M/S RARITY AGENCIES LIMITED,KOLKATA V. ITO, WARD 9(1), KOLKATA

ITA 2341/KOL/2024

AI Insights

M/s. Rarity Agencies Limited appealed against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi, which confirmed the Assessing Officer's decision treating a long-term capital loss of Rs. 24,38,500 as bogus and adding it as income under section 68 of the Income Tax Act. The case involved transactions in penny stocks of Unishire Urban Infra Ltd., which the Assessing Officer and the appellate authorities found to be part of a scheme to generate unaccounted income under the guise of capital gains. The Tribunal dismissed the appeal, relying on precedents and the findings that the transactions lacked genuine commercial substance.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 781321 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 21-11-2024
• Other Referred Cases: PCIT -v. Swati Bajaj [2022), 139 taxmann.com 352 (Calcutta)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital Gains; Principle of natural justice; Earning of tax free income; Penny stocks; Bogus
• Section: 143(3); 263; 68

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'एसएमसी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH, KOLKATA श्री संजय शमाा, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI SONJOY SARMA, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited Vs. ITO, Ward-9(1), Kolkata (Appellant) (Respondent) PAN: AAFCR7243C Appearances: Assessee represented by : None. Department represented by : Kallol Mistry, JCIT, Sr. DR. Date of concluding the hearing : 28-July-2025 Date of pronouncing the order : 21-October-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2015-16 dated 09.03.2023, which has been passed against the assessment order u/s 143(3) of the Act, dated 16.12.2017. None appeared on behalf of the assessee and the appeal was heard with the assistance of the Ld. DR. Printed from counselvise.com Page | 2 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: “1. For that the Ld. CIT(A) erred in confirming the action of AO in treating the long-term capital loss of Rs. 24,38,500/- as bogus and income u/s 68 when admittedly all the evidences were filed to prove the genuineness of the capital loss and the AO failed to bring any evidence on record to prove the contrary. 2. For that the Ld. CIT(A) erred in confirming the action of AO in treating the long-term capital loss of Rs. 24,38,500/- as bogus even though admittedly the transaction in the particular shares were carried out through registered brokers, as per rules of the SEBI and the sale was made on the floor of the stock exchange where the shares were quoted and the transaction was duly recorded in the records maintained by the stock exchange. 3. For that the assessee never claimed the long-term capital loss as deduction and therefore the said loss could not have been added as income u/s 68.” 3. Brief facts of the case are that the assessee has submitted e-return showing total income of ₹ 10,501/- and had claimed a refund of ₹ 22,960/-. The case was selected for scrutiny, one of the reasons being suspicious sale transactions in shares being penny stocks. The Ld. AO noted that the assessee had dealt in penny stock transactions of Unishire Urban Infra Ltd. The Ld. AO noted that the assessee had suffered loss of ₹ 24,38,500/- on account of trading in such shares. He has discussed the modus operandi of such transactions, the types of penny stock companies, the entities involved in the transactions, the transactions, the price rigging and also analysed the balance sheet as well as the profit and loss account of Unishire Urban Infra Ltd. for the past years and concluded that the transactions were bogus and has added the same under section 68 of the Act. The total income was assessed at ₹ 24,49,000/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who went through the Printed from counselvise.com Page | 3 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. submissions filed by the assessee, the statement of facts and concluded as under: “5. Decision: I have carefully perused the grounds of appeal, facts of the case and the submission made by the appellant and the evidences on record. 5.1 Grounds No 1, 4, 5 and 6 are general in nature and therefore needs no adjudication. 5.2 Ground No 2 and 3 relates to the AO adding Rs 24,38,500 as bogus long term capital loss u/s 68. \"The facts of the case are that the assessee filed the return for the assessment year declaring total income of Rs 10,501/-. The brief fact of the case is that the appellant had filed return of income claimed exemption of Rs 24,38,500/- being long term capital loss on sale of listed shares of Unishire Urban Infra Ltd. under sec. 10(38). The AO made assessment u/s 143(3) by treating the sale as bogus and added back the entire traded value as unexplained cash credit uls 68 of the I.T. Act. The appellant submitted that the appellant purchased shares of Unishire Urban Infra Ltd. Rs. 10.70/- each (at prevailing market price) totaling to Rs. 23,57,459.03/- during the above assessment year. The appellant then had long term capital loss of Rs. 24,38,500/- during the year under consideration. The appellant submitted that the payment was also received by account payee cheque and submitted Copy of the Contract Notes. Bank Statement, DEMAT Statement showing credit and debit of shares. Share Purchase and Sale details. 5.3 The appellant has submitted that the AO while making the addition has not at all applied his mind but that the Ld. AO has treated the entire transaction as sham only on the basis of an investigation report available with the department on sham penny stock transaction wherein a number of shell companies were involved in providing bogus gains to customers for a commission. The appellant has claimed that there was neither any independent application of mind by the AO nor any material was brought on record to show that the transaction made by the assessee was a sham or bogus transaction or any cash has been paid to earn the aforesaid trading loss. The appellant has submitted that all the evidences have been filed to prove the genuineness of the transactions which were carried out through the exchange, the transactions were carried out through DEMAT account and purchase and sale were through normal banking channels and that the AO did not find any documents to be false or fabricated or that SEBI has either debarred the scrip from being traded or the broker for conducting transaction. The appellant also submitted that the AO neither made Printed from counselvise.com Page | 4 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. any enquiry from the stock broker through whom the transactions took place nor from the Stock Exchange on the floor of which the transactions were entered into. The appellant also placed reliance on various judicial decisions. 5.4 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. The AO has in detail in the impugned order, describes the modus operandi adopted for the purpose of claiming bogus LTCG. The AO has also established in detail that during the F.Y 2013-14, 2014-15, 2015-16 and 2016-17, Unishire Urban Infra Ltd, did not have any substantial turnover and had mostly operating losses. I find that the appellant has bought and sold shares of a virtually unknown company which has got hardly any turnover and has mostly losses during the period and where the earning per share was almost nil, and therefore it does not stand the test of reasoning and defies all principle of preponderance of probability. I find that the AO has drawn the conclusion from various factors like the balance sheet, profit and loss a/c of Unishire Urban Infra Ltd, the volume of trade, movement of share price in the particular scrip, details of purchase and sale of scrip etc which are relevant factors. 5.5 The Hon'ble Calcutta High Court in a judgment dated 14.06.2022 in the case of PCIT -v. Swati Bajaj [2022), 139 taxmann.com 352 (Calcutta) dealt with the issue of LTCG. In the said case the assessee (Smt. Swati Bajaj) filed the return of income for the assessment year 2014-2015 declaring a total income of Rs. 6,57,300/-. The return was selected for scrutiny and notice under Section 143(2) of the Act and under section 142 (1) of the Act were issued and served on the assessee. The assessee submitted various documents before the assessing officer in compliance to the notice issued under section 142 (1) of the Act. The assessee is stated to have produced the copy of the income tax returns, profit and loss account, balance sheet, computation of total income, statement of STCG/LTCG, D-Mat account, contract notes, bank statements and other details. The assessing officer after scrutiny of the documents produced, directed the assessee to submit the details of shares purchased and sold during the year under consideration and immediate three preceding years in respect of STT paid in LTCG/STCG and was directed to explain with evidence that the transactions were genuine as the assessee had earned LTCG. On verification of the computation of income the assessing officer noted that the assessee had shown long term capital gain of Rs.28,23,500/- and claimed the same as exempt. The assessee was directed to file complete details as well as the evidence with respect to such claim of exempt income. The assessee filed copy of contract notes in support of purchase and sale of shares of Surabhi Chemicals on which the long-term capital gains was claimed. From the details furnished by the assessee, it was seen that the assessee had purchased 50,000 shares of the company for Rs.1,00,000/- on 16-3-2012 and 14-8-2012. Soon after the expiry Printed from counselvise.com Page | 5 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. of the period to become eligible for long term capital gains, the assessee sold those shares for Rs.29,23,500/- and such sales were effected during the period from 4-12-2013 to 7-12-2013 and the long term capital gains (LTCG) was computed for the Rs.28,23,500/-. The assessing officer noted that within a short span to time of 17 to 21 months, the assessee managed to sell the shares with increased value of about 2823% that to when the general market trend was recessive. Taking note of the said legal principle, the Assessing Officer pointed out that considering the surrounding circumstances and applying the test of human probabilities coupled with the report of the Directorate of Investigation which was discussed in the assessment order, it was concluded that the assessee had been a party to a predesigned mode of transaction and invested in the shares of M/s. Surabhi Chemicals to convert unaccounted cash under the guise of LTCG amounting to Rs.28,23,500/-. Therefore, the Assessing Officer denied the exemption and added back the receipt of Rs.29,23,500/- u/s. 68 of the Act. The CIT(A) dismissed the appeal of the Assessee. On appeal the Income- tax Appellate Tribunal passed a common order in 90 appeals pertaining to penny stocks favouring the assessees. Revenue filed appeals before the High Court. The Hon'ble High Court held that the onus is on the assessee to establish the genuineness of the price hike. Merely demonstrating the financials of the company, volume of trade, transactions through banking channels, inter alia, will not suffice. The Assessee has to prove that the price of the share was not manipulated. 5.6 The ratio laid down by the Hon'ble Jurisdictional High Court has been considered elaborately in the decision of the Coordinate Bench in the case of Shyam Sunder Bajaj in ITA No. 2552/KOL/2018 and others vide order dated 17th October, 2022 and after placing reliance on the judgment of Hon'ble Jurisdictional High Court in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022, observed as under:- “4. All the present cases were selected for scrutiny u/s 143(3) through CASS and the issue in all of them for selection relates to ‘suspicious long term capital gain on shares’. In all the above appeals, according to the ld. AO, LTCG reported by the assessee in respective return was bogus and the entire transactions were done with the objective to introduce unaccounted money of the assessee in the books by using the route of LTCG which was exempt from tax u/s 10(38) of the Act, except in one case, where the assessee has booked trading loss on transaction of shares of two Companies, which have been treated as penny stock. Thus, ld. AO held that the said LTCG loss are fabricated/engineered transactions by the respective assessees, sale of which falls under the category of penny stocks and the same were treated as bogus which were added in the total income by treating it as unexplained cash credit Printed from counselvise.com Page | 6 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. u/s 68 of the Act. Ld. AO based his decision of treating the impugned transaction of sale of shares as bogus transaction by relying on the report of Investigation Wing of the Department wherein the Investigation Wing of the Department had studied the modus operandi of rigging the prices of penny stocks and generation of capital gain trading loss there from. On appeal, ld. CIT(A) confirmed the action of the ld. AO. Aggrieved, assessees are in appeal before the Tribunal 5. Recently on 14.06.2022, the Hon'ble jurisdictional High Court of Calcutta passed a judgment in the case of Swati Bajaj and others [2022] 139 taxmann.com 352 (Cal) dealing with set of cases with similar fact patterns as narrated above for the present appeals under consideration before us. Hon'ble jurisdictional High Court by taking the report of the Directorate of Investigation of the Department as the basis, gave its observations and findings, which are summarized hereunder. 5.1. There are two category of cases dealt with by the Hon'ble High Court, viz. first category being those arising out of the order of Tribunal dated 26.06.2019 in which 90 appeals filed by the assessees were allowed and second category is of those cases where assessee has challenged the assumption of jurisdiction by CIT under section 263 of the Act. In the present set of appeals before us, we are concerned with the first category whose relevant observations and findings by the Hon'ble High Court are noted below: 1. From the assessment order passed in the case of the assessee Smt. Swati Bajaj, we find that the genesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Investigation Unt-il and Kolkata. [para 43) 2. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee if the report was available in the public domain as has been downloaded and produced by the revenue. Nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such statements of violation of principles of natural justice the assessees have not made out any case. [para 651 Printed from counselvise.com Page | 7 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. 3. The test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. (para 69] 4. Test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. [para 73] 5. The assessee was not named in the report and when the assessee makes the claim for exemption, the onus of proof is on the assessee to prove the genuinity. [para 73] 6. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. [para 73] 7. The assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time. [para 75] 8. The exercise that was required to be done by the Tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the 'players' can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the Tribunal which exercise has not been done. (para 99] 9. The assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee [para 99] 10. The tribunal being the last fact finding authority was required to go deeper into the issue as the matter have manifested large scale scam. Thus, the orders of the tribunal are not only perfunctory but perverse as well. The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the \"players\" can never be established by direct evidence and therefore the surrounding Printed from counselvise.com Page | 8 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. circumstances was required to be taken note of by the tribunal which exercise has not been done [para 99] 11. In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion. [para 99] 12. For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer, [para 101] 13. In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A). [para 102] {emphasis supplied} 6. In the context of factual matrix of the present appeals before us narrated above, the position of law as enunciated by the Hon'ble jurisdictional High Court of Calcutta in Swati Bajaj (supra) carrying force of binding nature on the issue under consideration for us, was confronted to the respective ld. Counsels of the assessee who appeared before us. Ld. Counsels were fair enough to state that issue involved in these appeals is squarely covered against the assessee by the said decision as the fact involved are identical to that which were before the Hon'ble High Court. For cases where none appeared before us on behalf of the assessee, the relevant factual matrix was captured with the assistance of Ld. Sr. DR/CIT DR (already narrated above). Since the matter is squarely covered by the decision of Hon'ble jurisdictional High Court of Calcutta in the case of Swati Bajaj & others (supra), we have taken up these also for adjudication ex parte, qua the assessee. 7. After hearing both the sides and taking into consideration the factual matrix of the cases before us vis-à-vis the decision of Hon'ble jurisdictional High Court of Calcutta in Swati Bajaj & others (supra), we respectfully following the said decision carrying the force of binding nature, being the jurisdictional High Court, dismiss the appeals of the assessee and restore the order of the respective ld. AO as affirmed by the respective ld CIT(A.) Printed from counselvise.com Page | 9 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. 5.7 Considering the discussions as above and respectfully following the above decision of the Hon'ble Calcutta High Court in Swati Bajaj (supra), the disallowance of the appellant's claim of exemption of LTCG u/s 10(38) of the Act for Rs.24,38,500/- u/s 68 made by the AO are confirmed and appeal on Ground Nos 2 to 3 are dismissed. As the result, the appeal is dismissed.” 4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 5. None appeared on behalf of the assessee and the appeal was heard with the assistance of the Ld. DR. It was submitted by the Ld. DR that the assessee had booked losses on account of transactions in penny stocks of Unishire Urban Infra Ltd. and the Ld. CIT(A) has analysed the same and relying upon the decisions of the Hon'ble jurisdictional High Court and the coordinate Bench of the Tribunal has confirmed the addition. Before us only a copy of audited financial statement as on 31/03/2015, the chart of trading and investment account of Unishire Urban Infra Ltd. and details of purchase, sale and stock as on 31/03/2015 was filed sometime during the course of the assessment proceeding fixed on 30/06/2025. The Ld. DR vehemently argued that the order of the Ld. CIT(A) may be upheld and the appeal may be dismissed. 6. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). We find that the Ld. CIT(A) has relied upon the decision of Hon'ble jurisdictional High Court in the case of Swati Bajaj (supra) and the decision of the coordinate Bench of the Tribunal and has upheld the addition. The assessee had invested in paper company which did not have any business model and the investment apparently was made to Printed from counselvise.com Page | 10 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. incur loss so as to offset the profit under other heads of income. Before us, no further submission has been made despite several opportunities been granted for hearing. Thus, on the facts of the case and the applicable judicial pronouncements, we do not find any reason to interfere with the findings of the Ld. CIT(A) in the absence of any further evidence filed by the assessee in support of the transactions being genuine and all the grounds of appeal are hereby dismissed. 7. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 21st October, 2025. Sd/- Sd/- [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 21.10.2025 Bidhan (Sr. P.S.) Printed from counselvise.com Page | 11 I.T.A. No.: 2341/KOL/2024 Assessment Year: 2015-16 M/s. Rarity Agencies Limited. Copy of the order forwarded to: 1. M/s. Rarity Agencies Limited, 16, British India Street, 2nd Floor, Kolkata, Kolkata, West Bengal, 700069. 2. ITO, Ward-9(1), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Printed from counselvise.com "