SANGEETA SANJAYKUMAR AGARWAL,MUMBAI V. INCOME TAX OFFICER, WD-22(3)(6), MUMBAI

ITA 4682/MUM/2024

AI Insights

The case revolves around the appellant, Sangeeta Sanjaykumar Agarwal, who appealed against the order of the National Faceless Appeal Centre (NFAC) confirming the additions made by the National Faceless Assessment Centre (NAFC) under Sections 68 and 69C of the Income Tax Act. The additions were related to the LTCG earned on the sale of shares of M/s KDJ Holidayscapes & Resorts Ltd, which were initially claimed exempt under Section 10(38). The Assessing Officer (AO) had reopened the case based on information from the Investigation Department, alleging that the transactions were non-genuine and involved unaccounted income. The Tribunal, after examining the documents and precedents, found that the appellant had substantiated the genuineness of the transactions and that similar cases had been decided in her favor by the ITAT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47265 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Other Referred Cases: Mrs. Karishma Ajay Agarwal vs ITO, Manoj Kumar Agarwal vs ITO, ITO vs. Jimeet Vipul Modi
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANGERPATIL PUSHKARAJ RAMESH
• Assessee Lawyers: PRAKASH JHUNJHUNWALA
• Keywords: Set aside; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Cost of acquisition; Capital Gains; Sham transactions; Scheme of amalgamation; Opportunity of cross examination; Bogus
• Section: 147; 250; 68; 22; 133(6); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRINARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No.4682/Mum/2024 (Assessment year: 2014-15) Sangeeta Sanjaykumar Agarwal, 401/2, B.G. Kher Marg, B.Y. Apartments Compa Cola compound, Worli, Mumbai- 400018 PAN: ADDPA9611P vs Income Tax Officer, Wd-22(3)(6), Mumbai, Piramal Chambers, Lalbaug, Mumbai-400012 APPELLANT RESPONDENT Assessee by : Shri Prakash Jhunjhunwala Respondent by : Shri.Bhangerpatil Pushkaraj Ramesh Sr. AR Date of hearing : 02/04/2025 Date of pronouncement : 07/04/2025 O R D E R Per Anikesh Banerjee (JM): The instant appeal by the assessee was filed against the order of the National Faceless Appeal Centre, (Delhi) (NFAC) *in short,’ Ld.CIT(A)’+, passed under section 250 of the Income-tax Act, 9161 (in short, ‘the Act’), for A.Y. 2015- 16, date of order 23-08-2024. The impugned order emanated from the order of 2 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal the National Faceless Assessment Centre, Delhi (for brevity the “Ld.AO”)passed under section 147 read with section 144B, date of order 30/03/2022. 2. The assessee has taken the following grounds of appeal:- “1. 1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition u/s.68 of Rs.4,66,63,794/- of long term capital gain earned on sale of listed shares of M/s. KDJ Holidayscapes & Resorts Ltd, on rejecting the appellant's claim of exemption u/s 10(38); 2 2.0 The Ld. CIT(A), before confirming the addition of Rs 4,66,63,794/-, ought to have considered the understated vital facts, being: a) The correctness of documentary evidences being Contract-cum-bills, Confirmation of stock broker, D-mat statements, bank statements, share application, Letter of allotment, rate publication and other documents had not been disputed by lower authorities; b) The period of holding of shares in appellant's D-mat account exceeds 12 months and such shares had been sold on floor of Bombay Stock Exchange through online mechanism at prevailing market price; c) The substantial increase in stock price cannot be a sole reason to treat the bonafide transaction as non-genuine, since purchase and sale of shares had been made at prevailing market price, d) The reliance placed on general statements of 3rd parties, without providing the copies and opportunity of cross examination, is erroneous; e) The SEBI had not framed any allegations and had not passed any contrary 3. 3.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition u/s 69C of unexplained commission paid of Rs.23,33,190/-(@5% of Rs.4,66,63,794).” 3. The brief facts of the case are that the assessee has in individual capacity filed the return of income by declaring total income at Rs.7,35,270/-. In the return, the assessee disclosed the long term capital gain (in short “LTCG”) on sale of shares of M/s KDJ Holidayscapes & Resorts Ltd (in short “KDJ”), erstwhile known as Two-Up Financial Services Ltd amount to Rs.4,66,63,794/- and claimed exemption under section 10(38) of the Act. After receiving information from 3 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal Investigation department, the assessee’s case was reopened under section 147 of the Act. During the re-assessment proceedings, the Ld.AO denied the claim of exemption of income under section 10(38) of the Act related to LTCG and added the same to the total income of the assessee amount to Rs.4,66,63,794/- under section 68 of the Act. Further, the Ld.AO assumed that the assessee would have made unexplained commission payment @5% on the LTCG of Rs.4,66,63,794/-, which comes to Rs.23,33,190/-. Accordingly, he made the addition of the same under section 69C of the Act. The assessee has explained the details of sales and purchases of the shares of KDJ, earlier known as Two Up Financial Services and before that known as ‘Gomti Finlease (India) Ltd’. The details of transactions is reproduced below:- The appellant, being regular investor in shares, had earned the long term capital gain on sale of STT paid listed shares and exempt u/s 10(38), as under:- 1) Name of the share M/s KDJ Holidayscapes & Resorts Ltd (Previously known as Gomtio Finlease India Ltd) 2) Purchase Cost: 1,00,000 shares acquired through preferential allotment On 16/01/2012 at Rs.22,00,000/- {@Rs.22/-} 3) Mode of payment: Purchase cost paid by A/c payee cheques on 01/12/2011 4) Sale Consideration: 1,00,000 shares sold on 27/11/2013 to 24/12/2013 at Rs.4,88,63,794/- {@Rs.489/-) o floor of BSE 5) Mode of Receipt: Sale consideration received through RTGS through online mechanism of BSE from 19/11/2013 to 27/12/2013 from M/s B R Jalan Securities Pvt Ltd & M/s Shilpa Stock Broker Pvt Ltd 6) Period of Holding: 22 to 23 months in D-mat Account 7) Mode of Delivery: Through D-mat account On purchase - 24/01/2012 On Sales - 27/11/.2013 to 24/12/2013 8) Documents filed on sales : Contract note-cum-Sale bills, Confirmation of Account Of stock brokers, Bank statement, D-mat statement, Rate publication of BSE. 9) Documents filed on purchase: Letter of allotment, Corporate Announcement for issue of preferential allotment, Bank statement, D-mart statement, Balance-sheet of earlier years 10) SEBI’s Allegation : No allegation has been framed by the SEBI against the company and the appellant 4 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal 11) Justification for increase in share price a) The share prices of M/s Gomti Finlease (ndia) Ltd had increased substantially due to complete diversification of business activities, as such listed company had acquired 3 other companies named – M/s KDJ Hospitality Pvt Ltd KDJ Holidayscapes Ltd on 24/07/2012 and 40.76% equity stake of M/s KDJ Hospital Ltd on 28/09/2012. The High Court of Bombay had approved the scheme of amalgamation on 13/02/2013. b) The company made the huge investments in M/s KDJ Hospital Ltd of Rs.30 crores on 16/10/2012 and increased its equity stake at 75% in M/s KDJ Hospital Ltd. The aggrieved assessee filed appeal before the Ld. CIT(A). The Ld.CIT(A), after detailed discussion, rejected the appeal of the assessee and confirmed the addition. Being aggrieved, the assessee filed further appeal before the Tribunal. 4. During the course of the hearing, the Ld. AR submitted a paper book comprising pages 1 to 86, which has been placed on record. In the course of arguments, the Ld. AR stated that the assessee had purchased 1,00,000 shares of M/s KDJ Holidays Scapes& Resorts Ltd through preferential allotment at a rate of Rs.22 per share, amounting to a total investment of Rs.22 lakhs. The Ld. AO relied entirely on the report of the Investigation Unit of the Income-tax Department, Kolkata. However, during the assessment proceedings, as well as in the appellate proceedings before the Ld. CIT(A), the assessee submitted all relevant documents in support of the transaction, which are annexed in the assessee's paper book. The list of documents is as follows: Sr.No. Particulars APB Page No. 2 Sales Related Documents 2.1 Sale Bills Cum Contract Notes dated 27/11/2013 to 24/12/2013 2-15 2.2 Confirmation of stock broker of M/s B R Jalan Securities Pvt Ltd & Shilpa Stock Broker Pvt Ltd 16-19 2.3 Bank Statement disclosing receipt of Sale consideration 20-22 5 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal 2.4 D-mat Statement (Sales) dated 27/11/2013 to 24/12/2013 23 2.5 Bhav Copy (Rate Publication) 24-25 2.6 Certificate of Incorporation (ROC) 26-127 3. Purchase Related Documents 3.1 Allotment of shares dated 16/01/2012 28 3.2 Corporate Announcement for issue of preferential allotment of shares 29 3.3 BANK Statement highlighting payment of purchase consideration on 01/12/2011 30 3.4 D-mat Statement (Purchase) dated 24/01/2012 31 3.5 Balance Sheet for earlier years (AY 2012-13 & 2013-14) 32-35 The Ld. AO disallowed the entire Long-Term Capital Gain (LTCG) on the grounds that there was a substantial price increase, approximately 200%. However, the Ld. AR contended that there was a justifiable reason for the price appreciation in the assessee’s case. The Ld. AR drew our attention to page 36 of the assessee’s paper book (APB), which contains details of a specific Board Meeting resolution. The resolution explained that the assessee had invested Rs.20 crores by way of subscription, purchase, or other modes in the securities of the proposed subsidiary company, namely KDJ Hospital Ltd. The details of the said Board Resolution are reproduced as below:- 6 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal It is further submitted that the Hon’ble Bombay High Court, in its order dated 08/02/2013 passed in Company Scheme Petition No. 809 of 2012, in connection with Company Summons for Direction No. 699 of 2012,granted sanction to a Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956. The Scheme involved the amalgamation of M/s KDJ with Two Up Financial Services Ltd. and their respective shareholders. The said amalgamation was carried out pursuant to the directions of the Hon’ble Bombay High Court. A copy of the relevant order is annexed at pages 39–42 of the assessee’s paper book. The Ld. AR further contended that similar shares were also acquired by the assessee’s sister-in-law, Mrs. Karishma Ajay Agarwal, who had claimed exemption under Section 10(38) of the Act. The matter was contested before the ITAT-Mumbai Bench, and the Hon’ble Bench ruled in favour of 7 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal the assessee in the case of Mrs. Karishma Ajay Agarwal vs. ITO in ITA No. 2580/Mum/2022, with the order pronounced on 02/03/2023. The observations of the co-ordinate bench-H of theITAT, Mumbai, at paragraphs 15–16 are as follows: 15. We have considered the overall facts, submissions and the information find that the assessee has furnished the financials, details of broker, affidavit and the transactions status and MCA website details of the company. The AO has doubted the purchase and sale of shares and observed that the price rigging is not commensurate with the financials of the assessee company. The assessee has substantiated with all details and information and the revenue could not make out a case that there is unaccounted money transactions took place in the hands of the assessee and the AO has relied on the investigation report of income tax department and treated the long term capital gains on sale of shares as not genuine. Further the A.O. has not made any enquiry or independent investigation and relied on the statement of the parties and the assessee’s name is not included in the list of investigation report. The fact remains that the assessee has submitted the requisite details in respect of purchase and sale of shares and were not disproved. The transaction of purchase and sale of shares is through banking channel. Further as discussed in the above paragraphs the Hon’ble Tribunal dealt on the same scrip of share and for the same assessment has upheld the relief granted by the CIT(A) and has dismissed the revenue appeal. Accordingly, we considering facts, circumstances, ratio of judicial decisions, submissions, evidences and rely on the judicial precedents and are of the opinion that the addition cannot be sustained and set aside the order of the CIT(A) and direct the assessing officer to delete the additions and allow the grounds of appeal in favour of the assessee. 16. In the result the appeal filed by the assessee is allowed.” 8 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal The same view was also taken in relation to LTCG on sale of share of KDJ by the co-ordinate bench of ITAT, Mumbai Bench “D” in the case of Manoj Kumar Agarwal vs ITO 10(1)(1) in ITA No.3264& 4250/Mum/2023, date of pronouncement 06/08/2024. The relevant paragraph 17 is reproduced as below:- 17. Submissions made by both the parties in this appeal are on similar lines as dealt with in the appeal in ITA No.3264/Mum/2024, hence the same are not re- iterated. All the relevant documentaryevidences in this respect are placed on record in the paper book. Since we have elaborately discussed the submission made by both the parties as well as observations and findings of the authorities below, the same are not repeated to avoid duplicity. In this case, we note that ld. Assessing Officer has observed about the so called purchasers of shares sold by the assessee, who have not been identified, even though notices were issued u/s. 133(6) of the Act. In this respect, we have already discussed and given our findings on the functioning of SEBI regulated stock market which applies in the present case mutatis mutandis. Thus, by following the above detailed observations and findings arrived at by us in ITA No.3264/Mum/2024, we delete the addition made u/s.68 towards proceed of listed shares of Gomti FinleaseIndia Ltd. on the said sale claimed exempt by the assessee u/s.10(38). Accordingly, grounds taken by the assessee in this respect are allowed. In the result, appeal of the assessee is allowed.” 5. The Ld.DR vehemently argued and supported the orders of the revenue authorities. The Ld.DR filed a written submission dated 02/04/2025, the relevant part of which is extracted below:- “32. In conclusion, the Revenue submits that the assessee's appeal holds no merit and should be dismissed. The facts demonstrate a clear case of tax evasion masked as stock market profits. The assessee's grounds of appeal have been effectively rebutted by evidence, logic, and binding precedents. What the assessee touts as a genuine capital gain was rightly unmasked by the lower 9 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal authorities as bogus a calculated device to convert unaccounted cash into tax- exempt gains. The resultant additions under section 68 (unexplained credits) and section 69C (unexplained expenditure) are not only warranted but compelled by the law and facts. CIT(A)'s well-reasoned order, replete with findings on improbabilities, human conduct, and corroborative material, leaves no room for doubt that \"what is apparent is not real\" in the assessee's transactions. 33. We pray that the Hon'ble ITAT be pleased to uphold the Assessment Order as affirmed by CIT(A), confirming: (1) the denial of section 10(38) exemption on the claimed LTCG of ₹4,66,63,794 and the treatment of that amount as taxable income under section 68, and (2) the addition of ₹23,33,190 under section 69C as unexplained expenditure on commission. This will send a strong message that tax laws cannot be gamed through sham transactions and will be in line with the consistent view of the judiciary in similar matters. a. Ultimately, the veracity of a transaction must be judged by its substance, not merely by its form or paperwork. Here, the substance is clear: no real investor, no real income from capital appreciation - just pre-arranged entries recycling the assessee's own money. We respectfully urge the Bench to look at the real story behind the story and dismiss the appeal.” 6. We have heard the rival submissions and examined the documents available on record. The assessee has filed an appeal against the addition made in respect of the sale of shares of M/s KDJ amounting to Rs.4,66,63,794/-, along with an addition of unexplained commission on LTCG calculated at 5%, amounting to Rs.23,33,190/-. The sale transaction of shares, amounting to Rs.4,88,63,794/-, was executed through the Bombay Stock Exchange (BSE).We observe that the entire addition was confirmed solely on the basis of the report of the Investigation Wing of the Income-tax Department, Kolkata, which alleged that the 10 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal rise in share price was manipulated and that the assessee had introduced unaccounted income in the guise of LTCG through a circular transaction. During the assessment as well as appellate proceedings, the assessee submitted all requisite documentary evidence, including the demat account statement, bank statement, sale bill, and share allotment documents. All such documents have been placed on record in the assessee’s paper book. Regarding the rise in share price, the Ld. AR has adequately explained that M/s KDJ had plans to invest in its proposed subsidiary, KDJ Hospital Ltd., and that an amalgamation took place between Two Up Financial Services Ltd. and KDJ pursuant to the order of the Hon’ble Bombay High Court. This amalgamation was carried out through a proper legal process.It is further noted that the assessee is a regular investor in stocks and securities. As reflected in the balance sheet as of 31stMarch 2012, the assessee had investments in equity shares and mutual funds amounting to Rs.2,22,59,604/-, which increased to Rs.4,31,76,951/- as of 31stMarch 2013. This indicates consistent investment activity in the equity market.Importantly, the documents submitted by the assessee during the assessment proceedings were neither challenged nor discredited by the Revenue authorities. Therefore, the assessee has discharged the primary onus of proving the genuineness of the transactions. Furthermore, confirmations from the stock brokers, M/s B.R. Jalan Securities Pvt. Ltd. and M/s Shilpa Stock Brokers Pvt. Ltdare placed on record at pages 16 to 19 of the APB. The LTCG proceeds were received by the assessee through regular banking channels. The purchased shares were credited to the assessee’sdemat account, and the entire transaction was routed through the BSE. No evidence has been 11 ITA No. 4682/Mum/2024 Sangeeta Sanjaykumar Agarwal brought on record by the Revenue to demonstrate that the assessee was involved in any price manipulation or rigging with respect to the shares of KDJ. We also note that the co-ordinate bench of the ITAT has taken a similar view in relation to the same scrip, ‘KDJ’, in favour of the assessee. Accordingly, we respectfully rely on the decisions of the co-ordinate bench in the cases of Mrs. Karishma Ajay Agarwal (supra) and Manoj Kumar Agarwal (supra). A similar view was also taken by the ITAT in the case of ITO vs. Jimeet Vipul Modi in ITA No. 4297/Mum/2018, order dated 29/07/2019. In view of the above, the order passed by the Ld. CIT(A) is hereby set aside. The additions made by the Ld. AO under Section 68 of the Act, amounting to Rs.4,66,63,794/- on account of LTCG, and under Section 69C amounting to Rs.23,33,190/- on account of alleged commission, are hereby deleted. 7. In the result, the appeal of the assessee bearing ITA No.4682/Mum/2024 is allowed. Order pronounced in the open court on 07th day of April 2025. Sd/- sd/- (NARENDRA KUMAR BILLAIYA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 07/04/2025 Pavanan Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "