KAMAL KHETAN,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(4), MUMBAI, MUMBAI

ITA 2702/MUM/2025

AI Insights

The case involves Kamal Khetan, an individual and promoter of Sunteck Group, who appealed against the order of the Commissioner of Income-tax (Appeals) - 51, Mumbai. The appeal was against the assessment order for the Assessment Year 2013-14, which included additions treating the sale proceeds of shares as unexplained cash credits and disallowance of commission for obtaining LTCG entry. The Income Tax Department had issued a notice under section 148 based on an investigation report suggesting that the LTCG claimed was an accommodation entry to launder unaccounted income. The Tribunal examined the documentary evidence, the nature of the transactions, and the reliance on the investigation report by the lower authorities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717648 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 19-04-2025
• Other Referred Cases: PCIT Vs. Indravadan Jain HUF, PCIT Vs. Renu Agarwal, PCIT vs Prem pal Gandhi, PCIT Vs. Genuine Finance P. Ltd., PCIT Vs. MamtaRajivkumar Agarwal, PCIT vs. SangitabenJagdishkumar Shah
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: RAKESH JOSHI
• Keywords: Question of law; Unexplained cash credit; Income from undisclosed sources; Capital Gains; Earning of tax free income; Penny stocks; Deduction for capital gain; Bogus
• Section: 148; 143(3); 68; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.2702/Mum/2025 (Assessment Year :2013-14) Kamal Khetan 4th Floor, 35 Shantideep Building Andheri Kurla Road J.B.Nagar S.O. Mumbai-400059 Vs. Deputy Commissioner of Income Tax, Central Circle 3(4), Mumbai PAN/GIR No.AAHPK4505D (Appellant) .. (Respondent) Assessee by Shri Rakesh Joshi Revenue by Shri Hemanshu Joshi, SR DR Date of Hearing 12/08/2025 Date of Pronouncement 14/08/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the first appellate order passed by learned Commissioner of Income-tax (Appeals) – 51, Mumbai ('CIT(A)' in short) dated 25-02-2025, passed against assessment order under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (the Act) dated 10-03-2022 for the Assessment Year 2013-14. 2. As per the grounds of appeal, the assessee has challenged the validity of notice issued U/s 148 and denial of Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 2 exemption of Long Term Capital Gain (LTCG) claimed under section 10(38) of the Act and commission thereon. The additions/ disallowances against which the assessee is in appeal before us are as under: • Additions of Rs. 2,03,11,671/- by treating the sale proceeds of sale of shares as Unexplained Cash Credits. • The disallowance u/s 69C of the Act made on account of commission for obtaining LTCG entry amounting to Rs.6,09,350/- 3. Briefly stated, the assessee, an individual and promoters of Sunteck Group , who is engaged in real estate developments.. He had filed his return of income on 03-08- 2013 declaring total income at Rs. 82,93,490/- for the A.Y. 2013-14 with current year loss of Rs. 2,51,132. The return filed by the assessee was processed U/s 143(1). Later based on report from investigation wing, ld.AO has issued notice U/s 148 on 22-03-2021. Assessee filed return in response to 148 notice on 20-04-2021 without admitting any additional income. In the course of scrutiny assessment the income has been assessed at Rs.2,92,14,511/-. Addition on account of LTCG and Commission 3.1. The ld. AO inter alia observed that assessee has declared exempt income derived by way of Long Term Capital Gains (LTCG) under section 10(38) of the Act on account of sale of shares of M/s ACI Infocom Ltd. On enquiry by the AO, the assessee submitted that he had purchased 1,50,000/- shares of ACI infocom on 15/02/2011 for a total Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 3 consideration of Rs. 40,50,000/- which was allotted by company on preferential allotment basis, and the same were credited to assessee’sdemat account on same day. After holding these for more than one & half year, assessee sold these shares in the month of October 2012 through the registered broker on BSE Platform. The sale transaction was subject to payment of security transaction tax (STT). Both payment for purchase of shares and sale proceeds were paid/received through banking channel. Assessee earned long term capital gain (LTCG) of Rs. 1,62,27,142/- which was claimed exempt U/s 10(38) of the Act. The ld. AO however, observed that LTCG claimed as exempt income is only an accommodation entry to launder the unaccounted income of the assessee and introduced it as exempt income in the form of LTCG. 3.2. The ld. AO extensively referred to Investigation Report issued by Directorate of Investigation, Unit-8(2), Mumbai explaining the general modus operandi for rigging of the prices of penny stocks abnormally high by involvement of multiple intermediaries and take advantage of tax provision to claim exempt income by significant jump in the share prices through such rigging. The ld. AO also referred to the financials of the company and concluded that the same did not have any substantial business activities and assets. The ld.AO also pointed-out certain abnormal defect in trading pattern of the said stock and abnormal price rise. The statements recorded of the Director of M/s ACI Infocom Ltd recorded by DDIT-Unit (8)(2) was also reproduced. Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 4 3.3. The ld.AO also observed that the assessee has not indulged in any other share purchase and sale transactions and unrealistic returns received on solitary investment is highly improbable based on the investigation report that these penny stock companies including ACI Infocom Ltd. are paper companies. He held that such transactions resulting in large capital gains to be highly implausible and the onus to support such claim of exemption was not discharged by the assessee. Consequently, the ld. AO resorted to provision of section 68 of the Act and treated the Long Term Capital Gains arising from sale of shares of M/s ACI Infocom Ltd. to be unaccounted income of the assessee to the extent of Rs. 2,03,11,671/-. The ld.AO also invoked the provision of section 69C and added Rs. 6,09,350/- towards unexplained commission expense on notional basis. 4. In this regard, the learned Counsel submitted at the outset that the Long Term Capital Gains claimed as exempt under section 10(38) of the Act was fully supported by the documentary evidences for the purchase and sale of shares before the lower authorities and the Revenue authorities have blindly relied upon the investigation report which primarily narrates general modus operandi. The learned Counsel pointed out that the ld.AO has merely relied upon the investigation wing of the Income Tax Department, who has identified M/s ACI Infocom Ltd. as one of the penny stock on the basis of orders of the SEBI and stock exchange. But its matter of record that there is no such order of SEBI or Stock exchange passed against the said company or Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 5 banning the trade of the scrip or any adverse finding has ever been received that there was any manipulation of price in stock exchange. He stated that ld.AO has wrongly narrated the facts of the SEBI order dated 27-03-2018, the said order on account of violation of SEBI Complaints Redress System as the said company has not addressed complaints of two investors. There is no reference of any price manipulation of price rigging in the shares of ACI infocom. Both AO as well as ld.CIT(A) has wrongly placed reliance on the said order of SEBI, copy of which was provided to the Bench during the course of hearing. He also placed list of notice posted on BSE website on page 49-50 of paper book. From this list he pointed out that the shares of ACI was first time kept on surveillance by BSE on 27-04- 2018 before that exchange has not noticed any unusual movement in the price of shares of the company. Similarly, he pointed out that the shares of the company were regularly traded till date. 5. He further submitted that ld. AO discussed about exit provider and alleged that these parties are accommodation entry provider and do not have creditworthiness to purchase these shares, however no material brought on record that how these people are connected with the purchase of shares of this company acting as exit provider to the assessee. Neither any statement of these parties nor report of any agency referred by the ld.AO in absence of the same it is merely a bald statement without any basis and support. Assessee asked for their statement and cross examination of Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 6 these parties, however no action taken by the Ao on such request of the assessee. Ld. AO merely relied upon the investigation report and not conducted any independent enquiry to verify the facts as mentioned in the said report. He has referred various wrong facts relied upon by the AO to make the addition and some of these are as under: in the assessment order such as also financial of the company on page 3-8 and concluded that the financial of the company is very week and does not support price quoted on stock exchange. However, these financial are not matching with the. Page No of AO order Facts narrated by AO Submission of Assessee Page 3-8 para 4 AO tabled financial of ACI Infocom for FY 2011- 12 to 2014-15 and concluded that the financial of the company is very week and does not support price quoted on stock exchange. These financials do not match with the annual reports available on BSE website as submitted by the company, copy of which placed on paper book on page 51-96. Therefore, the conclusion arrived on wrong facts. Page 10 para 4.3 AO mentioned that pursuant to the detection of a huge rise in trade Volume and price in the shares of ACI Infocom, SEBI initiated investigation and passed order dated 27-03-2018 against the company. The allegation is incorrect as no such investigation initiated by SEBI and the order dated 27-03-2018 is for not resolving investor complain on time, copy of order submitted. Page 18 In Q No. 20 of Statement of director of ACI Infocom, investigation wing showing data of The investigation wing relied upon wrong data to initiate the proceeding as the share price of ACI Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 7 2011 to 2013 and questioning him to justify the price movement from Rs. 2.63 to Rs. 21.90 during this period. infocom was Rs. 35 in January 2011 which rose to Rs. 160 in January 2013 and in Feb. 2013 it was quoted at Rs. 16 due to slip of shares from face value of Rs. 10/- to Re. 1/- per share. Therefore, the base report based on which the case was reopened itself is on wrong facts. Page 30 para 8 In conclusion on top of page 31 AO noted “It is concluded that the losses booked by assessee in his books were pre- arranged method to evade taxes.” Same thing again repeated while analysing the transaction – “(ii) the assessee resorted to a preconceived scheme to procure loss by way of price difference in share transaction not supported by market factors.” The way the assessment order passed clearly shows that there is no application of mind by the AO while verification of the facts of the case. The assessee has recorded LTCG and not booked any loss in his books. This clearly shows AO has not done any independent verification and passed order with predetermined mind set. 6. Ld AR further stated that AO has reproduced summary of trade done by the assessee in the impugned scrip on page 21-28 of his order, which shows that the sale transaction of the said shares were executed in small qty. and there is no one to one matching transaction as alleged by the AO that shares sold by assessee purchased by exit providers if that be the case, qty. offered by the assessee for sale on BSE Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 8 platform would have been bought by the said alleged exit provider in one go. The pattern of trade clearly shows that the said shares were purchased by various investors hence the same cannot be treated as pre-arranged transaction. 7. Lastly, with regard to intention to purchase of shares, AR stated that assessee is in the business of real estate development and the Company ACI infocom is developing a real estate project. To substantiate this fact, he invited our attention to page 72 of paper book which contain balance sheet schedule of investment and inventory of the company. This clearly shows that the company is partner in a firm named “Sanjog Developers” with 70% share in profits and also developing a project as inventory shows “WIP- Real estate project under construction”. Because the assessee works in the same field, they understand the value of these projects and were thus motivated to invest in ACI Infocom shares. 8. Ld. Counsel thereafter, referred to the following judgments delivered by the various high courts including jurisdictional High Court: Citation Title Finding 156 taxmann. com 605 (Bombay) PCIT Vs. Indravadan Jain HUF Where shares were purchased by assessee on floor of stock exchange and not from broker, payment was made through banking channel, deliveries were taken in DEMAT account where shares remained for more than one year, contract notes were issued and shares Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 9 were also sold on stock exchange, there was no reason to add capital gains as unexplained cash credit under section 68. 153 taxmann. com 578 (Allahaba d) PCIT Vs. Renu Agarwal Where AO disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accomodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by AO had rightly been deleted 94 taxmann. com 156 (Punjab & Haryana) PCIT vs Prem pal Gandhi The assessee purchased shares of a company during the assessment year 2006-2007 at Rs. 11/- and sold the same in the assessment year 2008- 2009 at Rs. 400/- per share. In the above case, namely, Hitesh Gandhi (supra) also the assessee had purchased and sold the shares in the same assessment years. The Assessing Officer in both the cases added the appreciation to the assessees' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees' income from undisclosed sources. In Hitesh Gandhi's case (supra) also the Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 10 CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. 152 taxmann. com 330 (Gujarat) PCIT Vs. Genuine Finance P. Ltd. Where assessee was continuously dealing in share trading of various company and entire transaction of purchase and sale of scrips was through Stock Exchanges, through authorized brokers and payments made to brokers were reflected in bank account, loss incurred in share transactions could not be disallowed 155 taxmann. com 549 (Gujarat) PCIT Vs. MamtaRajivkuma r Agarwal Where assessee had sold shares of SNCFL and earned long-term capital gains and Assessing Officer alleged that transaction was a penny stock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38), since there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 11 addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted 156 taxmann. com 147 (Gujarat) PCIT vs. SangitabenJagdis hkumar Shah The assessee had shown full details of the transaction which was done in the normal course of business. The contract note copies were placed on record and that the trading dates showed that the transactions were genuine and were done on BOLT during routine business. The payment or receipt of such transactions was done through banking channel and service tax and STT had been duly paid. we are of the opinion that there are concurrent findings of fact before this court recording such findings based on factual details available on record. There is no substantial question of law that arises for adjudication. 9. On the contrary the Learned Departmental Representative referred to various observation and finding of AO and stated that shares were purchase off market through private placement and directors of the company could not provide basis for allotment and rise in price of the shares. He stated that networth of the company do not support the market price of the shares and in such scenario no vigilant investor will invest in such shares. He also referred the investigation report as relied by the AO and stated that AO is duty bound to make the addition as investigation wing has Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 12 highlighted crucial facts in the trading pattern in the shares of ACI Infocom. 10. We have carefully considered the rival submissions and perused the relevant finding given in the impugned orders and material available on record and also the case laws cited have also been taken into account. As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of M/s ACI Infocom Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act was fully corroborated by the documentary evidences, which is not in dispute. The shares have been credited in the demat account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares. The prima facie bonafides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG as the shares were held by the assessee more than one & half years. The case of revenue is that such transactions is an accommodation entry and thus it is a sham, which is based on report of Investigation wing in many scrips. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature. Ld. AO has relied upon the modus operandi as described by the Investigation wing without carrying out any independent investigation. To discard the documentary evidences filed by the assessee and to corroborate the findings or report of the investigation, there has to be either Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 13 concrete information impinging assessee; or there is information about exit providers who have specifically confirmed the purchase of shares to facilitate the accommodation entry; or SEBI has found some discrepancy in manipulation of price in stock exchange or found something irregular leading to inference that this scrip was used for the benefit of person indulging in buying and selling of the shares and banning the trade of the scrip; or the company itself has been investigated and found to be indulged in such activity; or some direct evidence or material is found implicating assessee. Then preponderance of probability goes against the assessee that documents filed by the assessee cannot be conclusive. Presumption can be based against the assessee if all such factors are brought on record and not on some general report of Investigation Wing. Such report can be triggering point but not conclusive unless some inquiry has been done by the AO or something specific has been brought on record. That is the reason in all the judgments of Hon’ble High Court have held in favour of the assessee under these circumstances. 11. The Hon'ble Bombay High Court in case of Indravadan Jain HUF and Hon’ble Delhi High Court in the case of KarunaGarg as well as Krishna Devi has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry. Here in this case it is not even astronomical increase of price. There has to be other materials to dislodge the claim of the assessee, when Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 14 existence of purchase of shares and sale is through stock exchange on line is not disputed, then other factors have to brought on record to treat that it was an accommodation entry. 12. The whole basis of making the addition is standard modus operandi without there being any linkage with the assessee or any inquiry of the scrip or any adverse finding by agency like SEBI, which regulates the trading in stock exchange. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon’ble Supreme Court in Omar Salay Mohamed Sait V /s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). Therefore, we find that onus as cast upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and various entities as stated by AO being exit providers. 13. In this backdrop and facts and circumstances of the facts on record and lack of inquiry by the AO, we are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 15 not dislodge the perception that apparent is not real. On the contrary the type of error in the assessment order as pointed out by the counsel of the assessee indicates that there is no application of mind at the end of the assessing officer and he is not even verifying before concluding whether the assessee has booked losses or offered LTCG in the shares of ACI Infocom. AO referred SEBI order on the issue which was not even subject matter of the said order. Huge addition made on the basis of borrowed finding can not be sustained. 14. In the light of factual matrix and case laws referred to before us, we see substance in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under made u/s 68 of the Act is not justified. The ld.AO has not provided anything on record to justify additions under section 69C of the Act either. As held above, modus operandi spelt by itself is not an adequate ground to impeach the transactions. 15. Therefore, considering the entirety of facts and circumstances, we are not inclined to accept the stand of Ld. CIT (A) in sustaining the impugned additions in the hands of the assessee. Resultantly, the addition on account of alleged Long Term Capital Gains as well as estimated commission against the same, stands deleted. The grounds of appeal, to that extent, stand allowed. Printed from counselvise.com ITA No.2702/Mum/2025 Kamal Khetan 16 16. Since the appeal in allowed on merits of the case, hence legal ground on reopening of the case become infructuous and accordingly not adjudicated. 17. In the result, appeal of the assessee is allowed. Order pronounced on 14th August, 2025. Sd/- (ARUN KHODPIA) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 14/08/2025 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 "