PRAVEEN SITARAM AGARWAL,MUMBAI V. INCOME TAX OFFICER, WD-24(3)(3), MUMBAI, MUMBAI

ITA 3454/MUM/2025

AI Insights

The case revolves around the reassessment of long-term capital gains claimed by Praveen Sitaram Agarwal from the sale of shares of M/s. Surabhi Chemicals & Investments Ltd., which were alleged to be part of a scheme to provide bogus long-term capital gains. The Income Tax Officer (ITO) initially added these gains as unexplained under section 68 and also added a commission expense under section 69C, suspecting these transactions were part of a larger tax evasion scheme involving manipulated share prices. The assessee contested these additions, arguing that the transactions were genuine, supported by documentary evidence, and conducted through recognized stock exchanges. The Tribunal, after reviewing the evidence and considering previous similar cases, concluded that the gains were genuine and not part of any accommodation entry scheme, thus allowing the appeal and deleting the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772807 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2014-2015
• Other Referred Cases: PCIT v. NRA Iron & Steel Pvt Ltd, Shri Navneet Agarwal, legal heir of late Kiran Agarwal vs. ITO, Omar Salav Mohammad Sait, Chirag Tejprakash Dangi vs. ITO, M/s. Anusmriti Sarkar vs. ITO, Shri Udit Agarwal vs. DCIT, Shashi Bala Bajaj vs. ITO, Indravadan Jain HUF vs. PCIT, Ziauddin A. Siddiquie vs. PCIT, CIT vs. Shyam R. Pawar, CIT vs. Smt. Jamnadevi Agrawal, Nangalia Fabrics Pvt Ltd vs. ITO, Bikram Singh vs. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S MAHAJAN
• Assessee Lawyers: PRAKASH JHUNJHUNWALA; NAME; NOR ANY
• Keywords: Reassessment proceedings; Unexplained cash credit; Income from undisclosed sources; Cost of acquisition; Onus to prove; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Reason to believe; Share purchase agreement; Borrowed satisfaction; Penny stocks; Bogus
• Section: 147; 148; 143(3); 271(1)(c); 68; 131; 133(6); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SMT RENU JAUHRI, ACCOUNTANT MEMBER ITA No.3454/Mum/2025 (Assessment Year :2014-15) Praveen Sitaram Agarwal B-408, Twin Tower Lokhandwala Complex Andheri(W) Mumbai – 400 053 Vs. Income Tax Officer, Wd-24(3)(3), Mumbai PAN/GIR No.AEAPA5317G (Appellant) .. (Respondent) Assessee by Shri Prakash Jhunjhunwala Revenue by Shri Virabhadra S Mahajan Date of Hearing 23/07/2025 Date of Pronouncement 26/08/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 11.02.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising from the quantum assessment framed under section 143(3) read with section 147 of the Income Tax Act, 1961, for the Assessment Year 2014‑15. 2. On merits, the assessee has challenged the addition of ₹1,63,34,228/- made under section 68 on account of the Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 2 alleged bogus long‑term capital gains earned from the sale of listed equity shares of M/s. Surabhi Chemicals & Investments Ltd., which had been claimed as exempt under section 10(38). The assessee has also assailed the validity of the notice issued under section 148, contending that the reassessment proceedings were initiated purely on the basis of borrowed satisfaction without any independent application of mind by the Assessing Officer. It is further contended that no statutory notice under section 143(2) was issued pursuant to the return filed in response to the notice under section 148. Additionally, the assessee has disputed the addition of ₹4,90,026/- made under section 69C towards alleged commission expenses, computed at 3% of the long‑term capital gains. 3. Briefly stated, the assessee is an individual who has been engaged in making investments in equity shares on a long‑term basis and has consistently declared income from capital gains, both long‑term and short‑term, in his returns of income. For the year under consideration, the assessee filed his return of income on 29.03.2015, declaring total income of ₹3,92,120/-, which was duly accepted and processed under section 143(1). Thereafter, based on certain information received from the Directorate of Investigation, Kolkata, the Assessing Officer reopened the assessment under section 147 by issuing a notice under section 148 dated 12.09.2016. The basis for reopening was the allegation that the shares of M/s. Surabhi Chemicals & Investments Ltd. were identified as “penny stocks” which were allegedly used for generating Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 3 accommodation entries to provide bogus long‑term capital gains or losses. According to the Assessing Officer, these transactions formed part of a broader scheme uncovered during the investigation, wherein certain operators manipulated share prices to facilitate tax‑exempt gains. 4. The reasons recorded by the Assessing Officer for reopening the assessment read as under: “The assessee filed her original return of Income on 29.03.2015, declaring total income at Rs. 3,92,120/- The return of income was duly processed u/s. 143(1) of the T. Act, Act, 1961. As per the report/information available with this office that the Directorate of Investigation, Kolkata, has undertaken the accommodation entry of Long Term Capital Gain(LTCG) investigation and as result, they have been able to identify a very large number of beneficiaries who have taken a huge amount bogus entries of Long term Capital Gains/Short Term Capital Loss through listed penny stock. The investigation reveals that the trading in the penny stock was a manipulated affair to generate entries of bogus Long term Capital Gains/Short Term Capital Loss facilitating tax evasion by a large number of persons. As per the said information, the assessee has carned Long Term Capital gains through trading in the following pernry stock: FY Scrip name Buy or sell Qty Qty (Normal ised) Trade count Trade value 2013-14 SURAB H.CHE &I SELL 280000 280000 392 16390450 The above mentioned script/share is one of the penny stocks of which price was rigged to gain huge profit through manipulated affairs. The said manipulations are corroburated by the sworn Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 4 statements of various persons recorded during the course of the said investigation. Further, on perusal of the return filed for A.Y, 2014-15 by the assessee it is seen that the assessee has not shown income/receipt of Rs. 1,63,90,450/ earned by the sale of the above mentioned shares. This has resulted in under- assessment of Rs. 1,63,90,450/- for the A.Y. 2014-15 In view of the above facts, I have reason to believe that income chargeable to tax of Rs. 1,63,90,450/-has escaped assessment within the meaning of Section 147 of the 1.T. Act, 1961 for the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the previous year relevant to A.Y. 2014-15. Hence, it is a fit case for initiation of proceedings u/s 147 of the Income Tax Act, 1961 by issuing notice u/s. 148 of the Income tax Act, 1961.” 5. In response, the assessee filed his return of income under section 148 on 10.10.2016, disclosing the same total income of ₹3,92,120/-, wherein he continued to claim exemption under section 10(38) on account of the long‑term capital gains earned from the sale of the said shares. 6. The Assessing Officer noted that the computation of long‑term capital gains arising from the sale of shares of M/s. Surabhi Chemicals & Investments Ltd. was as follows: Sale value of shares ₹1,63,34,328/- Purchase value ₹7,00,000/- Long‑term capital gains ₹1,56,34,228/- 7. Thereafter, the Assessing Officer made certain observations based on the findings of the Investigation Wing, Kolkata and Delhi, as well as on an analysis of the financial statements of Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 5 the company. He observed that the net worth of M/s. Surabhi Chemicals & Investments Ltd. ranged between ₹15 crores and ₹32 crores during the relevant years, while its turnover was limited to ₹2.22 crores and employee costs were minimal. He also noted that the quoted price of the company’s shares had allegedly risen abnormally from ₹2.52 per share in August 2012 to ₹81 per share in March 2014, within a short span of 18 months. The Assessing Officer then referred to various general findings recorded in the investigation report, most of which were not directly connected with the assessee or this specific scrip. 7.1. He further highlighted that the assessee had purchased 2,800 shares of M/s. Surabhi Chemicals & Investments Ltd. through an off‑market transaction from M/s. Akriti Advisory Services Pvt. Ltd. at a face value of ₹10 per share, and later sold them at an effective rate of ₹250 per share, without providing any satisfactory explanation for the significant escalation in value within such a short period. 8. The Assessing Officer also noted that the Investigation Wing had issued notices under section 133(6) to fourteen parties who had purchased the shares and found, on enquiry, that these entities were allegedly inter‑connected and lacked independent financial credibility. In response to the show‑cause notice issued during the assessment proceedings, the assessee filed a detailed reply along with supporting documentation, which has been extracted in full at pages 18 to 22 of the assessment order. Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 6 9. The assessee’s contentions, as summarised by the Assessing Officer in paragraph 7.2 of the assessment order, read as under:- “7.2 The contention of the assessee has been thoroughly perused. The gist of the contentions of the assessee is produced below for simplicity: 1. Investigation by the SEBI is not sufficient to hold the transaction as non-genuine. 2. Poor Financials of the company is not a major factor to define share prices. 3. The assessee had purchased and sold the shares at prevailing fair market price, thus the transaction of the assessee cannot be held as non-genuine. 4. The assessee does not have relation with any alleged exit providers and had genuinely sold the shares on floor of stock exchange at the price prevailing as on date of sale. 5. The assessee does not have any source of unaccounted income. 6. Statements of Shri Anil Agarwal and Shri Rajkumar Kedia, it is to submit that such statements shall bear no relevance to the case of the assessee. 7. The assessee had purchased the shares from stock broker who had said the shares. 8. Purchase of shares from outside the stock exchange is not an unlawful activity The contentions of the assessee are dealt herewith in light of the facts and evidences found against his during the search and assessment proceedings and the provisions of laws..” 10. Thereafter, ld. AO has rebutted and rejected all the contentions of the assessee and has given his detailed finding Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 7 from pages 23-27 and has also referred to various judgments. His finding and conclusion for the sake of ready reference is reproduced hereunder:- Findings and conclusion The submissions made by the assessee and reply to show cause is considered. The facts of the case, investigations made by various directorates, statements recorded during the assessment proceedings are considered. From the discussion in the preceding paras it is concluded that long term capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings. n. Sale of shares and unusual rise in the price: The Increase of the cost price, and as discussed and the rise in share prices is not holding to any commercial principles and market factors. b. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above has proved that Shri Anil Agarwal and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains. C. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes- i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 8 ii The assessee resorted to a preconceived scheme to procure capital gains or losses by way of price difference in share transactions not supported by market factors, iii. Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain is not allowable. d. Failure of Assessee to discharge his onus: The assessee has not been able to prove the unusual rise and fall of share prices to be natural and based on the market forces. It is evident that such share transactions were closed circuit transactions and clearly structured one. e.Financial analysis of the penny stock companies: The networth of the penny stock company is negligible. Even though the networth of the company and the business activity of the company is negligible the share prices has been artificially rigged to unusual high. f. Cash troll in the accounts of the entry providers: The investigations in the fund flow analyzed in the accounts of the entry providers has established that the cash has been routed from various accounts to provide accommodations to assessee. g. Arranged transactions: The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. 9. Therefore considering the findings of the search/ survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee, it is held that the assessee is thus beneficiary of bogus capital gains to the tune of ₹ 1,63,34,228/ In light of the above facts the amount of 1,63,34,228/--is hereby added to the total income of the assessee as unexplained cash credits under section 68 of the Income Tax Act, 1961 Penalty proceedings u/s. 271(1)(c) of the Income Tax Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 9 Act, 1961 is initiated separately for furnishing inaccurate particulars of income. (Addition of 1,63,34,228/-) 10. The operators and entry providers has accepted in their statements under oath that they has undergone this massive exercise for a commission of 4-6% of the unaccounted money to be converted. Since the assessee in connivance with the operators has been involved in conversion of his unaccounted money, he must has paid commission from money that is out of his books of accounts. Therefore a commission of 3% of the amount of 1,63,34,228/- converted being ₹4,90,026/- is added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 is initiated separately for furnishing inaccurate particulars and concealment of income. (Addition of 4,90,026/-) 11. Aggrieved by the additions made, the assessee preferred an appeal before the learned Commissioner of Income Tax (Appeals) [CIT(A)], who, after considering the submissions and material placed on record, confirmed the additions made by the Assessing Officer. The findings and observations of the learned CIT(A) are summarised below. 12. The learned CIT(A) noted that the Assessing Officer had made the addition of ₹1,63,34,228/- under section 68 on account of the alleged bogus long-term capital gains earned from the sale of shares of M/s. Surabhi Chemicals & Investments Ltd. The assessee contended before the first appellate authority that the entire transaction was genuine, duly carried out through the recognised stock exchange, and supported by documentary evidence such as purchase bills, contract notes, broker confirmations, demat account statements, bank statements, and bonus allotment letters. It Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 10 was further submitted that Securities Transaction Tax (STT) had been duly paid and all transactions were routed through regular banking channels, thus establishing their genuineness. 13. The learned CIT(A), however, observed that the Assessing Officer had relied extensively on the findings of the Directorate of Investigation, Kolkata, and the report revealing a large-scale modus operandi involving manipulation of prices of certain “penny stocks” to provide beneficiaries with bogus long-term capital gains. The scrip of M/s. Surabhi Chemicals & Investments Ltd. was specifically identified in this report as one of the counters used for providing accommodation entries. The learned CIT(A) further recorded that the price movement of the scrip demonstrated a sharp and unexplained rise, from approximately ₹2.52 per share in August 2012 to about ₹81 per share in March 2014, representing an increase of more than 3,000% within a short period, without any commensurate improvement in the company’s financial fundamentals. 14. It was also noted by the learned CIT(A) that several of the entities which purchased the shares from the assessee were found to be non-existent at their registered addresses when notices under section 133(6) were issued, and in many cases, these purchasers lacked any independent creditworthiness or financial capacity to justify such high- value transactions. The learned CIT(A) concluded that these facts corroborated the Assessing Officer’s view that the Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 11 transactions were pre-arranged and lacked commercial substance. 15. The assessee also raised the contention before the learned CIT(A) that cross-examination of the persons whose statements were relied upon by the Investigation Wing was denied, thereby violating the principles of natural justice. The learned CIT(A), however, held that the denial of cross- examination was not fatal to the assessment proceedings in the present case, as the addition was not based solely on third-party statements but on a comprehensive analysis of the price movements, financial data, and other circumstantial evidence indicating manipulation. 16. After considering the totality of facts and circumstances, the learned CIT(A) upheld the findings of the Assessing Officer and confirmed the addition of ₹1,63,34,228/- made under section 68, treating the claimed long-term capital gains as unexplained cash credits. 17. Similarly, with respect to the addition of ₹4,90,026/- made under section 69C towards alleged commission expenses, the learned CIT(A) concurred with the Assessing Officer’s view that, given the nature of the transactions and the findings of the Investigation Wing, it was reasonable to infer that some unaccounted commission would have been paid for arranging such accommodation entries. Accordingly, the addition under section 69C was also confirmed. 18. The relevant findings of the learned CIT(A), which form the basis of the decision, read as under:- Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 12 “Ground No. 2 & 3 Addition under Section n.68 68 Section 68 for Bogus LTCG The appellant has challenged the addition of Rs 1,63,34,228/- under Section 68 of the Income Tax Act, 1961, made by the Assessing Officer (AO) on account of bogus Long-Term Capital Gains (LTCG) on the sale of shares of M/s Surabhi Chemicals & Investments Ltd. The appellant contends that the transactions were genuine, conducted through a recognized stock exchange, and that Securities Transaction Tax (STT) was duly paid. Further, the appellant has argued that all the necessary documentary evidence, including contract notes, Demat account statements, transaction statements, bank statements, purchase bills, share certificates, and stockbroker confirmations, were submitted during the assessment proceedings to substantiate the claim of genuine purchase and sale of shares. However, the AO has treated the entire LTCG as unexplained cash credits under Section 68 and has added it back to the total income of the assessee. The AO's decision is primarily based on findings from the Investigation Wing of the Income Tax Department, which conducted a detailed investigation into penny stock manipulation and accommodation entries. According to the investigation report, the scrip Surabhi Chemicals & Investments Ltd. was identified as one of the penny stocks used by entry operators to provide bogus LTCG entries to various beneficiaries, including the appellant. The modus operandi uncovered during the investigation revealed that a network of brokers and entry operators artificially inflated the price of certain stocks, creating a paper trail of seemingly genuine transactions, while in reality, these shares were merely tools for laundering unaccounted money. A detailed price movement analysis of Surabhi Chemicals & Investments Ltd. demonstrated that the share price was artificially rigged. The stock, which was trading at Rs. 2.52 per share in August 2012, saw an unjustified and disproportionate Increase to Rs. 81 per share by March 2014, reflecting an increase of nearly 3,200% within 18 months. Such a drastic price rise was not supported by any financial fundamentals of the company, as its financial statements revealed negligible Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 13 revenue, low profitability, and minimal operational activity. The AO observed that no rational investor would invest in such a stock with no business prospects, and therefore, the appellant's transactions were not genuine investments but rather a pre-arranged accommodation entry to convert unaccounted money into tax-exempt LTCG. The AO further highlighted that the purchasers of the shares from the appellant were shell companies, many of which were non-existent at their registered addresses when notices under Section 133(6) were issued for verification. Additionally, the entities who facilitated these transactions had no financial credibility to justify purchasing shares at such exorbitant prices, reinforcing the conclusion that these were pre-arranged transactions without a s without any economic substance. During the course of assessment, the appellant repeatedly requested cross-examination of third-party statements, which the AO declined, stating that the findings were based on independent circumstantial evidence, financial analysis, and direct SEBI reports. However, the absence of cross-examination does not invalidate the assessment, as the Supreme Court in PCIT v. NRA Iron & Steel Pvt Ltd (412 ITR 161 SC) has held that when the assessee fails to discharge the onus under Section 68, the AO is justified in making an addition based on available evidence. The AO has also pointed out that the appellant's purchase of shares itself was suspicious, as it was carried out off-market at an unrealistic premium. The purchase bills submitted by the appellant showed that 2800 shares were acquired offline at Rs. 250 per share, whereas the company's stock was trading at an extremely low value on the stock exchange. The AO questioned why the appellant would purchase shares at such a high premium when no market demand or financial rationale justified such valuation. Further, it was observed that the shares were sold at a high price just after the lock-in period of one year, which is a common pattern in penny stock scams used to generate tax-free LTCG. To substantiate the bogus nature of the transactions, the AO relied on findings of SEBI, which had taken regulatory action against Surabhi Chemicals & Investments Ltd. for manipulative Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 14 and fraudulent trading practices. The SEBI report clearly indicated that the stock price was artificially rigged through circular trading, wherein a group of connected entities engaged in pre-planned buying and selling to create an illusion of market demand. In response to these findings, the appellant relied on the decision of the Hon'ble Bombay High Court in Pr. CIT v. Indravadan Jain HUF (ITA No. 454 of 2018, dated 12.07.2023), where an addition under Section 68 for LTCG on penny stocks was deleted. The appellant contended that since SEBI did not specifically name him in any fraud report, the AO's reliance on general findings was unjustified. However, the AO distinguished the appellant's case from that decision, stating that each case must be examined on its own facts. In the present case, the AO had independent evidence, including price movement analysis, shell company involvement, and the appellant's own questionable investment pattern, which pointed towards a pre-arranged transaction rather than a genuine investment. The AO also relied on the Supreme Court's ruling in CIT v. Sumati Dayal (214 ITR 801 SC), which held that when human probabilities suggest that a transaction is not genuine, the burden shifts to the assessee to prove its authenticity. The appellant failed to explain why a company with no business operations and minimal financials would witness a 3,200% increase in stock price and why the appellant, as a rational investor, would purchase shares at a premium in an unlisted company with no financial backing. Furthermore, In Nangalia Fabrics Pvt Ltd v. ITO (ITA No. 572/Ahd/2013), the ITAT upheld addition under Section 68 for bogus LTCG on penny stocks, reaffirming that such transactions are typically designed to create tax-exempt income through accommodation entries. The AO further noted that the entire purchase consideration was routed through banking channels, but mere banking transactions do not establish the genuineness of a transaction if the identity, creditworthiness, and genuineness of the parties involved are not proven. In Pr. CIT v. Bikram Singh (ITA No. 55 of 2017, Delhi HC), the court held that when an assessee fails to prove the source of credits beyond doubt, the AO is justified Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 15 in treating them as unexplained under Section 68. In this case, since the purchasers of shares were found to be shell entities with no creditworthiness, the burden of proof was not discharged by the appellant, and therefore, the addition under Section 68 was correctly made. Based on detailed analysis of price movements, financial records, Independent third-party investigation reports, and judicial precedents, it is concluded that the entire LTCG of Rs. 1,63,34,228/- was a fabricated accommodation entry to convert unaccounted income into tax-exempt capital gains. The AO has correctly Invoked Section 68 to treat the LTCG as unexplained cash credits, and the appellant has failed to provide a satisfactory explanation regarding the genuineness of the transactions and the creditworthiness of the buyers. Therefore, the addition of Rs. 1,63,34,228/- under Section 68 is upheld, and the grounds raised by the appellant are dismissed.” 19. Further, the learned CIT(A) has also confirmed the addition of ₹4,90,026/- made under section 69C towards the alleged payment of commission, holding that such expenditure was reasonably inferred from the nature of the transactions and the findings of the Investigation Wing. 20. Before us, the learned Counsel for the assessee submitted that an identical issue involving the very same scrip, viz., M/s. Surabhi Chemicals & Investments Ltd., for the same assessment year, has already been adjudicated by this Tribunal in the case of the assessee’s brother, Shri Manoj Kumar Agrawal, in ITA No. 4456/Mum/2024, order dated 03.12.2014. It was contended that in that case, the Tribunal had dealt comprehensively with all the allegations made by the Assessing Officer and, after considering the relevant facts and material on record, had deleted the addition in its Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 16 entirety. Relying on the said decision, it was urged that the present case, being on identical facts, deserves similar relief. 21. Per contra, the learned Departmental Representative (DR) strongly supported the orders of the Assessing Officer and the learned CIT(A), submitting that in the present case, thorough investigation and extensive enquiries were carried out by the Investigation Wing, which unearthed a larger accommodation entry racket involving penny stock scrips, including that of M/s. Surabhi Chemicals & Investments Ltd. It was pointed out that the findings revealed that the scrip was used specifically for providing accommodation entries of bogus long-term capital gains, and even enquiries conducted with the exit providers confirmed that these transactions were orchestrated in a pre-arranged manner to facilitate artificial gains. Accordingly, it was submitted that the material on record clearly established that the transactions undertaken by the assessee lacked genuineness and were bogus. 22. We have carefully considered the rival submissions and perused the relevant observations and findings of the Assessing Officer as well as the learned CIT(A). The undisputed facts emerging from the record are that the assessee has been engaged in regular investment in equity shares and, in the return of income, disclosed exempt long- term capital gains of ₹1,56,34,228/- arising from the sale of listed, STT-paid shares of M/s. Surabhi Chemicals & Investments Ltd. The details of the computation are summarised below: Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 17 23. In support of the genuineness of the above transactions, the assessee had furnished before the authorities below a complete set of documentary evidence, including contract notes-cum-bills, confirmation from the stockbroker M/s. Shilpa Stock Broker Pvt. Ltd., bank statements, dematerialisation statements, rate publications of the Bombay Stock Exchange, purchase bills, money receipts, share certificates, and letters of allotment of bonus shares. The record shows that the assessee had purchased 2,800 shares of M/s. Surabhi Chemicals & Investments Ltd. from M/s. Akriti Advisory Services Pvt. Ltd. on 26.06.2012 for a consideration of ₹7,00,000/-, payment for which was duly made through normal banking channels on the same date. The shares were transferred in the assessee’s name on 29.06.2012 and were subsequently converted into demat form on 02.08.2012. Thereafter, on 14.08.2012, the assessee was allotted 25,200 bonus shares, resulting in a total holding of 28,000 shares, which were later sub-divided into 2,80,000 shares. 24. These shares were held in the assessee’s own demat account for a period of approximately 14 to 15 months before being sold on the floor of the Bombay Stock Exchange Sale consideration of 2,80,000 shares sold between 10/10/2013 to 18/11/2013 Rs.1,63,34,228/- Less Cost of acquisition purchased on 26/06/2012 Rs.7,00,000/- Long term capital gain Rs. 1,56,34,228/- Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 18 through a SEBI-registered broker, M/s. Shilpa Stock Broker Pvt. Ltd., for a total consideration of ₹1,63,34,228/-. The delivery of shares was effected directly from the assessee’s demat account, and the sale proceeds were received entirely through RTGS transfers under the recognised online clearing mechanism of the BSE. Importantly, neither the Assessing Officer nor the learned CIT(A) has brought on record any material to dispute the authenticity of these documents, nor has any contrary evidence been produced to demonstrate manipulation of share prices by the assessee. The additions were made primarily on the basis of general observations contained in the Investigation Wing’s report, without establishing any direct nexus between the assessee and the alleged operators or accommodation entry providers. 25. For the sake of clarity, the gist of the assessee’s purchase and sale transactions, along with the supporting documents furnished, is summarised in the following tabular form: 1) Name of the share : M/s. Surabhi Chemicals & Investments Ltd 2) Purchase Cost : 2,800 Shares purchased on 26/06/2012 at Rs. 7,00,0007- {@ Rs.250/-} 25,200 Bonus shares were issued on 14/08/2012 and thereafter, shares were splitted into 2,80,000 shares 3) Mode of payment : Purchase cost paid by A/c payee cheque on 26/06/2012 4) Sale Consideration : 2,80,000 shares sold on 10/10/2013 to 18/1 1/2013 at Rs.1,63,34,228/- {@ Rs.58/-} on floor of BSE * 5) Average cost price : Rs,2.80 per share Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 19 6) Average sale price : Rs.58 per share 7) Mode of Receipt : Sale consideration received by RTGS through online mechanism of BSE from 17/10/2013 to 20/1 1/2013 from M/s Shilpa Stock Broker Pvt Ltd. 8) Period of Holding : 14 to 15 months in D-mat Account 9) Mode of Delivery : Through D-mat account On Purchase - 02/08/2012 (Bonus - 18/09/2012) On Sales- 09/10/2013 to 07/11/2013 10) Documents filed on sales : Contract note-cum-Sale bills, Confirmation of stock broker, Bank statement, D-mat statement, Rate publication of BSE. 11) Documents filed on purchase : Purchase Bill, Money receipt, Bank statement, Share Certificates, Letter of Allotment of bonus shares, D-mat statement and Balance sheet of earlier year 12) Assessee's statement u/s 131 : Assessee's statement was recorded u/s 131 wherein the genuineness of transactions with documentary evidences is confirmed. 13) SEBI's Allegation : No allegation framed by the SEBI against the assessee 26. All the documents relating to the purchase and sale of shares have been placed before us in the paper book. Upon perusal of the broker’s account, it is evident that the shares held by the assessee in the earlier years were sold during the relevant financial year at various dates and times on the Bombay Stock Exchange. The details of the broker’s statement reflecting these sales appear in the paper book at Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 20 pages 18 to 29. The corresponding sale proceeds were duly credited to the assessee’s bank account, which is also corroborated by the demat statements placed on record. Similarly, the purchases were executed entirely through recognised banking channels, supported by requisite documents such as purchase bills, bank statements, allotment letters, dematerialisation statements, and bonus allotment confirmations. 26.1. We further note that the Assessing Officer, instead of examining these documents or conducting any independent enquiry to verify the genuineness of the transactions, has merely relied upon the general findings recorded by the Investigation Wing. Notably, there is no material in the Investigation Report linking the assessee by name, nor any reference to the stockbroker through whom these transactions were routed. The shares in question continued to remain listed on the Bombay Stock Exchange throughout the period under consideration, and there is no evidence on record of any ban, suspension, or adverse inference drawn by SEBI regarding this scrip. 26.2. During the course of hearing, we specifically called upon both the assessee and the Revenue to clarify whether any regulatory action had been initiated by SEBI in respect of alleged price rigging or manipulation of the shares of M/s. Surabhi Chemicals & Investments Ltd., either during the relevant period or thereafter. It has been fairly submitted by both sides that no such adverse action has ever been taken by SEBI against the company or in relation to its listed scrip. Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 21 26.3. Furthermore, we observe that in the case of the assessee’s brother, Shri Manoj Kumar Agrawal, involving an identical set of facts, the very same scrip, and similar observations by the Assessing Officer, this Tribunal, in ITA No. 4456/Mum/2024 dated 03.12.2014, had deleted the additions made under sections 68 and 69C after detailed examination of the material on record and consideration of the Investigation Wing’s report. The relevant findings of the Tribunal in that case, which are squarely applicable to the present matter, read as under: “8. We heard rival contentions and perused the record. We notice that the assessee, before the Ld.CIT(A), has submitted as under and furnished following documents to support the purchase and sale transactions of above said shares:- In respect of sale transactions Sale bills-cum-Contract notes of stock broker : In this regard, the appellant is submitting that the order number, order time, trade number, trade time, Service Tax, stamp duty and STT paid are disclosed. The entire sale of shares had been made on floor of Bombay Stock Exchange (BSE) through SEBI registered stock broker M/s Shilpa Stock Brokers Pvt. Ltd., from 20/11/2013 to 06/12/2013 at Rs.2,33,81,175/-. The contents of contract notes match exactly with online data available in public platform of the Bombay Stock Exchange (BSE); 1. Confirmation of account of SEBI registered stock broker M/s. Shilpa Stock Broker Pvt. Ltd; 2. Appellant's bank statement disclosing the receipt of sale consideration by RTGS. The appellant had not withdrawn the cash against sale of shares; 3. D-mat statement disclosing the delivery of shares to Bombay Stock Exchange (BSE) made from 06/11/2013 and 22/11/2013; 4. Bhav copy (rate publication) of Bombay Stock Exchange (BSE) evidencing the sale of shares made at prevailing market price; Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 22 5. CIN master data (ROC) disclosing the status of M/s Surabhi Chemicals and Investments Ltd as \"Active\" and \"Listed\" and also disclosing the names, address of directors of such company. In respect of Purchase transaction:- (a) Purchase bill dated 26/06/2012 evidencing the purchase of shares; (b) Appellant's bank statement disclosing the payment made for purchase of shares of Rs. 10,00,000/- through A/c payee cheque on 26/06/2012; (c) Receipt issued by the seller, thereby confirming the sale of shares to the appellant; (d) Share certificate endorsed in the name of appellant on 29/06/2012 of 4000 shares; (e) Allotment of 36000 bonus shares on 14/08/2012 and thereafter stock splitted into 4,00,000 shares; (f) D-mat statement converting the physical shares in electronic mode on 27/08/2012 and 19/10/2012; (g) Balance sheet of appellant of earlier year ended 31/03/2013 wherein the purchase of shares are disclosed under \"Investments\". 9. We notice that the Ld.CIT(A) has deleted the addition with the following observations:- \"7.5 I have carefully gone through the above evidence as well as the information filed before me; which was also submitted before the assessing officer. From a careful consideration of the facts on record, I of the considered opinion that the assessing officer has not properly examined the above evidence submitted by the appellant at the assessment stage. Based on the facts of the case, I am convinced that the AO has simply relied on the information received from the Investigation Wing and has not done any further enquiry to confirm the information. Further, the appellate has sold the said shares on real time basis through a SEBI approved broker. The contract note cum bill issued by the broker is on record. The appellant does not have any dealings with Exit providers. The modus operandi mentioned by the AO at Para number 7 of his order is general in nature and doesn't bring out any specific conduct of the appellant which warrants addition in his case. In view of Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 23 this, I am in agreement with the allegation of the appellant that the addition in question was made based on suspicion, assumptions and surmises. 7.6 As held by Hon‟ble ITAT, Kolkata in the case of Shri Navneet Agarwal, legal heir of late Kiran Agarwal vs. ITO in ITA No. 2281/KOL/ 2017 dated 27 2018, even if an alleged scam has taken place, it has to be established in each case by the party alleging so (Revenue in this case). It has to be established whether this assessee in question was part of this scam. The chain of events and the live link of the assessee’s action giving his involvement in the scam should be established. No such attempt has been made by the AO in this case. Hon’ble ITAT in the above case, further held that just the modus operandi, generalizations, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless the specific evidence is brought on record to counteract the validity and correctness of the documentary evidences produced, the same cannot be rejected by the department. Hon’ble Supreme Court in the case of Omar Salav Mohammad Sait reported in (1959) 37 ITR. 151 (SC) held that no addition can be made on the basis of surmises, suspicion and conjunctures. The appellant has quoted several decisions in its favour to put forth the above proposition. 7.7 In addition, the following judgments advocate the above proposition, where exactly identical issue regarding allowability of long term capital gain on sale of shares of same listed company, M/s. Surabhi Chemicals & investments Ltd. had been decided by the Hon‟ble Tribunals in favour of the respective assessees : (i) Chirag Tejprakash Dangi vs. ITO (ITA No. 3256/Mum/2022) (ii) M/s. Anusmriti Sarkar vs. ITO (ITA No. 390/M/2020 dated 07-06-2021) (iii) Shri Udit Agarwal vs. DCIT (ITA NO. 1839/KOL/2017 dated 26-12-2018) (iv) Shashi Bala Bajaj vs. ITO (ITA No. 1457/KOL/2018 dated 16-11-2018) The Hon‟ble Tribunals, in above four cases, had carefully analysed the facts of the case and judicial decisions of various Courts and Tribunals and held that the Long term Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 24 capital gain earned on sale of M/s. Surabhi Chemicals & investments Ltd. is genuine in nature. 7.8 Applying the proposition of law as laid down in the above mentioned judgements, to the facts of this case, I am of the considered opinion that the evidences produced by the appellant in support of its claim before the assessing officer outweigh the suspicion or preponderance of probabilities. No material has been brought on record by the assessing officer to counteract the evidence furnished by the appellant. Under these circumstances, I hold that the assessing officer is not justified in taxing the LTCG of Rs. 2,23,81,175 as „‟Unexplained cash credit\" under section 68 of the Act. Based on the facts, circumstances and legal issues brought out in the foregoing paragraphs, I allow the claim that the income in question as a bona fide LTCG arising from the sale of M/s. Surabhi Chemicals & investment Ltd. Accordingly, I delete the above addition of Rs. 2,23,81,175 made under section 68 of the Act. Therefore, Grounds No. 2 and 3 succeed.\" 10. In the case of Chirag Tejprakash Dangi (supra), the Tribunal has followed the decisions rendered by Hon‟ble High Court of Bombay in the following cases:- i) PCIT Vs. Indravadan Jain HUF (ITA No. 454 of 2018)(Bom) ii) PCIT Vs. Ziauddin A. Siddiquie (ITA No. 2012 of 2017) (Bom) iii) CIT Vs. Shyam R. Pawar (54 taxmann.com 108)(Bom) iv) CIT Vs. Smt. Jamnadevi Agrawal (20 taxmann.com 529 (Bom) In the above said cases, the Hon‟ble Bombay High Court has held that the AO is required to show that the assessee was part of the group, which were rigging the prices of shares or he should find deficiencies in the documents furnished by the assessee to prove the purchases and sale of shares, before assessing the capital gains. In the instant case, the AO has not done so and he simply placed reliance on the report given by the Investigation wing. Hence, his order cannot be sustained. 11. In view of the foregoing discussions, we confirm the order passed by the Ld.CIT(A) on this issue. 12. In the result, the appeal filed by the Revenue is dismissed. Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 25 27. Since a Coordinate Bench of this Tribunal, in the case of the assessee’s brother involving the same scrip and an identical set of facts, has already adjudicated the matter, we find no reason to take a different view. Respectfully following the said judicial precedent and applying the same reasoning to the facts of the present case, we hold that the additions made by the learned Assessing Officer under section 68 are unsustainable and are accordingly deleted. Consequently, as the addition on account of the alleged bogus long‑term capital gains stands deleted, the consequential and purely notional addition made towards alleged commission expenses under section 69C also does not survive and is, therefore, deleted. 28. In the result, the appeal of the assessee stands allowed in full, with all the additions made by the Assessing Officer being deleted and the relief claimed by the assessee being granted in entirety. 29. In the result, appeal of the assessee stands allowed. Order pronounced on 26th August, 2025. Sd/- (RENU JAUHRI) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 26/08/2025 KARUNA, sr.ps Printed from counselvise.com ITA No.3454/Mum/2025 Praveen Sitaram Agarwal 26 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "