MUNJAL MRUGESH JAYKRISHNA,AHMEDABAD V. THE DY.CIT, CIRCLE-1(1)(1), AHMEDABAD

ITA 1792/AHD/2024

AI Insights

The case revolves around the appeal by Munjal Mrugesh Jaykrishna against the order of the Commissioner of Income-Tax (Appeals), which confirmed the addition of Rs. 59,32,860 as unexplained cash credit under section 68 of the Income Tax Act. The addition was initially made by the Assessing Officer following a reopening of the assessment under section 147, based on suspicions that the assessee had engaged in transactions involving a penny stock, NCL Research, which was manipulated to provide bogus capital gains. The Tribunal examined the evidence, including the dramatic rise and fall in the stock price of NCL Research, and the financial capabilities of the assessee and other involved parties, concluding that the transactions were not genuine.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25278 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Other Referred Cases: Meghraj Singh Shekhawat vs DCIT, Ramprasad Agarwal vs ITO, Suman Poddar Vs. PCIT, Udit Kalra vs. ITO, Sanat Kumar Vs. ACIT, Abhimanyu Soin Vs. Asst, CIT, Somnath Maini Vs. CIT, Assistant Commissioner of Income Tax Vs. Som Nath Maini, K. R. Ajmera vs. ITO, Durga Parsad More vs. ITO, Mc. Dowell & Co. Ltd. vs. CIT, Govinda Rajulu Mudaliar vs. CIT, Sreelekha Banerjee & othrs. vs. CIT, Kalekhan Mohammed Hanif vs. CIT, CIT vs. Biju Patnaik, PCIT Vs. Swati Bajaj
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: MUKESH PATEL
• Keywords: Set aside; Reassessment proceedings; Question of law; Unexplained cash credit; Salary income; Income from undisclosed sources; Capital Gains; Principle of natural justice; Sham transactions; Accommodation entries; Earning of tax free income; Reason to believe; Audi alteram partem; Penny stocks; Bogus
• Section: 147; 143(3); 142(1); 250; 68; 22; 12A; 13

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE PRESIDENT SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER I.T.A. No.1792/Ahd/2024 (Assessment Year: 2013-14) Munjal Mrugesh Jaykrishna, 30, Ambika Society, Nr. Usmanpura Garden, Ahmedabad-380013. [PAN No. ABBPJ 5977 F] Vs. The Deputy Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad. (Appellant) .. (Respondent) Appellant by : Shri Mukesh Patel, AR Respondent by: Shri Rignesh Das, Sr.DR Date of Hearing 23.01.2025 Date of Pronouncement 21.03.2025 O R D E R PER: DR. B.R.R. KUMAR, VICE PRESIDENT: This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as \"CIT(A)\" for short) dated 30.08.2024, passed u/s 250 of the Income-tax Act, 1961, (hereinafter referred to as \"the Act\" for short) for the Assessment Year (AY) 2013-14. 2. The core grievance raised by the assessee in the grounds of appeal is as under :- ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 2– “That the learned CIT-Appeals erred in law and, on facts in confirming the addition of Rs.59,32,860 made by the Assessing Officer as Unexplained Cash Credit u/s. 68 of the IT Act.” 3. The brief facts of the case are that the assessee had filed his return of income for the year under consideration on 25.09.2013 declaring total income at Rs. 46,78,369/- after claiming deduction under Chapter VI-A for an amount of Rs.1,24,266/-. The assessee has claimed exemption u/s 10(38) of the LTCG of an amount of Rs.2,37,10,473/-, out of which the Assessing Officer alleged that an amount of Rs.59,32,860/- have been claimed in an unacceptable way. The assessment was reopened by the Assessing Officer u/s 147 of the Act since the assessee is found to have entered into suspicious share transactions in the relevant year. Since the scrip ‘NCL Research’ has been found by the Assessing Officer to be a bogus scrip in the nature of a penny stock being manipulated for the purpose of providing bogus capital gains, he was of the opinion that the assessee was required to be assessed u/s 147 of the Act. Subsequently, Assessing Officer framed assessment u/s. 143(3) r.w.s. 147 of the Act by disallowing Rs.59,32,860/- u/s 68 of the Act towards the claim of LTCG u/s 10(38) of Act, holding that the impugned gain on sale of shares was liable to be taxed. 4. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 3– 5. Aggrieved, the assessee is now in appeal before the Tribunal. 6. Before us, Ld. AR submitted that :- • The Assessing Officer has not referred to an iota of evidence which can lead to the conclusion that the Long Term Capital Gains earned by the assessee from the sale of the listed shares of NCL Research, which were purchased during the preceding year, through the Stock Exchange and were sold during the year under reference, also through the Stock Exchange, were sham or bogus, the addition made merely on surmise or suspicion can under no circumstances be justified. • It was also submitted that nowhere under the statements recorded by the Investigation Wing, on the basis of which the reopening of the assessment was initiated, has the name of either the appellant or his broker. • It was wholly preposterous on the part of the Assessing Officer to have presumed that the sale proceeds received by the assessee were not genuine and were liable to be added as unexplained credit u/s. 68 of the Act. • While the assessee has fully discharged his onus in explaining the source and genuineness of the credit of the sale proceeds in his bank account, the Assessing Officer has, without leading any cogent evidence against the assessee, mechanically inflicted the ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 4– addition relying on the provisions of Sec.68, which have no basis or justification for being invoked, as done by the Assessing Officer. • The Ld. AR argued that the in the list of the persons alleged to be penny stock operators/exit providers/share brokers/ members, whose statements were recorded and the copies of the same was furnished to the assessee in the form of a CD drive, nowhere the assessee’s name or the name of assessee’s broker i.e. Shree Naman Securities & Financial Services Pvt Ltd appear, either directly or indirectly. Not to left out any arguments of the Ld. AR, the written submissions of the Ld. AR are being reproduced hereunder:- 1. The present appeal is directed against the action of the learned Assessing Officer (AO) in making an addition of Rs.59,32,860/-, as Income being the nature of unexplained cash credit u/s 68 of the Act. The learned Assessing Officer has held that the assessee had introduced his unaccounted income under the guise of bogus/sham Long Term Capital Gains claimed as exempt u/s. 10(38) of the IT Act. 2. The present assessment is a reopened assessment relating to AY 2013-14. The original return of income declaring total income of Rs. 46,78,369 was processed u/s. 143(1). However, a notice u/s.148 was issued on 26/03/2018, pursuant to which the present assessment came to be framed by making an addition of Rs.59,52,860 u/s. 68 of the Act and determining the total taxable income at Rs.1,06,11,229/-. 3. During the year under consideration, the assessee was serving as Joint Managing director of two public companies, viz., ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 5– Asahi Songwon Colours Limited and Aksharchem India Ltd. The assessee derived income from Salary and also earned investment income by way of Capital Gains, Dividend and Interest. 4. During the course of the re-assessment proceedings, the assessee was served with a copy of the reasons recorded for reopening the assessment, wherein it was stated that as per the information provided by the investigation Department and the statement recorded of the related parties, it was found that the price of the penny stock NCL Research had been artificially manipulated on the stock exchange and raised in order to book bogus claim of Long Term Capital Gains. Thereafter, a Show- Cause Notice dated 12.10.2018 was served on the assessee calling upon the assessee to explain as to why the LTCG on sale of NCL Research claimed as exempt u/s. 10(38) should not be treated as bogus and added to the total income of the assessee. 5. Vide his reply dated 30.10.2018 in response to the aforesaid Show Cause Notice, the assessee, vehemently objecting to the proposed addition, submitted in detail as under: a. I have been an investor in the stock market, buying and selling shares and declaring the LTCG and STCG earned thereon, in my tax returns for the past several years. Never ever has it been alleged in my case, that I have indulged in the dealing of penny stocks. b. Even during the year under consideration, the total LTCG earned by me was around Rs.2.37 crores arising from the sale of eight scripts. c. The purchase of 10,000 shares of NCL Research and Financial Services Ltd (NCL) was done in the preceding FY 2011-12. It may kindly be noted that these shares were purchased from the stock market at prevailing listed price and this was not an off- market transaction. d. The payments for the purchase were also made by cheque against the contract note dated 02/09/2011 of the broker Shree Naman Securities & Finance Pvt ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 6– Ltd and the shares were duly credited in my Demat account with Kotak Securities Limited. Both these documents are attached herewith marked as Annexures 2 & 3. A copy of my bank account with HDFC Bank is duly attached herewith marked as Annexure-4, which reflects the payment made to the broker by cheque. e. The sale of NCL shares were made in lots during the period September to December 2012 at the listed market price ranging between Rs. 523 to Rs. 922 per share. Here again, the shares were sold in the open market and the payments towards the same consideration were duly received as per contract notes from my broker Shree Naman Securities. Similarly, the payments for the same were also received by me were duly deposited in my HDFC Bank. The relevant documents being the copies of the contract notes and relevant pages of Bank statement are attached herewith marked as Annexure-5 & 6 f. Under para 3 of your show cause Notice, you have referred to the fact that as per the investigation conducted by the Kolkata Directorate, there was a syndicate of operators/exit providers engaged in entry providing business. You have further mentioned that during the course of Departmental investigation the statements of various operators/ share brokers/members were recorded on oath, confirming that certain beneficiaries transacted in this script by way of bogus LTCG and claimed exemption u/s. 10(38). g. I wish to emphatically place on record that in the list of persons alleged to be penny stock operators/exit providers/share brokers/members, whose statements were recorded and the copies of the same was furnished to me in the form of a pen drive, nowhere does my name or the name of my broker ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 7– Shree Naman Securities & Financial Services Pvt Ltd appear, either directly or indirectly. h. Under the circumstances, I fail to understand as to how there is any basis of forming reason to believe that I had entered into penny stock transactions and claimed the same as exempt income, thereby not offering the same to tax. As has been held by the Hon’ble Supreme Court, the Jurisdictional High Court and several other High Courts and Tribunals, “Suspicion, howsoever strong, cannot take the character of evidence. Where no specific evidence showing nexus of the assessee with the conversion of any unaccounted money into sale proceeds of shares is brought on record, an addition made merely on the basis of wild guess, surmise or suspicion cannot be sustained.\" i. I wish to reiterate that in the entire reassessment proceedings until now, I have not been confronted with any tangible or material evidence against me, on the basis of which your proposed action to add the alleged 'income as my unaccounted income can be sustained in law.” 6. Although, the assessee had made a fervent request to the learned Assessing Officer to the effect that “if you are inclined to take a different view in the matter, in the interest of equity and justice, I have to earnestly request your goodself to kindly share your reasoning for the same, so that I can meet with you point of view'’, the reassessment proceedings came to be completed without even giving an opportunity to the assessee of being heard. It is also a matter of record that in the entire assessment order, none of the aforesaid facts, as highlighted in para (4) hereinabove, have been controverted in any manner by the learned Assessing Officer. It is most respectfully submitted that while finalizing the assessment, the learned Assessing Officer has grossly flouted the principles of equity, justice and good conscious in as much as he has not even dealt with the merits of ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 8– the assessee ’s elaborate submissions, both on facts and in law, in response to the Show Cause Notice. 7. The assessee wishes to rely on the ratio of the following judicial pronouncements which are squarely applicable on the facts and in the circumstances of the assessee ’s case: (a) Meghraj Singh Shekhawat vs DCIT (2019) 103 taxmann.com 374 (Jaipur ITAT) “Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Jurisdiction High Court in case of CIT v. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under: \"12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under: \"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the assessee that at the time of survey the assessee in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the assessee had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 9– etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of trans actions entered into cannot be denied simply on the ground that in his statement the assessee denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in assessee s's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operand! in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operand! that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the assessee 's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 10– provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the assessee during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the assessee through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the assessee has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the assessee were non-genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non- genuine. Consequently denying the claim of short term capital gain (6 of 6) (ITA- 385/2011) made by the assessee before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the assessee .\" ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 11– In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account.\" (b) Ramprasad Agarwal vs ITO (2018) 100 Taxmann.com 172 (Mum. ITAT) “The Tribunal in the case of MeghraJ Singh Shekhawat v. Dy. CIT [IT Appeal Nos. 443 & 444 (JP) of 2017] noted that the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account and in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long-term capital gain. The assessee had produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration in cash and all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence which cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the Assessing Officer is based merely on the suspicion and surmises without any cogent material to show that the ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 12– assessee has introduction his unaccounted income in the shape of long-term capital gain. The facts of the case of the assessee are identical with the facts in the above case wherein the Tribunal has deleted the addition. Therefore, respectfully following the same, the order of the Commissioner (Appeals) is set aside and, the Assessing Officer is directed not to treat the long-term capital as bogus and delete the consequential addition.” 8. Keeping in view the clear and uncontroverted facts of the assessee ’s case, wherein the Assessing Officer has not referred to an iota of evidence which can lead to the conclusion that the Long Term Capital Gains earned by the assessee from the sale of the listed shares of NCL Research, which were purchased during the preceding year, through the Stock Exchange and were sold during the year under reference, also through the Stock Exchange, were sham or bogus, the addition made merely on surmise or suspicion can under no circumstances be justified. It is also an undisputed fact on the record of the case that nowhere under the statements recorded by the Investigation Wing, on the basis of which the reopening of the assessment was initiated, has the name of either the assessee or his broker figured in. Thus, it was wholly preposterous on the part of the Assessing Officer to have presumed that the sale proceeds received by the assessee were not genuine and were liable to be added as unexplained credit u/s. 68 of the IT Act. It is respectfully submitted that while the assessee has fully discharged his onus in explaining the source and genuineness of the credit of the sale proceeds in his bank account, the learned Assessing Officer has, without leading any cogent evidence against the assessee, mechanically inflicted the addition relying on the provisions of Sec.68, which have no basis or justification for being invoked, as done by the Assessing Officer. 9. The assessee therefore prays in appeal before your Honour to direct the Assessing Officer to delete the entire addition of Rs.59,32,860/-. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 13– The Ld. AR, therefore, urged that the addition made by the Assessing Officer and confirmed by the Ld. CIT(A) be deleted. 7. The Ld. DR, on the other hand, relied on the orders of the authorities below which have been studied extensively and used wherever necessary. 8. Heard both the parties and perused the material available on record. 8.1 On the facts of the case, we find that the assessee has sold shares of ‘NCL Research’ for Rs. 80,09,060/- through Shree Naman Securities and Finance Pvt Ltd, for the year under consideration, on which he had shown LTCG of Rs. 59,32,860/- and claimed as exempt u/s 10(38) of the Act. The Assessing Officer disallowed the same on the ground that the assessee had introduced unaccounted income under the guise of bogus/sham LTCG claim u/s 10(38) of the Act. We have considered the arguments of the Ld. AR that even if it is considered that the scrip prices of ‘NCL Research’ have been manipulated, the assessee has no role and being a passive investor along with number of scrips of other companies. We have also considered the arguments that the assessee has earned profits to the tune of Rs.2,37,10,473/- in the similar fashion as that of the suspected shares of an amount of Rs.59,32,860, the sale of shares of NCL Research cannot be coloured differently. We have given due consideration to the arguments of the Ld. AR that the ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 14– investigation wing of Income Tax Department Report cannot be taken in to consideration at all as gospel truth. The assessee or his broker is not figuring in report not his share transaction leading to LTCG. Assessee is unaware of dummy and paper company. Statements recorded during course of investigation does not point out towards assessee and his transaction in question. It was argued that the broker of assessee is not implicated in any manner. We have given due consideration to the arguments that the scrip is still listed on the bourses. The assessee being a passive investor cannot be attributed for any change in the value of the shares and the value of the share changes according to the open market economies. 8.2 In the background of these arguments, we have examined the financials and movement of the scrip in the market. The assessee has purchased the shares of NCL Research on 02.09.2011 and sold them on dates from 11.09.2012 to 07.12.2012. The total purchase price was Rs.20,76,200/- and the sale price was Rs.80,09,060/- during the period mentioned. In the backdrop of the investigations carried out by the Income-tax Department, we have examined the movement of the scrip for various periods as mentioned by the Revenue. • From January, 2011 to September, 2013, the share price increased from Rs. 1.56 to Rs. 80, a rise of 5128%. This is the period in which the assessee has purchased the shares in September 2011 and sold upto December 2012, and made a profit of Rs.59,32,860/-. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 15– • It is interesting to note that from October, 2013 the share price fell from a high of Rs. 80 to a price of Rs. 12, a fall of 666% in Six months. 8.3 We have also considered the fact that in the instant case, the assessee has bought 10,000 shares on 02.09.2011 and sold 10,000 shares in packs of 2500 shares on 11.09.2012, 1500 shares on 23.11.2012, 500 shares on 26.11.2012, 2250 shares on 27.11.2012 and 3250 shares in three days of the first week of Dec. 2012. Buying and selling of shares in a concerted way shows a direct connivance between operators and the assessee and proves the entire process is predetermined and synchronized. The company’s financials, profit, dividend, earning per share etc. if not sole basis for increase in share price but at least is a paramount fact and in the instant case it is clear that all the criteria has given a go-away. Keeping in view the financials, we have no hesitation to say the scrawny financial parameters cannot command such a high rise of shares in such a small period. Mysterious are ways. In enigmatic ride the assessee has made 400% profit in a span of fat 13 months. This coupled with the investigation conducted by the Income Tax Department with the backing of the statements of the brokers, it can be said that the assessee cannot claim ignorance of the unfair trade practices took place in the Security Market with respect to this scrip. Submitting that the assessee is a passive beneficiary of the operation cannot absolve the accountability of the assessee to claim LTCG as exempt. The said scrip has been in dormant and suddenly sprouted to yield profits of ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 16– the highest order and then went into oblivion. Further, coupled with the inquires conducted by the SEBI with regard to the scrip do not instil any confidence about the genuineness of the earning of long- term capital gains. Hence, we have no hesitation to hold that NCL Research scrip was a penny stock and used by the assessee to book LTCG. The transactions being ungenuine, this will disentitle the assessee the claim of exemption u/s 10(38) of the Act. The production of contract notes, bills, invoices, payment of STT, banking channel evidences per se does not explain and demonstrate genuineness of the share transactions unless and until assessee prima-facie shows to the authorities particularly so when LTCG is claimed in return that rise in prices of scrip was a usual market phenomenon which was driven by market force. 8.4 Further, we have gone through the ratio given by the Ld. CIT(A) while confirming the addition. For the sake of ready reference, the relevant part of the said order is reproduced as under:- “5. DECISION: - The observations of the AO, submissions of the appellant and the material on record have been considered. Briefly the facts are that the appellant was found to have sold shares of NCL Research for Rs. 80,09,060/- on which he had shown LTCG of Rs. 59,32,860/- which was claimed as exempt u/s 10(38) of the Act. The A.O. while disallowing the claim has made the following points: a) The assessee is a Joint Director in two well-known listed companies dealing in chemicals but invested in NCL Research, a company with no significant credentials. b) NCL Research was named in the Kolkata Investigation Report, which investigated 84 penny stocks and found many bogus Long ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 17– Term (Capital Gains (LTCG) or Short Term Capital Losses (STCL) entries, benefiting many parties. c) Price of shares of NCL Research was inflated/rigged abnormally without either any economic rationale or in consistency with movement of stock index. d) SEBI took action against market manipulation involving bogus LTCG entries, with NCL Research being one of the suspect scrips. e) Statements from promoters, brokers, and associated persons confirmed involvement in manipulating NCL Research's stock prices. Copy of such statements were supplied in pen-drive to the appellant. f) The appellant invested in NCL Research, which lacked financial credentials, and claimed LTCG exemption by selling the shares. g) The appellant sold all 10,000 shares immediately after the 12- month holding period to claim the exemption under section 10(38). h) The trades executed by the appellant were part of synchronized trading, indicating coordinated efforts to create bogus LTCG or LTCL. Specifically, the appellant made 14 trades between September and December 2C12, with one buyer party purchasing 888 shares in 6 trades, indicating pre-s rranged/pre- meditated transactions to book fake/look-genuine profits to claim exemption in the guise of LTCG u/s 10(38). i) An in-depth analysis has been made by the AO and elaborately discussed in the assessment order. 5.1 During the appellate proceedings the appellant reiterated the facts which were submitted before the A.O. The points raised by the appellant are summarized below: a) The Assessing Officer (AO) did not provide any evidence to suggest that the Long Term Capital Gains (LTCG) from the sale of NCL Research shares were sham or bogus. b) The shares were purchased in the previous year and sold through the Stock Exchange in the current year, with no indication that these transactions were suspicious. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 18– c) The addition made by the AO was based solely on surmise or suspicion, which is unjustifiable. d) The appellant's or his broker's name did not appear in any statements recorded by the Investigation Wing, which formed the basis for reopening the assessment. e) The AO's presumption that the sale proceeds were not genuine, leading to their addition as unexplained credit under section 68 of the IT Act, was unfounded. f) The appellant fully explained the source and genuineness of the sale proceeds credited to his bank account, but the AO made the addition without any solid evidence, relying unjustifiably on section 68. The appellant has also sought Video Conference during appellate proceedings which was granted. Shri Mukesh Patel, Advocate & AR of the appellant attended the Video Conference. In the Video Conference the appellant reiterated his earlier stand of having done the transactions through stock exchange of listed shares and there is no evidence direct or indirect against him either though statement or by his broking agency. The appellant in support relied on judgment of Hon’ble Jaipur Tribunal in Meghraj Singh Shekhawat vs DCIT (2019) 103 taxmann.com 374 and Hon’ble Mumbai Tribunal in Ramprasad Agarwal vs ITO (2018) 1 DO Taxmann.com 172. 5.2 I have considered the arguments of the A.O. and that of the appellant. The only issue that needs to be addressed here whether transaction made through stock exchange of listed shares can be sham? The crux of the appellant’s contention boils down to this simple argument that transactions made though recognized stock exchange through listed broker using banking channel cannot be considered sham. The appellant contended that it was a pure business transaction through recognized entities and . whatever the findings related to price increase of shares or involvement of other entities in share price manipulation be, the appellant had nothing to do with it. If the appellant’s argument is considered correct then it appears that the appellant was at the right place at the right time and the exorbitant gain was his sheer luck. In these arguments, the appellant claimed ignorance of share price manipulation or remained silent regarding the synchronized sale pointed out by the A.O. in detail in the assessment order. The important point that cannot be missed here was income or the capacity of the persons involved who had purchased the shares which were sold by the appellant. For the sake of clarity, the same as listed by the A.O. is reproduced below: ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 19– Name of company Sale date Pan of BUYERS Income as per ITR 2011-12 2012-13 2013-14 NCL Research 1 1.09.2012 AAECR2957A 9864 15447 125068 NCL Research 11.09.2012 AADCM5866 150211 0 - NCL Research 23.1 1.2012 AARHS2082R NA. . NA NA NCL Research 23.11.2012 AARHS2082R -do- -do- -do- NCL Research 26.11.2012 AAECK0200H 10810 14000 9625 NCL Research 27.11.2012 AAECG6112A Return not filed 3473 7485 NCL Research 27.11.2012 AAECG6112A -do- -do- -do- NCL Research 27.11.2012 AAECG6112A -do- - -do- NCL Research 04.12.2012 AACCJ1455B 4911 15921 10621 NCL Research 04.12.2012 AALCS9387E 12063 13572 2620 NCL Research 06.12.2012 AAECG6112A Return not filed 3473 7485 NCL Research 06.12.2012 AAECG6112A -do- -do- -do- NCL Research 06.12.2012 AAECK0200H 10810 14000 9625 NCL Research 07.12.2012 AAECG6112A Return not filed 3473 7485 The appellant can claim innocence or ignorance of who had purchased the shares, the fact of the matter is when share price was so exorbitantly high and was traded in specified quantity and price, it would not be out of place to consider the wherewithal of the persons who was purchasing these shares. The above table depicts that these purchasers simply did not have the money or income to enter into such high value transactions which is contrary to the financial of the appellant. If the appellant's argument of transaction being made through stock exchange is the parameter for genuineness then every transaction made through banking channel should also be considered as genuine by the same analogy. It is true that there was no direct statement connecting the appellant or his broker, but the buck stop with the appellant as he is the direct beneficiary or recipient of money in the form of sale proceeds of share when the persons paying did not simply had the wherewithal to make such transactions. Since, the claim of exemption u/s 10(38) in respect of said LTCG has been claim by the appellant, the onus lies on the appellant to substantiate the same as observed by Hon’ble Supreme Court in the case of Roshan Di Hatti vs CIT, [1992] 2 SCC 378/107 ITR 938 wherein it was held “if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the addition back into the income of the assessee.” Further, in this respect it is pertinent to refer to the judgments of the Hon’ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC)in which the Hon’ble Apex Court held that the true nature of transaction have to be ascertained in the light of surrounding circumstances. It needs to be emphasized that standard of proof beyond ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 20– reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of the transaction by applying the test of human probability. It fails the test of human probability when a person, with PAN AAECG6112A whose income is merely around Rs. 3000 to 7500 in past three years indulges in 6 trades even if we don’t consider the economic sense of buying such shares at such a high price. It is not the case here that the entire claim of exemption u/s 10(38) on LTCG was disallowed by the AO. It is pertinent to mention that the appellant has claimed exemption on LTCG of Rs. 2.37 Cr arising out of transactions in 8 scrips during the year. The AO on the basis of specific information in this regard and in-depth analysis based on reports and materials available before him, has only disallowed such exemptions on LTCG arising out of transactions in shares of NCL Research. Accordingly, such disallowance can’t be attributed to any incorrect facts or misleading conclusions as alleged by the appellant. 5.3 To sum up: Is there price manipulation of shares of NCL Research? Answer to this question is yes as per report of DGIT (investigation), Kolkata and SEBI order. Is the promoters of NCL Research was involved in price manipulation? The answer is also yes as per their statement which includes the statement of Shri Vijay Jaydeo Poddar, Promoter & MD of M/s NCL Research. Does SEBI passed order on manipulation of share price of NCL Research? The answer is again yes, for a reference it is placed on record that one such order no. WTM/MPB/EFD1-DRA4/04/2019 dated 10.01-2Ql9uwas passed by SEBI u/s 11(1), 11(4) & 11B of SEBI Act with respect to the irregularities in the trading in NCL Research and consequent rigging in its prices during the period from April, 2012 to September, 2014 which coincides with the period of transactions undertaken by the appellant. The copy of order is available in public domain and therefore it is not reproduced here for the sake of brevity. Does the appellant immediate offloaded the shares after completion of one year and booked LTCG? The answer is yes. Does the gain on such investments made by the appellant is in line with the gain on investments made in other shares? The answer is no. Does the entities who purchased the shares from the appellant had any economic sense or have shown any economic activity or had the financial capability in past years to justify the trade? The answer is no. The appellant have bought 10000 shares on 02.09.2011 in one shot and sold 10,000 shares in packs of 2500 shares on 11.09.2012, 1500 shares on 23.11.2012, 500 shares on 26.11.2012, 2250 shares on 27.11.2012 and 3250 shares in three days of the first week of Dec. 2012 this goes to show that volumes are managed and the same cannot be construed as fair and open market transactions as claimed by the appellant. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 21– Therefore, in the light of judgment of Hon’ble Supreme Court as discussed supra and also the case laws discussed by the AO in Para 13.3 & 13.4 of the assessment order which are not repeated here for the sake of brevity, the case laws relied upon by the appellant cannot come to his rescue. The transactions made through stock exchange and banking channel are neither sacrosanct nor can it make a non-genuine transaction into genuine one when the facts speak otherwise. Accordingly, I am in agreement with the conclusions drawn by the AO which are based on the findings & reports of investigation directorates of the department, the financials of the company the scrips of which were traded i.e. NCL Research, the capability of the buyers as evidenced by analyzing their ITR for 3 years, the price movement of the scrip (i.e. NCL Research), the trade pattern and statements of various operators/entry providers/stock brokers. In light of these facts, I find no merit in the contention raised by the appellant. The addition made by the A.O. is accordingly upheld.” 8.5 Reliance is being placed on the following judgments based on which we could conveniently arrive at a decision that the transactions entered by the assessee are not genuine so as to make him eligible for claim u/s 10(38) of the Income-tax Act, 1961. (i) Sumati Dayal v. CIT - (1995) 214 ITR 801 (SC) (ii) Durga Parsad More - 82 ITR 540 (SC) (iii) Mc. Dowell & Co. Ltd. - 154 ITR 148 (SC) (iv) Govinda Rajulu Mudaliar v. (1958) 34 ITR 807 (SC) (v) Sreelekha Banerjee & othrs. V. CIT (1963) 49 ITR 112 (SC) (vi) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1 (SC) (vii) CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) 8.6 Further reference is also being made to the judgment of Hon'ble Calcutta High court in case of PCIT Vs. Swati Bajaj 139 Taxmann.com 352 (Kol)(2022) wherein it was held as under:- ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 22– “55. The first argument on behalf of the assessee is that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assesses to furnish the copy of the report, the statements recorded and provide those persons from whom statements were recorded to be cross examined on behalf of the assessee. There is no dispute to the fact that the copy of the statement said to have been recorded during the course of investigation has not been furnished to the assessees and the request made by some of them for cross examining of those persons was not considered. The question would be as to whether the non-compliance of the above would render the assessments bad in law. The argument of the revenue is that the assessments cannot be held to be illegal merely on the grounds that the copy of the report was not furnished as the respective assessing officers have clearly mentioned as to the nature of investigation done by the department and as the report itself states that the investigation commenced not from the assessees end but the individuals who dealt with these penny stocks who were targeted. It is equally true invariably in all cases, the statement of the stock brokers, the entry operators or the Directors of the various penny stock companies does not directly implicate the assessee. If such being the situation, the assessee cannot be heard to say that the copy of the entire report should have been furnished to him, the person from whom the statements were recorded should have been produced for cross examination as admittedly there is nothing to implicate the assessee Smt. Swati Bajaj of insider trading or rigging of share prices. But the allegation against the assessee is that the claim for LTCG/LTCL is bogus. As pointed out by Mr. Rai, learned senior standing counsel, the investigation report is general in nature not assessee specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice. 56. In State Bank of Patiala and Others Versus S.K. Sharma, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 23– orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may be a situation where interest of the state or public interest may call for curtailing of rule of audi alteram partem and in such a situation the Court may have to balance public/state interest with the requirements of natural justice and arrive at an appropriate decision. 57. In a very recent decision of the Hon'ble Supreme Court in M.J. James after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural and /or substantive provisions of law embodied the principles of natural justice, their infraction per-se does not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest but also in public interest. Further by referring to the decision in State of Uttar Pradesh Versus Sudhir Kumar Singh 88, it was held that the \"prejudice\" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant, it should exist as a matter of fact or to be cast upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice. 58. Therefore, the assessees have to specifically point out as to how they were prejudiced on account of non-furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 24– has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the \"modus operandi\" adopted and in that process now seek to identify the assessees who have benefited on account of such \"modus operandi\". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied. 60. In Bakshi Ghulam Mohammad 89 the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. 61. Having noted the above legal position, it goes without saying there is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. The investigation report proceeds on a different perspective commencing from a ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 25– different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG. 62. In the light of the above conclusion we hold that the decision in Gorkha Security Services does not lend any support to the case of the assessees and is distinguishable. 63. The copy of the recommendations of SIT on black money as contained in the third SIT report as published by the Press Information Bureau, Government of India, Ministry of Finance, dated 24.07.2015 was placed AIR (1967) SC 122 before us with reference to the misuse of exemption on LTCG for money laundering and the recommendations are as hereunder: A company with very poor financial fundaments in terms of past income or terms of past income or turnover is able t raise huge capital allotment of Preferential allotment of shares is made to various entities. There is a shop rise in price of scrip once the preferential allotment is done. This is normally achieved through circuading shares of shares among a select group of companies. These groups of companies often have common promoters/directors. The scrips with thus artificially inflated price rise are offloaded through companies whose funding is provided by the same set people who want to convert black money into while. There is an urgent need for having an effective preventive and punitive action is such matters to prevent recurrence of such instances. We recommend the following measures in this regard: SEBI needs to have an effective monitoring mechanism to study unusual rise of stocks prices of Companies while such a rise is taking place. We understand that SEBI has a strong IT infrastructure which can generate red flag for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume financial background of firms through their annual returns and any other indicators SEBI may develop. We believe that with effective and timely monitoring by SEBI a significant number of such instances can ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 26– be checked in time. Once such instances are detected, SEBI should invariably share this information with CBDT and FIU. Barring such entities from securities market would not be of strong deterrence in itself. In case it is established, the stock platforms have been misused for taking LTCG benefits, prosecution should invariably be launched and relevant sections of SEBI Act. Section 12A read with section 24 of the Securities Exchange Board of India Act 1992 are predicate offences. Enforcement Directorate should then be informed to take action under Prevention of Money Laundering Act for the predicate offences. 64. From the above it is seen that there is a discussion about the \"modus operandi\" adopted and the SIT opines that there is an urgent need for having an effective, preventive and punitive action in such matters to prevent recurrence of such instances. This is a relevant aspect to be borne in mind. 65. Thus, the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers have been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/ LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the some would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 27– prejudiced on account of such report / statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under Sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the assessing officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act. 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 before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. 66. While on this issue, it is important to take note of the decision in T. Takano. In the said case, the SEBI took a stand that the investigation report under Regulation 9 of the SEBI Regulations could also include sensitive information about the business affairs of various entities and persons concerned and if disclosed it would affect their privacy and the competitive position of other entities. While considering the correctness of the submissions made on behalf of the SEBI, the Hon'ble Supreme Court held that if the disclosure of the report would affect third party rights the onus then shifts to the appellant to prove that the information is necessary to defend the case appropriately. On facts it was found that the appellant therein did not sufficiently discharge his burden by proving that the non- disclosure of the information would affect his ability to defend himself. ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 28– 67. In the cases on hand, undoubtedly the report contains information about various penny stocks companies about the directors of the companies and also the stock brokers, entry operators and others who have been named in the report. It is an admitted case that the names of the assessees do not figure in the report. Therefore, non-furnishing of the report has in no manner prejudiced the rights of the assessees to discharge the onus cast upon them in terms of Section 68 of the Act. 68. It is equally not in dispute that whatever information which was required to be made known to the assessee has been informed to the assessee by the assessing officer by issuance of a notice to each of the assesses to which they have responded by submitting their replies. Therefore, in the absence of any prejudice caused to the assessee on account of non-furnishing of the entire report, the assessees cannot be a heard to say that there has been violation of principles of natural justice and their right to defend themselves was in any manner affected. At this juncture, it would be of much relevance to refer to the decision in K. R. Ajmera. The question of law which arose for consideration before the Hon'ble Supreme Court was as to what is the degree of proof required to hold brokers/sub-brokers liable for fraudulent/manipulative practices under the SEBI Regulations and for violating the code of conduct of the SEBI (Stocks brokers and Sub- brokers) Regulations. It was pointed out that the code of conduct for stock brokers lays down that they shall maintain high standard of integrity, promptitude and fairness in the conduct of all investment business and shall act with due skill and care and diligence in the conduct of all investment business. The Code also enumerates different shades of duties of stock brokers towards the investor and those duties pertain to high standard of integrity that the stock broker is required to maintain in the conduct of his business. It was further pointed out that it is a fundamental principle of law that prove of an allegation levelled against a person may be in the form of direct substantive evidence or as in many cases such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/ charges made and levelled. It was further held that direct evidence is a more certain basis to come to a conclusion yet in the absence thereof the courts cannot be helpless. It was further pointed out that it is the judicial duty to take note of the immediate and proximate facts and circumstances ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 29– surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion. The above tests laid down by the Hon'ble Supreme Court were applied to the facts of the case in K.R. Ajmera and it was noted that the scrips in which trading had been done wherefore illiquid scrips meaning thereby that such scrips though listed in the BSE were not a matter of every day buy and sell transactions. Further it was held that trading in such illiquid scrips is not impermissible yet voluminous trading over a period of time in such scrips is a fact that should attract the attention of a vigilant trader engaged in such trades. It was further pointed out that though proximity of time between the buy and sell orders may not be conclusive in an isolated case such an event in a situation where there is a huge volume and trading can reasonable point to some kind of a fraudulent/manipulative exercise with prior meeting of minds. Such meeting of minds so as to attract the liability of the brokers / sub-broker and may be between the brokers/sub-broker and the client or it could be between two brokers/sub- brokers engaged in the buy and sell transactions. Further it was pointed out that when over a period of time such transactions have been made between the same set of brokers or a group of brokers a conclusion can be a reasonable reached that there is a concerted effort on the part of the brokers concerned to indulge in synchronized trade the consequences of which is large volumes of fictitious trading resulting in unnatural rise in hiking the price/value of the scrips. In the said case, it was argued that on a screen- based trading the identity of the second party to be a client or the broker is not known to the first party/client or broker. This argument was rejected as being irrelevant. It was pointed out that the screen-based identity system keeps the identity of the parties anonymous and it will be too naïve to rests the final conclusions on said basis which overlooks a meeting of minds elsewhere. Further it was held that direct proof of such meeting of mind elsewhere would rarely be forth coming and therefore the test is one of the preponderance of probabilities so far as the adjudication of a civil liability arising out of violation of the Act or to the Regulations. Further it was held that the conclusion has to be gathered from various circumstances like that volume of trade effected; the period of persistence in trading in particular scrips; the particulars of the buy ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 30– and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors. ….. ….. 71. On a careful reading of the above paragraph will show that the argument by placing reliance on the case of K.R. Ajmera to show that presumption can be drawn on the basis of immediate and relevant facts was contrary to the law already settled by the Hon'ble Supreme Court in Chintalapati S. Raju. Therefore, it would be incorrect to submit that the decision in K.R. Ajmera has been overruled. This position becomes clearer as the decision in K.R. Ajmera was referred to in Chintalapati S. Raju as could be seen in paragraph 30 of the said judgment. Therefore, we hold that the law laid down in K.R. Ajmera continues to be good law. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajmera. 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we 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. The Income Tax department was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 31– the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings paragraphs. To reiterate, the assessee we 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. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. 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. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. The revenue had placed heavy reliance on the decision in McDowell to show that the claim of the assessee is not case of tax planning to be one of the tax avoidance by indulging in dubious methods. Mr. Bagaria had ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 32– argued the rule in McDowell was considered in Azadi Bachao Andolan and Vodafone International and it is in the manner explained in these decisions the rule in McDowell needs to be applied. From paragraph 138 onwards the Hon'ble Supreme Court considered in detail as to why McDowell and what it says and what it does not say. The argument of Mr. Bagaria would primarily rests on as to what would mean by a sham transaction as a legal one and it is pointed out that all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. Further by referring to the decision in Vodafone International, it is submitted that the revenue cannot start with the question as to whether the transaction was a tax deferment/avoidance but the revenue should apply the \"look at\" test to ascertain its true legal nature and that genuine strategic planning had not been abandoned. Further the revenue has to establish on the basis of facts and circumstances surrounding the transactions that the impugned transaction is a sham or tax avoidance. In this regard Mr. Bagaria also referred to the decision in the case of Hill Country Properties Limited Versus Goman Agro Farms Private Limited 90 and also the decision in IRC Versus Duke of Westminster 91 . 74. In our considered view we need not travel thus far and wide to examine as to how and what is said and what is not said in McDowell Mr. Soumen Bhattacharya referred to the decision for the simple reason, to point out that tax planning may be legitimate provided it is within the frame work of law as colourable devices cannot be part of tax planning which cannot be encouraged. Therefore what we are required to see is whether the claim made by the assesees before us are legitimate and whether there was any colourable devices adopted in the process and these colourable devices may or may not be directly but indirectly attributable to the assessee. Therefore, we need not labour much to examine as to how rule in McDowell needs to be applied as we are required to examine the factual scenario from the cases on hand which appear to be quite unique not probably drawn the attention of the courts and the tribunal earlier. 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not have been privy to the information or ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 33– modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of Section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that (2015) SCC Online Hyderabad 1021 (1936) AC 1 - House of Lords the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of \"working backward\" leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessees.” 8.7 Hon'ble Delhi High Court in the case of NDR Promoters (P) Ltd, 102 taxmann.com 182, held that where the assessee created lot of paper work to camouflage the transactions of bogus nature to look like genuine, there is no need of cross examination. 8.8 Reliance is being placed on Hon'ble Delhi High Court's decision of Suman Poddar Vs. PCIT 112 taxmann.com 329 where it was held that the share transactions were bogus because the company whose shares allegedly purchased were of penny stock and this decision was ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 34– affirmed by Hon'ble Supreme Court, 112 taxman.com 330. The Hon'ble court has opined that in this type of cases, cross-examination opportunity is not required because statements and other material found in the course of investigation were used as a corroborative material to strengthen the findings of Assessing Officer. The Assessing Officer made the addition based on several factors and analysis to prove that there is no genuineness in the transaction and utilised the statements of operators as corroborative evidence only. 8.9 In the case of Udit Kalra ITA No. 220/2009, Hon'ble Delhi High Court held that the company had meagre resources at disposal, negligible profit, but there was unusual and very high growth in the share price which does not support the same, the transaction was held to be sham. 8.10 In the case of Sanat Kumar Vs. ACIT Delhi, Circle 36(1), Hon'ble ITAT Delhi Bench has held that the so-called sale proceeds of shares received and claimed as exempt u/s. 10(38) was held to be sham transaction because of huge price rise of shares at the time of sale despite the fact that company's profits are negligible and did not support such price rise. 8.11 In the case of Abhimanyu Soin Vs. Asst, CIT, Circle VII, Ludhiana, ITAT, Chandigarh, Bench A, in ITA No. 951/CHD/2016, the Tribunal held as under:- ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 35– \"On consideration of the facts of the case as a whole it cannot be accepted that the assessee can have long term capital gains of Rs. 80,25,291/- within 17 months of buying of shares at Rs.2,72,000/- a non- descript company incorporated in 2007 which got merged in 2009. This cannot be a case of intelligent investment or a simple tax planning to gain benefit of long term capital gains\". 8.12 In the case of Somnath Maini Vs. CIT 306 ITR 414, the Hon'ble Punjab & Haryana High Court, held that claim of genuineness of transactions can be rejected even if the assessee backs the same with evidence which is not trustworthy. Hon'ble Income Tax Appellate Tribunal - Chandigarh, in the case of Assistant Commissioner of Income Tax Vs. Som Nath Maini by placing reliance on the decision of Hon'ble Supreme Court in the case of Durga Prasad More (2002) 3 BOMLR 747, 2003 (1) MhLj 420 has observed as under :- \"It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, it is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque does not render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. ….. We accordingly set aside the order of the CIT(A)and restore that of the AO.\" ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 36– 8.13 Further reliance is being placed on the orders of the Co-ordinate benches of the ITAT. To mention a few :- a) Usha Chandresh Shah ITA No. 6858/Mum/2011, Mumbai b) Zakrullah Chaudhary ITA No. 669/PN/2012, Pune c) Chandan Gupta ITA No. 7024/Mum/2010, Mumbai e) Napar Drugs Ltd. 98 ITD 265, Delhi 8.14 The Co-ordinate Bench of ITAT Chennai in the case of Rajnish Agarwal in I.T.A.No.1419/CHNY/2018has held that the penny stock not having any financial strength of its own and the sale and purchase of these shares were held to be sham and LTCG u/s. 10(38) was denied to the assessee. 8.15 We, therefore, hold that the facts and circumstances of the present case are very tightly knit case where the Revenue has gone behind the transaction of capital gains to know the factual operation of sudden volatility in the prices of the scrip. The present case is therefore required to be adjudicated on the given set of facts and evidence. 8.16 As rightly observed by the Ld. CIT(A) in his order, it is relevant to note that price maneuvering occurred in assesee’s case as confirmed by the DGIT, SEBI, statements of the involved persons ITA No.1792/Ahd/2024 Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 37– recorded. In view of the above, we find that the assessee’s transactions are not genuine and therefore we affirm the well- reasoned order of the Ld. CIT(A). 9. In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 21.03.2025 Sd/- Sd/- Sd/- Sd/- (T.R. SENTHIL KUMAR) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE PRESIDENT Ahmedabad; Dated 21.03.2025 btk TRUE COPY आदेश क\u0007 \b\tत\u000bल\rप अ\u0010े\rषत आदेश क\u0007 \b\tत\u000bल\rप अ\u0010े\rषत आदेश क\u0007 \b\tत\u000bल\rप अ\u0010े\rषत आदेश क\u0007 \b\tत\u000bल\rप अ\u0010े\rषत/Copy of the Order forwarded to : 1. अपीलाथ\u0016 / The Appellant 2. \b\u0017यथ\u0016 / The Respondent. 3. संबं\u001cधत आयकर आयु त / Concerned CIT 4. आयकर आयु त(अपील) / The CIT(A)- 5. \rवभागीय \b\tत\tन\u001cध, आयकर अपील(य अ\u001cधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड- फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, TRUE COPY उप/सहायक पंजीकार उप/सहायक पंजीकार उप/सहायक पंजीकार उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील(य अ\u001cधकरण, अहमदाबाद आयकर अपील(य अ\u001cधकरण, अहमदाबाद आयकर अपील(य अ\u001cधकरण, अहमदाबाद आयकर अपील(य अ\u001cधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ……17.03.2025……….. 2. Date on which the typed draft is placed before the Dictating Member …18.03.2025…………… 3. Other Member……19.03.2025…………… 4. Date on which the approved draft comes to the Sr.P.S./P.S …20.03.2025……………. 5. Date on which the fair order is placed before the Dictating Member for pronouncement …21.03.2025. 6. Date on which the fair order comes back to the Sr.P.S./P.S …21.03.2025……………. 7. Date on which the file goes to the Bench Clerk ……21.03.2025………………….. 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…… 10. Date of Dispatch of the Order…………………………………… "