JAINAM INVESTMENTS,MUMBAI V. DCIT, CENTRAL CIRCLE-8(1), MUMBAI, MUMBAI

CO 39/MUM/2025

AI Insights

The case involves the Deputy Commissioner of Income-tax, Central Circle-8(1), Mumbai (appellant) against Jainam Investments (respondent) concerning the assessment year 2013-14. The core issue was the treatment of losses incurred by Jainam Investments in trading certain scrips, which the revenue claimed were fictitious losses from penny stocks. The Assessing Officer (A.O.) had reopened the assessment under section 147 of the Income-tax Act, 1961, based on information from the Investigation Wing, categorizing the scrips as penny stocks used to generate fictitious long-term capital gains and short-term capital losses. The CIT(A) reversed the A.O.'s decision, leading to the revenue's appeal. The tribunal, referencing several precedents and the specifics of the trading activities, upheld the CIT(A)'s decision, dismissing the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24045 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-03-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Other Referred Cases: DCIT C-5(1), Kolkata vs. PRB Securities (P.) Ltd, PCIT vs. Mamta R. Rajivkumar Agarwal, Barkha Ramesh Merchant vs ACIT-16(1), Pallavi Mayur Gandhi vs ITO-33(2)(5), Smt. Veena Chaturvedi vs. DCIT (CC) 2(3), Ripu Sudan Kundra vs ITO-3(1)(1), Trivikram Singh Toor vs PCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAVITHA KAUSHIK
• Assessee Lawyers: SHRISUCHEK ANCHALIYA TUSHAR NAGORI
• Keywords: Business income; Corroborative evidences; Accommodation entries; Transactions in derivatives; Futures and options; Penny stocks; Bogus
• Section: 147; 148; 143(3); 250; 139(1); 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFOR SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND MISS PADMAVATHY S. ACCOUNTANT MEMBER I.T.A No.519/Mum/2025 (Assessment year: 2013-14) DCIT, Central Circle-8(1), Mumbai, Room No.656, 6th Floor, Aayakar Bhavan, Mumbai-400 020 vs Jainam Investments 11-A, 5thFloor, Rockside Apartment, A-Wing, Walkeshwar Road, Walkeshwar, Mumbai-400 006 PAN: AAHFJ1230A APPELLANT RESPONDENT C.O.39/Mum/2025 (Arising out of I.T.A No.519/Mum/2025) (Assessment year: 2013-14) Jainam Investments 11-A,5thFloor, Rockside Apartment, A-Wing, Walkeshwar Road, Walkeshwar, Mumbai-400 006 PAN : AAHFJ1230A vs DCIT, Central Circle-8(1), Mumbai, Room No.656, 6th Floor, Aayakar Bhavan, Mumbai-400 020 CROSS OBJECTOR RESPONDENT Assessee by : ShriSuchek Anchaliya / Tushar Nagori Respondent by : Ms. Kavitha Kaushik(SR DR) Date of hearing : 12/03/2025 Date of pronouncement : 20/03/2025 2 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments O R D E R PER ANIKESH BANERJEE, J.M: The instant appealof the revenue and cross objection by the assessee were filed against the order of theLearned Commissioner of Income-tax (Appeals)-50, Mumbai [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2013-14, date of order28.11.2024.The impugned order was emanated from the order of the Learned Deputy Commissioner of Income-tax, Central Circle 8(3),Mumbai (in short, ‘the A.O.’) passed under section 143(3)read with section 147 of the Act,date of order17/12/2021. 2. The revenue has taken the following grounds of appeal:- “Grounds of Appeal: “1. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not taking into consideration the findings of the information emanating from the search action conducted by the Investigation Wing on such penny stock companies and their operators; 2. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not appreciating that all the three entities viz Blue Circle Services Ltd, Shreenath Commercial & Finance Ltd and Chirawa Cements Ltd were merely penny stock companies which were being used to generate fictitious Long Term Capital Gain and Short Term Capital Loss. 3. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not considering the statement on oath of the Shri Jagdish Purohit who had admitted on oath in statement recorded on 21/01/2015 that he alongwith his family members were dummy directors in as many as 229 such penny stock entities which were engaged in the activity of providing accommodation entries to beneficiaries so that they can claim bogus Long Term Capital Gain or Short Term Capital Loss; 3 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments 4. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not appreciating that in the case of enquiry conducted in the trading of shares of Blue Circle Services Ltd SEBI had found four entities viz Jayesh Narendra Keshariya, Prakash Todankar, Rajat Share Broking Put Ltd and Sanyukta Rungta to be indulging in price-rigging of shares of Blue Circle Services Ltd. Accordingly, SEBI had vide Adjudication Order No EAD-2/AO/DSR/BKM/626-629/2017 dated 09th June, 2017 imposed a penalty of Rs. 50,000/-each on the above four entities; 5. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not appreciating that sharp rise and fall in the price were only on account of price-rigging; 6. Whether in the circumstances of the case and in law, the Ld CIT(A) had erred in not appreciating that the sharp rise and subsequent fall in the prices of the shares of the above three concerns were not commensurate with the business performances/ profitability of the three concerns which remained at low levels at all times which was against normal behavior of prices of shares; 7. The appellant craves leave to add to, alter, amend, modify and/or delete any or all of the above said grounds of appeal. the appellant reserves its right to file further submissions in the appeal.” 3. The brief facts of the case are that the assessee is a trader and the speculator of shares and filed its return under section 139(1) of the Act. The assessment was completed under section 143(3) on 22/03/2016. Subsequently, information was received form Investigation Wing, Mumbai, wherein its is informed that the assessee is one of the beneficiaries of obtaining short term capital loss / business loss by trading in scrips of Blue Circle Services Ltd(in short “Blue Circle”), Shreenath Commercial & Finance Ltd(in short “Shreenath”), & Chirawa Cements Ltd (in short “Chirawa”) and incurred capital loss amount of Rs.3,12,55,526/- by trading in these scrips. On the basis of the information from Investigation Wing,the Ld.AO reopened the assessment under section 147 of the Act and notice under section 148 was issued. Finally, the assessment was framed 4 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments under section 143(3) read with section 147 of the Act and by adding this business loss amount to Rs.3,11,74,336/- with the total income of the asssessee. The Ld.AO has treated this loss as a fictitious loss which was generated by manipulating the alleged shares. Aggrieved assessee filed an appeal before the Ld. CIT(A). The assessee challenged the order both on legal and merit before the Ld. CIT(A). But the Ld.CIT(A) has allowed the appeal of the assessee on merit and the legal issue was not dealt with.Being aggrieved on the appeal order, the revenue has challenged the merit of the case before us. On the other hand, the assessee has challenged the legality and the jurisdiction of the Ld.AO for passing the impugned assessment order under section 147 / 143(3) of the Act. 4. The Ld.DR vehemently argued and stated that the entire loss is related to the 3 scrips, i.e. Blue Circle, Shreenath & Chirawa and the entire loss is the fictitious loss as all the stocks are treated as pennystock. She further argued that the assessee is a matured business person and has experience in the share market since long; so such loss cannot be expected from the assessee’s end. She prayed for upholding the order of the Ld.AO. 5. The Ld.AR, on the other hand, argued and stated that the assessee has not claimed any short term or long term capital gain related to sale of these scrips. He further argued that the assessee had made the profit in trading of shares amount to Rs.14,03,89,150/- by selling of 51 shares whereas the loss was incurred on 67 stocks amounting to Rs.49,40,19,090/-. The assessee has traded a huge volume of shares, so this loss is part of its business and which was claimed in the 5 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments return of income. He invited our attention in impugned appeal order pages 15- 17, which is reproduced as below:- “18. GROUND NO 5, 6 AND 7 In these ground the appellant has challenged the addition/ disallowance made by the AO of Rs.3,12,55,526/- by treating the losses claimed by the on trading of alleged scrips as bogus loss. 18.2 During the appellate proceedings the appellant has submitted that during the year under consideration the appellant was engaged in the business of share trading in all the segments of stock market specially but not limited to delivery based, speculation, F&O, derivative, currency derivative, call options, put options etc. The total trade conducted by the appellant in stock market (both purchase and sale) in all the categories during the relevant previous year. The appellant has also submitted that the allegation levelled by AO that the appellant had taken manufactured loss by trading/making the position in particular scripts is baseless without appreciating that the appellant is engaged in the business of trading in share and securities, F&O trading and other market segments. It is further contended that the appellant is whole time trader/speculator in the capital market, having traded in numerous stocks during the year, with turnover running into hundreds and thousands of crores. The action of the Ld. AO of cheery Picking specific scripts, merely because the assesse has incurred losses, is not correct. 18.3 The appellant further contended that during the course of assessment proceedings, the appellant had submitted the various documents in support of genuineness of transactions in the particular scrips in which losses have been disallowed by the Assessing Officers. The list of documents submitted by the appellant during the assessment proceedings are reproduced as under: 6 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments 8. Documents in case of alleged Penny Stocks Shreenath a) Contract Notes b) Ledger Yes Yes 112-151 152-159 c) Details of Sales and purchase Yes 160 9. Blue Circle Services Limited a) Contract Notes Yes 161-180 b) Ledger Yes 181-188 c) Details of Sales and purchase Yes 189 10. Chirawa Ceme DM d) Contract Notes Yes 190-195 e) Ledger Yes 196-203 f) Details of Sales and purchase Yes 204 11. Bank Statement of Jainam Investment for the FY 2012-13 Yes 205-230 18.4 The appellant has also contended that each transaction in shares is supported by copies of contract notes of stock broker evidencing transactions through BSE & NSE with payment of Securities Transaction Tax (STT) and margin money as per rules of Stock Exchange and SEBI. All the transactions in delivery based shares were received in the Demat account and transferred through the Demat account of the Appellant and all payments/receipts with the brokers are through proper banking channels and are reflected in the bank statements of the Appellant. Each contract cum bill of the Appellant has a unique contract number, settlement number, trade date, pay in date and pay out date. Further, each trade of the Appellant has a unique order no, order time, trade no, and trade time. All STT, Stamp Duty, Service Tax and other charges in respect of each transaction is paid and is reflected in all the contracts cum bills. The appellant has paid margin money on each contract executed in futures and options as per requirement of SEBI. It is further submitted that the appellant has never been questioned by SEBI or any other regulatory authority regarding the alleged penny stocks or at any point to date. The Assessing Officer, relying solely on an Investigation Wing report concluded that the appellant engaged in accommodation entries by allegedly generating a bogus loss through these stocks. However, 7 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments this analysis by the AO does not consider the dynamics of developing share markets, where rapid and unpredictable fluctuations are common. The appellant's approach does not involve assessing individual financials or current stock trends, rather, it is based on the overall market sentiment toward specific industries and prevalent market rumors. 18.5 The appellant has placed its reliance on the several judgments of Hon'ble Mumbai and Kolkata Benches of the ITAT in which the Hon'ble Benches of the ITAT have decided the issue in favour of the appellant in similar transactions in the alleged penny stocks in which the additions were made on the reports of the Directorate of Investigations and orders of the SEBI.” 6. He further argued that considering the number of stocks purchased and sold, the assessee has only incurred the loss only for 3 shares whereas number of stocks sold during the year was 118. The assessee is a regular trader and speculator and the said details was depicted in the appeal order in paragraphs 20 to 20.2, which are reproduced as below:- “20. On perusal of the audit report of the appellant, it is observed that the appellant is a regular trader in the stock market. It has shown total sales of Rs.193.58 crores, speculation profit of Rs.1,38,20743, future & option trading of Rs.66,13,58,891 and dividend income of R.1,46,92,267. The gist of appellants trading activity in cash segment during the year under consideration is as under:- Particular No. of shares Value of shares (in Rs.) No. of the Stocks outstanding 01.04.2012 50 1,783,706,343 No. of Stock purchased during the year 124 1,86,38,81,444 No. of Stock sold during the year 118 1,93,58,89,837 No. of Stock Sold at Profits 51 14,03,89,150 No. of Stock Sold at Losss 67 49,40,19,090 No. of Stock at the end of the Year 61 1,35,80,68,010 No. of Shares losses disallowed by the Ld.AO 3 3,12,55,526 8 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments 20.2. Apart from the cash market, the assessee had also done the trading in Futures and options and currency market. The details are as under:- Sr.No. Nature of Trading Amount in crores 1. F&O Sale 559.77 1. F&O Purchase 493.62 1. Currency Derivatives – Purchase 269.22 1. Currency Derivatives – Sale 268.96 1. Commodity Derivatives-Purchase 13.28 1. Commodity Derives – Sale 114.96 7. The Ld.AR further argued that all the relevant documents are duly placed before the Ld.AO and before the Ld.CIT(A), related to this transaction which is already mentioned by the Ld.CIT(A). The same issue was agitated before the ITAT and the ITAT has taken a view in favour of the assessee. The Ld.CIT(A) has relied on the order of the co-ordinate bench of ITAT, Mumbai in the case of M/s Munshi Financials bearing ITA No.2637/Mum/2022date of pronouncement 31/03/2023. Related to these scrips, the co-ordinate benches of ITAT has already taken the view in favour of the assesseewhich is already discussed by the Ld.CIT(A) in his order and the relevant paragraph which is extracted below:- “26. Further, the Hon’ble ITAT has held in many cases that the losses / gains from trading in these alleged scrips are genuine. The details are summarized as under:- Sr. No. Name of Scrip Case Name Appeal No. Date of Order 1 Blue Circle Services Limited DCIT C-5(1), Kolkata vs.PRB Securities (P.) Ltd 211/Kol/2017 05.12.2018 PCIT vs. Mamta R/TAX Appeal 11.09.2023 9 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments Rjivkumar Agarwal (Guj HC) No.408 of 2023 Barkha Ramesh Merchant vs ACIT- 16(1) 779/Mum/2020 12.04.2022 2 Shreenath Commercial& Finance Ltd Pallavi Mayur Gandhi vs ITO-33(2)(5) 2251/Mum/2020 12.04.2022 Smt. Veena Chaturvedi vs. DCIT (CC) 2(3) 1702/Mum/2021 18.09.2023 Ripu Sudan Kundra vs ITO-3(1)(1) 2792/Mum/2018 05.01.2021 3 Chirawa Cements Limited Trivikram Singh Toor vs PCIT 110/Chd /2021 21.09.2022 27. It is also relevant that the appellant had submitted all the relevant documents of purchase and sale of these scripts in the recognized stock exchange before the Assessing Officer. However, in the assessment order the Assessing Officer has not considered the documents and supporting evidences submitted by the appellant and proceeded with to make the disallowance on the basis of investigation carried on by the investigation Wing and the SEBI. In light of the above discussion, and particularly considering that the appellant is a regular trader in the stock market with a substantial turnover, the judgment of the Hon'ble jurisdictional ITAT, Mumbai Bench, in the case of M/s. Munish Financial (supra), directly applies to the facts of the present matter. Therefore, addition made by the AO stands deleted. Accordingly, appeal on the ground 5,6 and7 is ALLOWED.” 8. We heard the rival submissions and considered the documents available in the record. On perusal of the documents, we find that the alleged 3 scrips, viz. Blue Circle, Shreenath & Chirawa which are treated by the revenue as penny stock and it is also fact on record that these scrips are categorized as penny stock as per the investigation wing, Kolkata reports and Ld. AO has heavily relied on these 10 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments reports and report of SEBI to come to the conclusion that the various scrips dealt with by the assessee are penny stock and he discussed various analysis made by the investigation wing of Kolkata and other agencies and relied on various submissions of various dealers in these scrips and proceeded to disallow the claim made by the assessee on the business loss. In the impugned assessment order Ld. AO discussed various analysis made by the investigating wing of Kolkata and SEBI. In none of the statements or reports of Investigation Wing or orders of SEBI the name of the assessee was mentioned for manipulation. We also notice from the record that assessee has submitted all the relevant documents of purchase and sale of these scrips in the recognized stock exchange and all the details were submitted before the Ld. AO including the payments were made through banking channels only. The assessee has incurred trading loss related to 67 stocks amount to Rs.49,40,19,090/- out of that the assessee incurred loss on 3 alleged shares only amount to Rs.3,12,55,526/-. So, this is a part of the entire trading of the assessee. The ld. CIT(A) acknowledged the documents filed by the assessee in both the stage which are demat account, contract notes, ledger and details of sales and purchases. None of the documents are duly rejected by the Ld.AO during the assessment proceedings and the veracity of the documents are never been challenged. Considering the order of the co-ordinate benches of ITAT, we find that the ITAT, Kolkata Bench and co-ordinate benches of ITAT, Mumbai Bench and and ITAT-Chandigarh Bench have taken the view in favour of the assessee and which is already mentioned by the Ld.CIT(A) in appellate order. From the above discussion, it proves that the assessee is trading share regularly with huge volume and may be the assessee has dealt with suspicious scrips, merely on the basis of 11 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments movement of share price and there is nothing on record to prove that the assessee has in no way involved in price rigging or in any irregularities. The assessee incurred total loss of Rs.49,40,19,090/- and only in respect of those 3 scrips, the assessee has incurred loss of Rs.3,12,55,526/-. Therefore, we do not find any reason to interfere in the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 9. In the result, the appeal of the revenue bearing ITA No 519/Mum/2025 is dismissed. C.O. No.39/Mum/2025 10. In view of our decision on revenue appeal, the assessee has withdrawn the cross objection; hence, dismissed. 11. In the result, both the appeal of the revenue and the cross objection of the assessee are dismissed. Order pronounced in the open court on 20th day of March, 2025. Sd/- sd/- (MISS PADMAVATHY S.) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 20/03/2025 Pavanan 12 ITA No.519/Mum/2025 & Co 39/Mum/2025 Jainam Investments Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "