assessee under section 10(38) of the Act but also made an addition of the sale proceeds under section 68 of the Act. The AO further proceeded to make the addition under section 69C of the Act on account of the alleged payment of commission for obtaining the accommodation entry of bogus long-term capital gains. 9. As per the assessee, he purchased 1,00,000 shares of Tilak Venture Ltd. on a preferential allotment basis and out of which, he sold 49,300 shares in three tranches in the relevant financial year through his share broker, namely, Nirmal Bang Securities Ltd. In the present case, it is undisputed that these shares were purchased by the assessee on 20/10/2012. We find from the DEMAT statement placed on page 13 of the paper book that the shares were dematerialised on 19/12/2012. Thus, it cannot be alleged that the shares were purchased through preferential allotment and just before the sale, they were ITA No.7/Mum/2025 (A.Y. 2014-15) 7 dematerialised. From the contract note issued by the share broker of the assessee, forming part of the paper book from pages 15-42, we find that apart from the impugned scrip, the assessee traded in shares of other entities regularly. Thus, from the perusal of the contract notes issued by the share broker, it is evident that the assessee was a regular trader in shares. In the present case, it is further an undisputed fact that out of the total 1,00,000 shares of Tilak Venture Ltd., which were purchased by the assessee, only 49,300 shares were sold by the assessee during the year under consideration. From the record, we further find that the balance shares were sold by the assessee in the financial year 2021-22 at a loss. From the submission of the assessee made before the learned CIT(A), we find that the assessee sold 13,000 shares on 07/03/2014 at a rate of ₹ 304.31, 25,000 shares on 19/03/2014 at the rate of ₹ 279.37, and 11,300 shares on 25/03/2014 at the rate of ₹ 267.39. Thus, apart from the fact that more than 50% of the shares held by the assessee in Tilak Venture Ltd. were sold in the financial year 2021- 22, it is evident from the record that the date on which the shares had the highest price, the assessee sold only 13,000 shares out of 1,00,000. Therefore, we agree with the submissions of the assessee that if the assessee had been involved in the price manipulation, he would have sold a larger lot of shares on 17/03/2014 itself. 10. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the AO in its order alleged that certain exit providers had recorded the statement implicating the director of the company, however, there is no clarity as to when the statements were recorded. From the ITA No.7/Mum/2025 (A.Y. 2014-15) 8 statement of exit providers as referred to in para 3.4.4 and 3.4.5 of the assessment order, we further find that there is also no clarity whether these statements pertain to the exit providers of the assessee. It is also evident from the record that there is no statement or material which has been referred to by the AO which indicates that the assessee was involved or had any minutest link with the manipulative transaction of price rigging. Thus, there is no reference to any portion of sworn statements wherein any adverse observation is made against the assessee. Therefore, we find merits in the findings of the learned CIT(A) that merely because the assessee is one of the persons who has earned long-term capital gains from the sale of the scrip of Tilak Venture Ltd. may not be sufficient to hold that the assessee was indulged in manipulation of scrip and has obtained accommodation entry on commission basis which is liable to be considered as bogus capital gains. It is further evident from the record that the AO did not comment upon any of the evidence submitted by the assessee to prove the genuineness of the transaction. The price fluctuation of shares of the entities in which the assessee has transacted also does not support the case of the Revenue, as no material has been brought on record to show that either the assessee or his share broker was involved in such price manipulation. Therefore, in the present case, it is sufficiently evident that the AO, without finding any fault with the evidence submitted by the assessee, proceeded to treat the transaction as non-genuine and the long-term capital gains earned by the assessee as bogus. In the absence of any material proving any involvement of the assessee in the alleged bogus transaction of accommodation entry, we ITA No.7/Mum/2025 (A.Y. 2014-15) 9 are of the considered view that the addition made pertaining to the receipt of sale consideration of the impugned transaction cannot be sustained. 11. In support of our aforesaid confusion, gainful reference can also be made to the decision of the Hon’ble Jurisdictional High Court in CIT v/s. Shyam R. Pawar, reported in [2015] 54 taxmann.com 108/229 Taxman 256 (Bom.), wherein the Hon’ble Court held that where DEMAT account and contract note showed details of the share transaction and the AO had not proved the said transaction as bogus, the long-term capital gain earned on said transaction could not be treated as unaccounted income under section 68 of the Act. The relevant findings of the Hon’ble Court, in the aforesaid decision, are reproduced as follows: – “6. It is in that regard that we find that Mr. Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. ITA No.7/Mum/2025 (A.Y. 2014-15) 10 The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr. Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.” 12. During the hearing, the learned Departmental Representative (“learned DR”) submitted that the learned CIT(A), having co-terminus power under section 250(4) to the AO, failed to conduct further inquiry into the matter. In this regard, it is pertinent to note that in the present case, the proceedings under section 147 of the Act were initiated based on the information received from the Insight Portal. Since the impugned additions were made pursuant to proceedings initiated under section 147 of the Act, therefore, they can be either based on the information received by the AO or the information as obtained by the AO pursuant to an independent enquiry. Once the AO has failed to prove in the present case that the assessee was involved in the alleged bogus transaction of accommodation entry on the basis of either of the aforesaid information, nor is there any vague reference against the assessee, the Revenue cannot now plead that the learned CIT(A) while adjudicating the assessee’s appeal failed to conduct the inquiry. Further, apart from raising the aforesaid plea, the Revenue has not specifically pointed out which inquiry the learned CIT(A) failed to conduct. Therefore, we do not find any merits in the aforesaid submissions of the learned DR. 13. Thus, having considered the facts and circumstances of the present case, we do not find any infirmity in the impugned order passed by the learned CIT(A). Accordingly, the deletion of the additions made under section 68 and ITA No.7/Mum/2025 (A.Y. 2014-15) 11 section 69C of the Act is upheld, and the grounds raised by the Revenue are dismissed. 14. In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 22/04/2025 Sd/- GIRISH AGRAWAL ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 22/04/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "