RAJESH SARDA,NAGPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(2), NAGPUR

ITA 44/NAG/2022

AI Insights

The case involves Rajesh Sarda, the appellant, who contested the additions made to his income by the Assessing Officer (AO) under sections 68 and 69C of the Income Tax Act, 1961, following a search operation under section 132. The AO had treated the long-term capital gains from the sale of shares as unexplained, based on information from the Investigation Wing and a general report on penny stocks. The Commissioner of Income Tax (Appeals) upheld these additions. However, the Tribunal, after considering the detailed evidence provided by the assessee, including transaction details and compliance with section 10(38) of the Act, ruled in favor of the assessee, citing precedents and the lack of specific evidence linking the assessee to any fraudulent activities.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840065 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 11-04-2022
• Other Referred Cases: CIT vs Smt. Jamnadevi Agrawal, CIT vs Shyam R. Pawar, Ziauddin A Siddique vs ITA, PCIT vs Indravadan Jain (HUF), PCIT vs Kuntalal Mohapatra, PCIT vs Parasben Kasturchand Kochar, PCIT vs Shri Ambalal Chimanlal Patel, Prem Pal Gandhi vs Punjab & Haryana at Chandigarh HC, PCIT vs Shri Gaurav Bagaria, Gaurav Bagaria SLP, Smt. Pooja Agarwal vs Rajasthan Bench at Jaipur, PCIT vs Smt. Krishna Devi, PCIT vs Smt. Renu Agarwal, Shri Gopal Tayal vs Madhya Pradesh at Indore, Smt. Kuntalal Mohapatra Kuansh vs ITA, Ziauddin A Siddique vs ITA, Krishna Devi vs ITA, Shri Gaurav Bagaria vs ITA, Shri Mahaveer Kanwarlal Ranka vs ITA, Mohammad Anish Hingora vs ITA, Manjula H. Vira vs ITA, Amit Sajjan Kumar Gupta vs ITA, Seema Narendra Bapna vs ITA, Amrita Abhishek Doshi vs DCIT, Vikram N. Chandan vs ITA, Shaily Prince Goyal vs ITA, Abhishek Tejraj Doshi vs ITA, Alka Dilip Doshi vs ITA, Chirag Tejprakash Dangi vs ITA, Shri Abhishek Doshi vs ITA, Shri Vijayrattan Balkrishan Mittal vs ITA, Shri Sanjay Singal vs ITA, Shri Brij Bhushan Singal vs ITA, Rameshwarlal Mathuraprasad (HUF) vs ITA
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PANKAJ KUMAR
• Assessee Lawyers: K.P. DEWANI
• Keywords: Set aside; Opportunity of being heard; Revised return; Question of law; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Capital Gains; Principle of natural justice; Earning of tax free income; Bogus
• Section: 132; 153A; 68; 69C; 234B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “NAGPUR” BENCH, NAGPUR BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI KHETTRA MOHAN ROY, ACCOUNTANT MEMBER ITA No. 44/NAG/2022 (AY : 2015-16) (Physical hearing) Rajesh Sarda, 14, Daga Lay–out, Ambazari Road, Nagpur – 440033. [PAN: AHAPS4925M] Vs ACIT, Central Circle – 2(2), Nagpur Aayakar Bhawan, Civil Lines, Maharashtra – 440001. Appellant / Assessee Respondent / Revenue Assessee by Shri K.P. Dewani, Advocate Revenue by Shri Pankaj Kumar, CIT–DR Date of hearing 16.02.2026 Date of pronouncement 24.02.2026 Order under section 254(1) of Income Tax Act PER PAWAN SINGH JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. CIT(A) – 3, Nagpur dated 11.02.2022 for Assessment Year (A.Y.) 2015–16. The the assessee has raised following grounds of appeal: “1. That on the facts and circumstances of the case, the Appellate Order passed by CIT (A)-3, Nagpur is bad in law and therefore deserves to be quashed and set aside. 2. That on the facts and circumstances of the case, the Ld. CIT (A) - 0 3. Nagpur erred in passing ex-parte order without affording enough opportunity of being heard to the Appellant 3. That on the facts and circumstances of the case, Ld. Pr. CIT has erred in relying solely on the findings of Assessing Officer for adjudicating the Appellate Order. 4. That on facts and circumstances of the case, Ld. CIT (A)-3, Nagpur erred in confirming addition of Rs. 18,84,83,706/- and Rs. 56,54,511/– under section 68 and 69C of the 1. T. Act, 1961 respectively. The addition is arbitrary, unjustified and deserves to be deleted.” Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 2 2. Further, the assessee filed following modified / revised ground of appeal along with the application to accept the revised / modified ground which are as under: “1. The learned A.O. erred in making addition at Rs. 18,84,83,706/-being sale value of shares as income from unexplained sources u/s 68 of the Act. The addition made is unjustified and arbitrary. 2) The learned A.O. erred in making addition on account of unexplained expenditure u/s 69C of the I.T. Act at Rs.56,54,511/- in the absence of any evidence on record merely on basis of surmise and conjecture. The addition made is unjustified and arbitrary. 3) The learned A.O. and Hon'ble CIT(A) ought to have held that all the conditions as stipulated u/s 10(38) are complied with and hence surplus on sale of shares is exempt and not eligible to tax. 4) The addition made by learned A.O. and upheld by Hon'ble CIT(A) at Rs.18,84,83,706/- and Rs.56,54,511/- is unjustified, unsustainable and perverse. 5) The learned A.O. and Hon'ble CIT(A) ought to have accepted the claim of exemption u/s 10(38) and accepted the income declared in return considering facts and evidence on record and without dislodging the same. 6) That on the facts and in the circumstances of the case, the learned A.O. has erred in not providing the copy of statements recorded behind back of the assessee and copy of material used for the purpose of holding the sale of share as bogus. Non providing of statements/material used in assessment is violation of principles of natural justice and consequent additions made are unjustified and unsustainable. Hon'ble CIT(A) ought to have deleted the addition made as the procedure is in complete violation with settled propositions of law. 7) The assessee denies liability to pay interest under section 234A, 234B and 234C of I.T. Act 1961. Without prejudice, levy of interest under section 234A, 2334B and 234C of I.T. Act 1961 is unjustified, unwarranted and excessive. 8) Any other ground shall be prayed at the time of hearing.” 3. Brief facts of the case are that assessee is proprietor of Lakshya Enterprises engaged in the trading of Iron and Steel, filed his return of income for A.Y. 2015– 16 on 30.09.2015 declaring income of `. 27,59,930/–. Thereafter, a search action under section 132 was carried out on 26.11.2015 on Ramsons Group, Nagpur. The assessee is one of the persons covered under the said search. Pursuant to search action, notice under section 153A dated 21.03.2017 was served upon the assessee. Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 3 In response to notice under section 153A, the assessee filed his return of income declaring same income as filed on 30.09.2015. During the assessment, assessing officer (AO) recorded that he has information that assessee group is beneficiary of penny stock. Such information was based on the investigation carried out by Investigation Wing, Kolkata. The assessee is one of the beneficiary who has availed bogus long term capital gain during financial year 2014–15. The assessee is beneficiary of penny scrip namely Premier Capital Services Ltd. and Kailash Auto Finance Ltd. On perusal of details furnished by assessee along with return of income, the AO found that assessee has shown long term capital gain of `. 9.82 crore on sale of shares of Kailash Auto Finance Ltd. and long term capital gain of `. 8.42 crore on sale of shares of Premier Capital Services. Both amounts of long term capital gain were claimed as exempt under section 10(38). The AO prepared summary of working of capital gain in respect of both the scrips. The AO recorded that assessee purchased 40000 share of Premier Capital Services Ltd. in August, 2012 and sold the same scrip during May and June, 2014 and have shown capital gain of `. 8.42 crore. Similarly, for Kailash Auto Finance Ltd., the ld. AO recorded that assessee purchased 30,00,000 shares in March, 2013 and sold in May and June, 2014 and earned capital gain of `. 9.82 crore. The AO issued show cause dated 02.02.2017 to assessee to substantiate such capital gain. The contents of show cause notice are recorded in para 4.2 at page no. 3 to 4 of assessment order. In the show cause notice, the AO asked to explain the details of transaction including mode of source of payment, date of purchase and identity and purchaser Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 4 and name and address of broker. The assessee filed his reply dated 24.07.2017. The AO recorded that in the reply, the assessee explained that he has already furnished the computation of income and disclosing the details of transaction. From the reply furnished by the assessee, the AO recorded that it can be seen that assessee purchased share of Premier Capital Services Ltd. @ `. 75/- per share and sold @ `. 1881/ per share. The share of Kailash Auto Finance Limited was purchased at `. 1.00 /- per share and sold @ `. 34/– per share. The assessee also furnished working of capital gain. The assessing officer in para 5.1 of assessment order recorded that Investigation Wing, Kolkata carried out countrywide investigation about the bogus entry of long term capital gain and modus operandi of entry operator. The AO recorded the modus operandi of such entry provider, rate of scrips increased and decreased during the relevant period. The AO also extracted the part of statement of alleged entry provider in the assessment order. The AO also recorded modus of funds trail from bank accounts i.e. from one entity to another entity and noted that funds were received by a company through transfer / RTGS and were transferred to the share brokers and ultimately used for purchase of shares by various brokers / companies. On the basis of such observation, the AO treated the transaction of both the long term capital gain as sham transaction and aggregate of both the long term capital gains of Rs. 18.84 crore was treated income from undisclosed sources in the assessment order dated 28.12.2017. The AO also added `. 56,54,511/– on account of unexplained expenditure as commission paid i.e. 3% of capital gain for obtaining alleged entry. Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 5 4. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detail statement of fact. The ld. CIT(A) after considering the material on record confirmed the addition made by AO by taking view that during search action carried out on 26.11.2015, statement of assessee was recorded, wherein he was asked to provide details of long term capital gain on sale of shares and that in his statement, the assessee accepted the long term capital gain as bogus and offered the same as additional income. During assessment, the AO has sufficient information form investigation wing in respect of share of Kailash Auto Finance Ltd and Premier Capital Services Ltd are zama kharchi / penny stock company and used for providing accommodation entry. The AO has discussed complete modus operandi of entry provider about the accommodation entry. On the basis of such observation he confirmed the additions of unexplained cash credit of `. 18.84 crore as well as addition of unexplained expenditure of commission payment. Further, aggrieved the assessee has filed present appeal before Tribunal. 5. We have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Commissioner of Income Tax – Departmental Representative (ld. CIT–DR) for the Revenue. The ld. AR of the assessee submits that he has filed substitute grounds of appeal, which may be considered as original grounds of appeal, there is no change in the nature of grounds of appeal. The ld AR of the assessee submits that long term capital gain on sale of shares of Kailash Auto Finance Ltd. and Premier Capital Services Ltd. is genuine, the assessee has Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 6 furnished complete documentary evidence during the assessment which includes Sauda Summary Report, copy of client ID, allotment letter of shares, consent letter of assessee, contract notes of Premier Capital Securities Ltd., purchase of share of Careful Projects Advisory Ltd. which was later on amalgamated with Kailash Auto Finance Ltd, contract notes of Kailash Auto Finance Ltd., Form 10DB, copy of Demat account, copy of bank statement, ledger account of assessee with his Broker Anand Rathi. Similar evidences were furnished in respect of other scrips namely Premier Capital Services Ltd. All such evidences furnished by assessee were not found to be incorrect or false by AO or ld. CIT(A) in any manner. The evidence of purchase of share and receipt of shares of Demat account is not disputed. The shares of Kailash Auto Finance Ltd. and Premier Capital Services Ltd. were acquired in F.Y. 2012–13 and such investment was recorded in the books of account and were accepted in the assessment order framed in said assessment year without any variation, copy of assessment order dated 28.12.2017 for A.Y. 2012–13 is placed on record. The assessee was holding shares of various other companies of aggregate value of `. 1.52 crore. The assessee is regular investor and had purchased shares of more than 30 companies which were shown as investment as on 31.03.2013 in the balance sheet of the assessee. The investment in shares of Kailash Auto Finance and Premier Capital Services Ltd. at `. 60,00,000/– is a part of total investment held by assessee, with other different shares. The allotment of shares from various companies are accepted. Nothing incriminating material was found during the search nor any adverse evidence was Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 7 brought in the assessment proceeding. The merger of Kailash Auto Finance Ltd. was approved by Allahabad High Court vide order dated 09.05.2013, thus, the ownership of shares cannot be disputed. Further, the shares of Premier Capital Services Ltd. were received on preferential allotment, their ownership by way of acquisition cannot be disputed. The assessee sold shares of both the scrips in Bombay Stock Exchange (BSE) their registered broker. The sales are on public platform which is corroborated by contract notes, clearly indicating quantity, date, time and rate of sales. Securities transaction tax (STT) was paid on sales of shares of both the scrips. The sale consideration was received through banking channel on the conditions for claiming exemption under section 10(38) are fully satisfied. The view taken by AO is solely based on information of Investigation Wing. All the reference of information of Investigation Wing is general and not to any specific corroborated by evidence on record. The statement of Ajay Kedia referred by AO as on 19.05.2015 and 26.11.2016 are prior to date of search. Such statements were recorded behind the back of assessee. Such statements were not recorded by AO of assessee but recorded by Investigation Wing. Complete copy of such statements were not provided to the assessee, nor such persons were called for cross–examination. The assessee has no knowledge of such persons. Similarly, the statement of Sunil Dokanrr was recorded by Investigation Wing, copy of which was not provided to the assessee. There is no reference, how his statement is connected with Kailash Auto Finance Ltd. The assessee has no transaction through such person. Similarly, other statement recorded by AO in various parts of Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 8 assessment order has no linke with the assessee. The ld. AR of the assessee while referring various statement mentioned in the assessment order submits that this statement has nothing to do with the transaction of assessee. Such statements are general statement and nothing to do with the assessee. The AO vaguely relied upon such statement without bringing any nexus with the transaction of assessee. The ld. AR of the assessee submits that by filing sufficient evidence on record, the assessee has proved acquisition of shares. The shares were sold at the current market rate in open market on public platform at BSE. Such facts are not in dispute. The investment in shares is accepted in the assessment order for A.Y. 2013–14. The ld. AO has not brought any evidence on record that money in cash is flown from assessee for which cheque is received as sale of shares to assume that it is an accommodation entry. The allotment of shares was as per provisions of Companies Act and not in violation of SEBI guidelines. It is not a credit entry as per provisions of section 68. Similarly, there is no basis or evidence on record for making addition of unexplained commission on expenditure. The addition of unexplained commission payment is solely based on assumption by AO. The ld. AR submits that assessee has no role in alleged manipulation of scrip of Kailash Auto Finance Ltd. or Premier Capital Services Ltd. In the order of SEBI dated 31.09.2017, with regard to price manipulation, placed on record. Neither the name of assessee in price manipulation nor the name of his broker in the SEBI order is mentioned Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 9 6. The ld. AR of assessee submits that on transaction of Kailash Auto Finance Ltd., the similar addition was made by revenue authorities, which were deleted by Cuttack Tribunal in case of Smt. Kuntala Mohapatra Kaunsh in ITA No. 50/CTK/2020 vide order dated 21.10.2021. Such order of Tribunal was upheld by Hon’ble Orissa High Court in order dated 09.02.2023 copy of which placed on record as page no. 17 to 19 of legal paper book and further SLP by revenue has been dismissed by Hon’ble Apex Court. To support his submission, the ld. AR of the assessee relied on the following case laws:  CIT vs Smt. Jamnadevi Agrawal (2012) 20 taxmann.com 529 (Bom)  CIT vs Shyam R. Pawar (2015) 54 taxmann.com 108 (Bom)  Ziauddin A Siddique in ITA 2012 of 2017 (Bombay HC)  PCIT vs Indravadan Jain (HUF) (2023) 156 taxmann.com 605 (Bom)  PCIT vs Kuntalal Mohapatra (2024) 160 taxmann.com 567 (Orissa)  PCIT vs Kuntalal Mohapatra (2024) 160 taxmann.com 608 (SC)  PCIT vs Parasben Kasturchand Kochar (2020) 109 CCH 0411 (Guj)  PCIT vs Parasben Kasturchand Kochar (2021) 130 taxmann.com 177 (SC)  PCIT vs Shri Ambalal Chimanlal Patel 162 taxmann.com 892 (Guj)  Prem Pal Gandhi (Punjab & Haryana at Chandigarh HC)  PCIT vs Shri Gaurav Bagaria (2023) 453 ITR 513 (Raj. HC)  Gaurav Bagaria SLP (Civil) No. 34137/2022 (SC)  Smt. Pooja Agarwal ITA No. 385/2011 Rajasthan Bench at Jaipur  PCIT vs Ritu Agarwal Shreeram Bhawan (2023) 152 taxmann.com 181 (Raj)  PCIT vs Smt. Krishna Devi (2021) 126 taxmann.com 80 (Delhi)  PCIT vs Smt. Renu Agarwal (2023) 153 taxmann.com 578 (Allhabad)  Shri Gopal Tayal ITA No. 39 of 2022 Madhya Pradesh at Indore  Smt. Kuntalal Mohapatra Kuansh ITA No. 50/CTK/2020 dtd. 21.10.2021  Ziauddin A Siddique ITA No. 5182 & 5183/Mum/2011 dtd. 09.09.2016  Krishna Devi ITA No. 1070/Del/2019 dtd. 06.08.2019  Shri Gaurav Bagaria ITA No. 550/JP2019 dtd. 10.07.2019 Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 10  Shri Mahaveer Kanwarlal Ranka ITA No. 224/M/2024 dtd. 29.11.2024  Mohammad Anish Hingora ITA No. 316/RPR/2023 dtd. 21.11.2024  Manjula H. Vira ITA No. 2923/M/2023 dtd. 09.12.2024  Amit Sajjan Kumar Gupta ITA No. 1378/M/2024 dtd. 10.10.2024  Seema Narendra Bapna ITA No. 1120/M/2024 dtd. 10.10.2024  Amrita Abhishek Doshi vs DCIT (2024) 167 taxmann.com 377 (Mum)  Vikram N. Chandan ITA No. 70/Mum/2024 dtd. 30.07.2024  Shaily Prince Goyal ITA No. 4271/M/2023 dtd. 30.05.2024  Abhishek Tejraj Doshi ITA No. 2944/M/2023 dtd. 20.03.2024  Alka Dilip Doshi ITA No. 1837/M/2023 dtd. 28.02.2024  Chirag Tejprakash Dangi ITA No. 3256/M/2024 dtd. 20.02.2024  Shri Abhishek Doshi ITA No. 3122/M/2022 dtd 31.05.2023  Shri Vujayrattan Balkrishan Mittal ITA No. 3429/M/2019 dtd. 01.10.2019  Shri Sanjay Singal Ita Nos. 655 & 610/Chd/2023 dtd. 08.10.2024  Shri Sanjay Singal ITA Nos. 708, 710 & 711/Chd/2018 dtd. 20.09.2021  Shri Brij Bhushan Singal ITA Nos. 1415 to 1417/Del/2018 dtd. 07.12.2018  Rameshwarlal Mathuraprasad (HUF) ITA No. 37/Nag/2025 dtd. 14.05.2025 7. On the other hand, the ld. CIT–DR for the Revenue supported the order of lower authorities. The ld. CIT–DR for the revenue submits that a search action was carried out on assessee group. During assessment, the assessing officer noted that information was received from Kolkata Investigation Wing and independent enquiries conducted by Investigation Wing wherein it was found that assessee and his family members were beneficiary of long term capital gain. The statement of assessee was recorded during search action wherein they had offered additional income of `. 18.24 crore on account of bogus long term capital gain, however, in the return of income filed in response to notice under section 153A, the assessee claimed such income as exempt income. Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 11 8. To support his submissions, the ld CIT-DR for the revenue relied on the following  Manish C. Jogani (HUF) ITA No. 7344 to 7347/M/2014 dtd. 16.11.2015  Kolte Patil Developer ITA No. 1478 to 1483/PN/2013 dtd. 20.02.2015  Kanwar Natwar Singh Civil Appeal No. 8601 of 2010 dtd. 05.10.2010  B. Kishore Kumar vs DCIT 62 Taxmann 215 (SC) dtd. 02.07.2015  B. Kishore Kumar vs DCIT (Madras HC) dtd. 03.11.2014  PCIT vs Swati Bajaj (Calcutta HC) dtd. 14.06.2022  Suman Poddar vs ITO (2019) ITAT New Delhi  NRA Iron and Steel Pvt. Ltd. vs CIT 412 ITR 161 (SC)  CIT vs Sumati Dayal (1995) 214 ITR 801 (SC)  Durga Prasad More (1971) 82 ITR 540 (SC)  GCT Industries Ltd. vs ACIT 65 ITD 380 ITAT Mumbai Bench  Motilal Padampat Udyog Ltd. vs CIT 293 ITR 565 (Allahabad HC)  Marg Projects and Infrastructure Ltd. vs DCIT (2023) 147 taxmann.com 130 (Madras) 9. In the rejoinder submission, the ld. AR of the assessee refuted all the submission of ld. CIT–DR for the Revenue. The ratio of decision relied by ld. CIT–DR is distinguishable or not applicable on the facts of this case. 10. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various documentary evidence filed on record and various case laws relied by the parties. The basis of addition/ disallowance of long term capital gain on sale of two impugned scrips by AO and confirmed by ld CIT(A) has been discussed in earlier paras of this order, which is not repeated here for the sake of brevity. However, we may record that during assessment, the assessee has furnished complete documentary evidence in the form of Sauda Summary Report, copy of Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 12 client ID, allotment letter of shares, consent letter of assessee, contract notes of Premier Capital Securities Ltd., purchase of share of Careful Projects Advisory Ltd. which was later on amalgamated with Kailash Auto Finance Ltd, contract notes of Kailash Auto Finance Ltd., Form 10DB, similar evidences were furnished in respect of other scrips namely Premier Capital Services Ltd. We find that all such evidences furnished by assessee were not disputed by AO or ld. CIT(A) not the lower authorities have brought any adverse evidence on record, except on relying on general report of investigation wing. The shares of Kailash Auto Finance Ltd. and Premier Capital Services Ltd. were acquired in F.Y. 2012–13 and such investment was recorded in the books of account and were accepted in the assessment order framed in said assessment year without any variation in assessment order dated 28.12.2017 for A.Y. 2012–13. The assessee was holding shares of various other companies of aggregate value of `. 1.52 crore. Further, the assessee is regular investor and had purchased shares of more than 30 companies which were shown as investment as on 31.03.2013 in the balance sheet of the assessee. Thus, the assessee is regular investor in various scrips. 11. We find that Cuttack Bench of Tribunal in Kuntala Mohapatra Kuansh in ITA No.50/CTK/2020 vide order dated 21/10/2021, while considering the of scrips of Kailash Auto Finance Ltd. which is almost on the same set of facts noted that assessee therein in the course of statement given had accepted the long term capital gain to be not claimed as exempt. However, in the course of assessment proceedings it was explained that the statement given being not correct claim of Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 13 exemption u/s 10(38) of I.T. Act 1961 be granted. The Tribunal on considering such facts and evidences accepted LTCG. The aforesaid decision of Tribunal has been upheld by Hon’ble Orissa High Court in its judgment dated 09/02/2023, with the following observations; “2. The question sought to be urged by the Revenue Department in the present appeal is as follows: \"Whether after making certain statements in the survey the Assessee not claiming exemption under Section10(38) of the Income Tax Act, 1961 at the stage of the assessment proceedings, could be the Assessee turned around and make such claim of wanting to cross-examine persons make adverse statements against the Assessee at the stage of the appeal before the ITAT\"? xxx xxx xxx 5. Having heard learned Senior Standing Counsel for the Department (Appellant) and having perused the impugned orders of the AO, CIT(A) and the ITAT, the Court finds that both the grounds viz., the claim for benefit of Section 10(38) of the Act and denial of an opportunity to cross examine the entry providers, turned on facts. The ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO. 6. In the considered view of the Court, the ITAT committed no error in concurring with the view of the CIT(A) and in dismissing the Revenue's appeal. No substantial question of law arises from the impugned order of the ITAT that calls for interference by this Court. The appeal is accordingly dismissed. 12. We find that further Special Leave Petition (SLP) of Revenue against the decision of Hon’ble Orissa High Court has been dismissed by Hon’ble Supreme Court. 13. We find that Nagpur Bench of Tribunal in Rameshwarlal Mathuraprasd (HUF) Vs ACIT in ITA No. 37/Nag/2025(authored by ld AM) on similar set of fact on sale of Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 14 scrips of GCM Securities Limited, which were also claimed by the revenue as penny scrips on the basis of investigation report of investigation wing and were sold through Anand Rathi Shares & Brokers Ltd, allowed similar capital gain. The coordinate bench of Tribunal held that assessee has explained with evidence that transaction of shares is genuine. 14. We find that Hon'ble Gujarat High Court in the case of Himani M. Vakil (2014) 41 taxmann.com 425 (Guj) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and Demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. Gujarat High Court in the case of Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj), also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished to Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished Demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. Further I find of Hon'ble Jurisdictional High Court in the case of PCIT Vs. Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when AO nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 15 have entered into ingenuine transaction. In a recent decision in PCIT Vs Mamta Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that where the assessee had sold the shares and earned LTCG and the Assessing Officer alleged that transaction was penny stock deal aim at illegitimately claiming LTCG exemption under section 10(38), since there was no allegation on record suggesting the assessee or his broker involved in rigging up the price of scrips, the addition was rightly deleted by Tribunal. We find that Hon’ble Gujrat High Court in PCIT Vs Divyaben Prafulchandra Pramar (supra) also held that where the assessee held shares in question for two and half years and same were sold through recognised stock exchange after paying STT, the claim of exemption of long term capital gain under section 10(38) could not be bogus in absence of any contrary evidence brought on record. The aforesaid decision of Hon’ble Gujarat High Court has been upheld by Hon’ble Supreme Court in PCIT Vs Divyaben Prafulchandra Pramar (2025) 172 taxmann.com 572 (SC). 15. The ld. Sr DR for the revenue while making his submissions strongly relied on the decisions of Kolkata High Court in Swati Bajaj (supra), which is non-jurisdictional High Court, though there are contrary decisions of Jurisdictional High Court as referred above, favouring assessee. Hon’ble Apex Court in Union of India Kamalakshi Finance Corporation Ltd (1991) (55) ELT 443-SC held that decision of jurisdictional High Court would have higher precedence value on the Tribunal than the decision of non-jurisdictional High Court. Printed from counselvise.com Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 16 16. We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. In the result, the addition of undisclosed income under section 68 is deleted. 17. Considering the fact that we have accepted the LTCG by deleting the addition made under section 68, therefore the addition of alleged commission payment is also deleted. In the result, the grounds of appeal raised by the assessee are allowed. 18. In the result, the appeal of the assessee is allowed. Order pronounced in open court on 24/02/2026 Sd/– Sd/– KHETTRA MOHAN ROY PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur: Dated: 24/02/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and By order (5) Guard file. Assistant Registrar ITAT, Nagpur Printed from counselvise.com "