MANAVI GOEL SHARMA,MUMBAI V. INCOME TAX OFFICER INT TAX WARD 2(3)(1), MUMBAI

ITA 1225/MUM/2025

AI Insights

The case involves Manavi Goel Sharma, the appellant, who contested the additions made to her income by the Income Tax Officer under sections 68, 69C, and 115BBE of the Income Tax Act, 1961, concerning transactions in penny stocks. The AO had added income and expenditures related to these transactions, treating them as non-genuine and manipulated for tax evasion. The DRP upheld the AO's decision, but the Tribunal found procedural discrepancies in how the objections were handled, leading to the remand of the case for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712673 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: MITESHYKUMAR GUPTA
• Keywords: Unexplained cash credit; Capital Gains; Reason to believe; Bogus
• Section: 147; 148; 68; 69C; 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “I” BENCH : MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No. 1225/Mum/2025 Assessment Year : 2018-19 Manavi Goel Sharma F-24, Hyderabad Estate, Nepean sea Road, Grant Road West, Mumbai-400036. PAN : AKEPG7741E vs. Income Tax Officer, Int. Tax. Ward–2(3)(1), Kautilya Bhawan, Bandra Kurla Complex, Mumbai-400051. (Appellant) (Respondent) Assessee by : Shri Miteshykumar Gupta Revenue by : Shri Krishna Kumar, Sr.DR Date of Hearing : 22-07-2025 Date of Pronouncement : 30-07-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Assessing Officer (AO), dt. 26-12-2024 passed u/s. 147 r.w.s. 144C(13) of the Income Tax Act, 1961 („the Act‟), consequent to the directions given by the CIT(DRP-3)-Mumbai-3, pertaining to Assessment Year (AY) 2018-19, wherein the assessee has taken the following grounds of appeal: Printed from counselvise.com 2 ITA No. 1225/Mum/2025 “1) Addition u/s 68 on account of trading in penny scrips-Addition of Rs. 25,95,819/-: The Ld. Assessing Officer has erred in adding back the Income of Rs. 25,95,819/- on the basis of third-party information. The Assessee has already disclosed Rs. 12,15,740/-as Short-Term Capital Gain from the sales consideration of Rs. 38,11,558/- from sale of shares of M/s Innovative Tech Pack Ltd. in her Income Tax Return for the A. Y 2018-19. The Assessee had provided all the evidences such as Trade Register along with a summary of sale and purchase of the scrips. However, the Assessee added back the same in Income from Other Sources u/s 68 without considering the supporting documents provided by the Assessee. 2) Addition u/s 69C on account of expenditure of penny scrips- Addition of Rs. 1,14,348/-: The Ld. Assessing Officer has erred in adding back to the Income of Rs. 1,14,348/- on account of 3% expenditure on the sale of 39,451 shares of Rs. 38,11,558.80/-. The Assessee has not incurred any expenditure on such sale. 3) Invoking provision u/s 115BBE of the Income Tax Act, 1961: The Ld. Assessing Officer has erred by charging Rs. 27,10,170/- as income taxable at special rate under section 115BBE of the Income Tax Act, 1961. There is no sufficient and appropriate evidence to prove that such amount was unexplained by the Assessee since all the supporting such as trade register, details of purchase and sale of shares along with summary were already provided to the Assessing Officer. 4) Levy of Penal Interest u/s. 234B and 234C: The Appellant, on merits, denies its liability to penal interest. 5) The Appellant craves leave to add, amend or alter all or any of the above Ground of Appeal.” 2. Briefly the facts of the case are that the assessee has filed her original return of income declaring total income of Rs. 7,26,920/- on 10-10-2018. Subsequently, basis information received from Dy. Director of Income Tax (Inv.)-5(1), New Delhi that the assessee is one of the beneficiaries of accommodation entry in the form of bogus capital gains/loss in respect of shares of M/s. Innovative Tech Pack Ltd, the shares of which have been classified as „penny stock‟ and the fact that the assessee has sold shares of the said company for a consideration of Rs.38,11,558/- during the FY.2017-18 resulted in profit of Printed from counselvise.com 3 ITA No. 1225/Mum/2025 Rs.12,54,141/-, the AO formed reason to believe that income chargeable to tax has escaped assessment and notice u/s. 148 of the Act dt. 17-04-2022 was issued. In response to the notice, the assessee filed her return of income and thereafter notices were issued along with show cause notice and the submissions so filed by the assessee were considered, but not found acceptable to the AO. 3. As per the AO, the assessee had purchased and sold shares of the company which had no financial standing and the assessee has not given any logic as to why shares of such quantity were purchased. It was further held by the AO that the sale of shares were carried out at an unusual price not in line with any commercial principle and market factor and further referring to the findings of the Investigation Wing, wherein it was proved that associated brokers, entry operators and assessee have chalked out an arrangement in which share of penny stock companies were acquired by the assessee, the share prices were rigged and the shares were sold at high price to book exempt Long Term Capital Gain and at low price to book Short Term Capital Gain or business loss. In such trading, purchase and sale of shares were not affected for commercial purposes, but with an intention to create artificial Long Term Capital Gain and Short Term Capital Loss or business losses with a view to abate payment of taxes and the assessee has not been able to justify the un-usual rise and fall in share prices of the company to be natural and determine market forces which shows that such shares transactions were close circuit transactions and were structured transactions. Therefore, considering the findings of the Investigation Wing in relation to enquiries conducted in the case of the assessee, brokers, operators entry providers and the nature of transactions entered into by the assessee amounting to Rs. 38,11,558/- was held as non-genuine and the same was treated as un-explained cash credit u/s. Printed from counselvise.com 4 ITA No. 1225/Mum/2025 68 of the Act and given that the assessee has already disclosed a sum of Rs. 12,15,740/- in the return of income, the balance amount from sale of shares amounting to Rs. 25,95,819/- was brought to tax u/s. 115BBE of the Act. Further, the AO brought to tax a sum of Rs. 1,14,348/- u/s 69C, being 3% commission expenditure which the assessee has paid for taking the accommodation entry and the draft assessment order was passed u/s. 144C(1) of the Act, dt. 23-03-2024. 4. The assessee thereafter filed objections before the DRP. The objections were disposed off by the DRP vide it‟s order dt. 26-11-2024 and the findings of the AO were confirmed. Thereafter, the AO passed the final assessment order u/s. 147 r.w.s. 144C(13) of the Act, dt. 26-12-2024; wherein the amount of Rs. 25,95,819/- was brought to tax u/s. 115BBE of the Act and an amount of Rs. 1,14,348/- was brought to tax u/s. 69C of the Act. Against the said order, the assessee is in appeal before us. 5. During the course of hearing, the Ld. AR submitted that the AO erred in treating the said transaction as bogus Long Term Capital Gain/Short Term Capital Loss and submitted that firstly, it needs to be understood and appreciated that whenever any Promoter is manipulating his company's share price, it is only known to him, his brokers and his crony operators. It is not in the knowledge of general investors and traders in the market. The general investors and traders observe whether the price of a particular share is continuously going up or not. In this background, the general traders in the market try to buy the shares at lower price and sell it at a higher price following the technical trend of that particular share. There might be thousands of traders in the market who would trade in such shares, some of them would be making profit in the trading of such shares while others incur heavy losses. Printed from counselvise.com 5 ITA No. 1225/Mum/2025 6. It was submitted that the purpose of showing bogus profit/loss on penny script is to reduce tax liability by showing bogus short-term loss in the trading of penny script so as to reduce net short term capital gain profit. The other method is by showing bogus Long Term Capital Gain on sale of penny script without paying any income tax on Long Term Capital Gain and thereby converting their black money into white money without paying any income tax. There is no other way to benefit by indulging into trading of penny stock. However, in the case of the assessee, she has neither shown any long term capital gain or any short term capital loss. The Assessee has declared short term capital gain of Rs. 12,15,740 /- on which full tax has been paid. 7. It was further submitted that the AO has simply relied upon the report sent by DDIT(Inv.), New Delhi without application of his own mind and our reference was drawn to findings of the Investigation Wing where it says that “as discussed above have proved that associated brokers, entry operators and the assessees had chalked out an arrangement in which the share of penny stock companies were acquired by the assessees, the share prices were rigged and then shares were sold at high price to book exempt Long Term Capital Gain and at low price to book Short Term Capital Loss or Business loss.\" In this regard, it was submitted that the assessee had neither declared exempt Long Term Capital Gain nor did the assessee declare Short Term Capital Loss or Business Loss. In this regard, Ld.AR drawn our reference to response submitted during the assessment proceedings wherein it was submitted that “In response to said notice, the Assessee submitted reply on 15.04.2022 stating that she is non-resident and is filling return of income regularly. Her income is basically from transactions of share trading and derivative transactions - Future and Printed from counselvise.com 6 ITA No. 1225/Mum/2025 options. Further she has submitted that the trade in Innovative Tech Pack Lid as mentioned in the notice has gained short term profit to the Assessee of Rs. 12,15,739/-which has been offered for tax and tax thereon is already been paid along with return. She has attached copy of balance sheet and capital gain reports.\" 8. It was further submitted that all the share trading transactions are made through recognized stock exchange and through reputed stock brokers, namely, ICICI Securities Ltd, BP Equities Ltd and Vijan Shares and Securities. The Assessee has also paid STT and other taxes through brokers by way of settlement at the time of purchase and sale of shares. It was further submitted that in the investigation Wing's Findings, it is stated that Mr. Hemant Gupta started working on this script from 27th June, 2017 to 22nd September, 2017 whereas the assessee had purchased the shares in January and February, 2017 which were sold between July to January, 2017. Thus, it can be concluded that the shares were lying in the demat account for a maximum period of eight months. Also, the shares held by the assessee were not sold together, but it was sold in intervals and held that the assessee had no intention and has not indulged in any bogus/ fictitious transactions. It was also submitted that there was no justification to make any addition on account of trading in the shares of Innovative Tech Pack Ltd. The Income Tax Department has relied on the information received by the Investigation Wing and has not conducted own examination. However, in the present case even the Investigation Wing has mentioned clearly in its report that only those cases have to be viewed negatively where the intention is to create Long Term Capital Gain or Short Term Capital Loss or Business Loss. However, it can be clearly viewed that the assessee had no such intention since the assessee had Short Term Capital Gain and has paid taxes on the same. Therefore, by no stretch of Printed from counselvise.com 7 ITA No. 1225/Mum/2025 imagination, it can be presumed that the assessee is a beneficiary where manipulation in trade by way of complex web of transaction was carried out to book bogus Long Term Capital Gain or Short Term Capital Loss. 9. It was accordingly submitted that all the transactions of 'Innovative Tech Pack Ltd., were carried out in the normal course of business and there was no undisclosed income. It was submitted that the assessee is aggrieved by the action of AO since the assessee has disclosed its income and has not carried any bogus transactions to avoid tax payment. Therefore, the addition of Rs. 25,95,819/- is strongly objected by the assessee, since no transactions were carried out by the assessee to book bogus Long Term Capital Gain or Short Term Capital Loss. 10. As far as the addition of Rs. 1,14,348/-, u/s 69C of the Act on account of expenditure of penny scrips, the Ld.AR submitted that the AO has erred in adding back an amount of Rs. 1,14,348/- on account of 3% expenditure on the sale of 39,451 shares of Rs. 38,11,558/-. The assessee has not incurred any expenditure on such sale. No evidence was provided by the AO regarding the expenditure incurred by the assessee on the sale of shares. It was merely based on assumption of AO and the AO has not independently conducted any investigation to prove such expenditure has been incurred by the Assessee. 11. It was further submitted that the AO has erred by charging Rs. 27,10,170/- as income taxable at special rate @60% u/s. 115BBE of the Act. From the perusal of section 115BBE of the Act, it is noted that the said section applies only when total income of the assessee includes any income referred to in section 68, 69, 69A to 69D. There is no sufficient and appropriate evidence to prove that such amount was unexplained by the assessee since all the supporting such as trade register, details of Printed from counselvise.com 8 ITA No. 1225/Mum/2025 purchase and sale of shares along with summary were already provided to the AO. 12. It was further submitted that the AO has added Rs. 38,11,558.8/- being received on sale of Innovative Tech Pack shares u/s 68 of the Act, which deals with unexplained cash credit. However, nothing has been brought on record to suggest that Rs. 38,11,558.8/- has been received in cash. It was further submitted that there is no question of any cash transaction in stock market. All the transactions have been conducted through her bank account and the assessee has not performed a single transaction in monetary terms. Thus, the Ld.AR concluded by submitting that the assessee has not indulged in bogus/ fictitious transactions and has paid the tax liability as per the tax rates prescribed under the Act. 13. Per contra, the Ld.DR relied on the findings of the AO and has also drawn our reference to the observations/findings of the ld DRP, which are contained at para 5.3.3. and 5.4 of its order, which reads as under: “5.3.3 The Panel observes that the AO has brought out that the entire arrangement is sham. The Revenue cannot put on blinkers and merely go by the papers (Demat statement, Bank transactions, on-market sale etc.) produced by the Assessee. The Ld. A.O. has brought out the weak financials of the underlying company, Kushal Ltd. And also has brought out circumstantial evidence that the share behaved in a predictable \"beil-shaped curve\" manner. The claim of the applicant that she has been a primary shareholder makes the applicant a direct beneficiary as well as party to the manipulated, fictitious gains. This strongly links the applicant to mala fide actions. It is not a case where the applicant would have bought the shares in an on-line transaction. Observations of the Panel: There is no allegation of the AO that the applicant itself is the manipulator. The Applicant has undertaken trades in a manipulated scrip under complete awareness regarding the price-rigging, being a complicit member by way of private placement entry. The Applicant has harvested the bogus gains in a planned, passive manner. The Applicant is a beneficiary, and not the operator, who have been duly targeted by Printed from counselvise.com 9 ITA No. 1225/Mum/2025 various enforcement / regulatory bodies. Thus, being a beneficiary and not the operator, the claims of the Applicant are not relevant. In view of the above discussion, the averments of the Applicant do not find favour with this Panel. 5.4. Directions of the DRP: The transactions in the tainted scrip itself are the indicator that the applicant has been a beneficiary of market manipulation. There is no necessity for the Assessing Officer to establish any further nexus. The applicant has not been able to establish the purchase transaction and the source of acquisition of the Kushal Ltd. shares before the A.O. In view of the above, the objection no.s 1 & 2 of the Applicant fail. The action of the Assessing Officer in terms of rejection of STCG and assessment of ITPL scrip sale credits under section 68 and out-of-books commission expenditures under section 69C (as expenditure from unexplained sources) for the availing of credit entry is sustained.” 14. We have heard the rival contentions and perused the material available on record. Firstly, before going into the merits of the arguments advanced before us, we find that the AO in the draft order has referred to share purchase and sale transaction undertaken by the assessee in a scrip by name of Innovative Tech Pack Ltd in respect of which the assessee has raised objections before the Ld.DRP. However, we find that the findings and directions of the Ld.DRP as can be seen from Para 5.4 of the DRP order (supra) are in the context of another scrip by name of Kushal Ltd. and the said directions have since been followed by the AO in passing the final assessment order. There is thus a clear disconnect between the findings of the AO and that of the Ld.DRP and effectively, the objections raised by the assessee against the draft assessment order have not been disposed off by the Ld.DRP. Further, the AO has passed the final assessment order following the directions of the Ld.DRP which were not arising from the subject matter of draft assessment order and the objections so raised by the assessee bringing further complexity in the matter. In light of the same, we are constrained to remand the matter to Printed from counselvise.com 10 ITA No. 1225/Mum/2025 the file of the AO to decide the same afresh as per law after providing reasonable opportunity to the assessee. All the contentions so raised before us are thus left open and not been adjudicated upon. 15. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 30-07-2025 Sd/- Sd/- [RAJ KUMAR CHAUHAN] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 30-07-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai Printed from counselvise.com "