SEEMA JAIN,GHAZIABAD, UTTAR PRADESH V. INCOME TAX OFFICER, FACELESS

ITA 4858/DEL/2024

AI Insights

The case revolves around the Income Tax Department's allegation that Seema Jain engaged in transactions involving penny stocks of Achal Investment Limited, which were used to claim bogus long-term capital gains (LTCG). The department reopened her assessment for AY 2015-16 based on information from the Investigation Wing, leading to a disallowance of Rs.1,20,83,456 as bogus LTCG. The CIT(A) upheld this decision, prompting Jain to appeal to the ITAT. The ITAT, after reviewing the submissions and evidence, including various judicial precedents, concluded that the gains were legitimate and not the result of any fraudulent activity.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126935 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Other Referred Cases: Farzad Sheriar Jehani, Mumbai vs Ito, Pr. CIT v. Smt Krishna Devi, Mohan Lal Agarwal (Huf) vs Ito, Sarika Bindal vs Ito, Jyoti Gupta vs Acit
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: RAGHAV GOEL; NUMEROUS
• Keywords: Set aside; Opportunity of being heard; Question of law; Income from undisclosed sources; Cost of acquisition; Capital Gains; Accommodation entries; Reason to believe; Charitable institution; Share purchase agreement; Benefit of exemption; Penny stocks; Bogus
• Section: 148; 143(3); 142(1); 201; 68; 131; 22; 133(6); 69C; 13; 69A; 139; 10; 139(4); 72; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.4858/DEL/2024 (Assessment Year: 2015-16) Seema Jain, vs. Income Tax Officer, B – 185, Ashok Nagar, NFAC Income Tax Department, Ghaziabad – 201 001 (Uttar Pradesh) Delhi. (PAN : AETPJ3498L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Raghav Goel, Advocate REVENUE BY : Shri Sahil Kumar Bansal, Sr. DR Date of Hearing : 20.02.2025 Date of Order : 23.04.2025 O R D E R PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax Appeals/National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to ‘Ld. CIT (A)’) dated 03.10.2024 for Assessment Year 2015-16. 2. Brief facts of the case are, assessee is an individual and has filed her return of income for AY 2015-16 u/s 139(4) of the Income-tax Act, 1961 (for short ‘the Act’) on 28.08.2015 declaring total income at Rs.21,02,760/-. The Department has received information from 2 ITA No.4858/DEL/2024 Investigation Wing, Delhi that the assessee has traded in penny stock of Achal Investment Limited through a web sham transaction which has been mentioned in the flagged report of the Investigation Wing, Delhi; that the assessee during the assessment year has made penny stock transactions of Rs.1,22,25,792/- through which escapement of income was done; that it was thoroughly investigated by the Investigation Wing and also upheld by the various judicial authorities that penny stock scrips are mere vehicles where undisclosed income is invested to earn bogus Long Term Capital Gain (LTCG) or investment which this assessee has used to suppress her income; that by going through the complete information by independent opinion, there is reason to believe that there has been escapement of income in this account; that on the basis of this findings, it was observed that the income to the extent of Rs.1,22,25,792/- has escaped assessment of the assessment year under consideration and accordingly, the case of the assessee was reopened vide order dated 28.07.2022 and notice u/s 148 of the Act was issued to the assessee on 29.07.2022. Accordingly, the assessee filed e-filed return of income u/s 148 of the Act which is the same as the ITR filed originally by the assessee. 2.1 During the course of assessment proceedings, the AO issued various notices u/s 142(1) of the Act along with questionnaire asking for various 3 ITA No.4858/DEL/2024 documents and evidences. In response, ld. AR of the assessee attended the proceedings from time to time and submitted relevant information as called for. 2.2 During assessment proceedings, the AO observed that assessee has earned capital gain amounting to Rs.1,22,25,792/- from sale of shares of M/s. Achal Investment Limited and observed that the same is found to be bogus in nature and actually it was done to claim bogus STCL/LTCG. The AO explained the modus operandi behind the same in assessment order at pages 5 to 9. Accordingly, in view of the detailed discussion at pages 5 to 9, AO proposed a disallowance of Rs.1,22,25,792/- and added the same to the returned income of the assessee for the assessment year under consideration vide final show cause notice dated 05.05.2023. In response, assessee submitted her reply dated 08.05.2023 which was reproduced by the AO at pages 11 & 12 of the assessment order. 2.3 After examining the submissions made by the assessee in response to the show cause notice dated 05.05.2023, AO observed that Achal Investment Limited is a sham/bogus/non genuine paper company with the only objective of providing accommodation entries to pre-arranged bogus LTCG/STCL to various beneficiaries and assessee earned bogus LTCG during the year to the tune of Rs.1,22,25,792/-. However, he observed that during the course of assessment proceedings, the assessee submitted 4 ITA No.4858/DEL/2024 a copy of statement wherein it was seen that only Rs.1,20,83,456/- was claimed as exempted income u/s 10 (38) of the Act, hence he revised the disallowance and restricted the same to Rs.1,20,83,456/-. Accordingly, he concluded the assessment vide order dated 25.05.2023 u/s 143(3) r.w.s. 147 r.w.s. 144B of the Act and assessed the income as under :- Sl.No. Description Amount in INR 1. Income as per Return of income filed u/s 139 (1) Rs.21,02,760/- 2. Income as per return of income filed u/s 148 Rs.21,02,760/- 3. Variation in respect of issue of disallowance Rs.1,20,83,456/- 4. Total Income/Loss assessed u/s 143(3) r.w.s. 147 r.w.s. 144B Rs.1,41,86,216/- R/o Rs.1,41,86,220/- 3 Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and raised grounds of appeal as well as filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the addition made by the AO. 4 Aggrieved, assessee is in appeal before us raising following grounds of appeal :- “1. That the Learned CIT (Appeals) erred in law as well as on fact in making addition of Rs.1,22,25,792/- of the Income Tax Act by treating the entire capital gains u/s 10(38) of listed shares of M/s. Achal Investments Ltd. as bogus and unexplained money which is based merely n assumptions and which is totally unjustified and baseless. 5 ITA No.4858/DEL/2024 2. That the Learned CIT (Appeals) erred in law as well as holding the decision of the assessing officer on the issue of disallowance of exemption of u/s 10(38) on long term capital gain on sale of listed equity shares, which is illegal and unjustified. 3. That the Learned CIT (Appeals) erred in law as well as on fact by not giving any opportunity of being heard and cross examining the findings of the Investigation Wing of the department which is formed as the base to proceed with the whole case. 4. That the Learned CIT (Appeals) while passing the order has not considered the various bindings judgments by Honorable Courts and Tribunals as cited by the Appellant during the course of proceedings.” 5 At the time of hearing, ld. AR for the assessee briefly submitted the facts of the case and submitted detailed written submissions, which is reproduced below for the sake of brevity :- “Detailed Submissions of Grounds of Appeal no.1, 2, 3 &4:- 1.1. Documentary evidences and submissions for substantiating the validity of transactions: The assessee has purchased shares of Achal Investments Ltd, share certificate of which are present with the assessee. The share certificate duly signed and stamped by the Directors of the company bearing certificate no. 1529ZG was originally issued in the name of Radha Rani Charitable Trust of 25000 shares of paid up Rs. 10 each having distinctive No. from 2760501 to 2785500 on 11.10.2012. The share certificate was transferred dated 10.11.2012 via transfer No. 730 and Folio No. 1527 in the name of Vijay Kumar Kaul. The assessee has then purchased 25000 shares in cash dated 12.11.2012 from Vijay Kumar Kaul at Rs. 3.50/- amounting to Rs. 87,500/- via transfer no. 1268 and Folio No 1693. 1.2. As per the records of the company and share certificate available, the shares got transferred in the name of assessee which comprises of 6 ITA No.4858/DEL/2024 25,000 shares of Rs. 10 each. The share later got split into Rs. 1 and the assessee got 2,50,000 shares after share split. Also, the shares held by the assessee can be verified as per share certificate bearing certificate no. 40326 and Folio No. 1693 dated 13.11.2014 in which it clearly shows that the assessee holds 2,50,000 shares from Distinctive No. 15023961 to 15273960 of the company. The 250000 shares of Achal Investment having ISIN INE860P91025 can be seen in demat account of the assessee as on 17.12.2014. The above relevant documents are being enclosed on page no 82-86 in the paper book before you for your kind reference 1.3. The appellant made sales of 250000 Achal Investment shares through well known broking house Prabhudas Lilladher Pvt Ltd having a gross receipts of Rs.1,21,88,682.52/- and paid Security Transaction Tax and other expenses amounting to Rs. 17,659.19/- on the same making the Net Receipts amounting to Rs.1,21,71,023.33/-. The details are as following: Date Contract Note No. Qty Rate of Sale Amount net of brokerage STT and other expense Net Amount 02.03.2015 DR/226/425156-1 39000 47.89 1867740.00 2675.5 1865064.5 05.03.2015 DR/229/431386-1 30000 48.85 1465500.00 2132.42 1463367.58 09.03.2015 DR/230/434499-1 35000 49.20 1722142.52 2495.78 1719646.74 10.03.2015 DR/231/438303-1 40000 48.90 1956000.00 2835.97 1953164.03 12.03.2015 DR/233/442359-1 30000 48.90 1467000.00 2134.5 1464865.5 13.03.2015 DR/234/443270-1 40000 48.75 1950000.00 2829.65 1947170.35 19.03.2015 DR/238/454037-1 36000 48.90 1760300.00 2555.37 1757744.63 250000 12188682.52 17659.19 12171023.33 Copy of all the contract notes are enclosed on page no. 75-81 in the paper book for your kind reference. 1.4. Resulting to which the appellant had made a gain of Rs. 1,20,83,456/- after deducting purchase cost of Rs. 87,500/- from sales price Rs. 1,21,71,023/- (Sale net of expenses). Also, the appellant has disclosed the amount of profit under Long Term Capital Gains amounting to Rs. 1,20,83,456/- which is exempt u/s 10(38) of The I.T. Act. The above facts can be verified from the ITR-2 of AY 2015-16 having acknowledgement number 102630450071221 from the e-filing portal of the Income Tax. 7 ITA No.4858/DEL/2024 Copy of ITR V and ITR form no.2 along with computation of income for the relevant year has been enclosed on page no. 58-74 in the paper book for your kind reference. 1.5. The appellant maintained demat account no.1201130000547356 with Prabhudas Lilladher Pvt Ltd in which it can be clearly seen that the shares of Achal Investment having ISIN INE860P91025 shown in the opening balance of the Demat account of the appellant and the shares sold are also mentioned in the said statement. The DP Client Transaction statement of Demat Account of the appellant with Prabhudas Lilladher Pvt Ltd for the period of 01.04.2014 to 31.03.2015 is also attached for your kind reference in the page no. 87-88 of the paper book. 1.6. As regards the reasons for purchasing the above scrips, the appellant usually trades in the share market based on the advises received from friends and family and purchases shares of different types of companies from large cap to small cap. Investment in Achal Investment was also based on a similar kind of advise and luckily the assessee made a handsome amount of gain on his investment. The appellant purchased the shares on the price that existed at the time and had no control over those prices whatsoever. The assessee is clear in his intention that she has booked profits on her investment as and when she felt was the right time to book profits. There have been numerous other occasions as well on which the prices of shares have raised and the trader has gained manifold in a period of no time. Any amount of huge profits in trading of shares cannot be said to be bogus transaction merely because there was a huge amount of profit on the investment. 1.7. Also, the appellant would like to submit that most of the people in Indian stock market heavily depend on the advice received from family and friends while trading in shares. Many investors lack the expertise to thoroughly analyse a company’s financial, making the advice like a viable shortcut. Similarly, the appellant did not have expertise in analyzing the company’s financial and made an investment based on the advises received and luckily was able to secure a handsome amount of gain on the same. Hence, making an investment based on a tip doesn’t mean that the investment was an outcome of fraudulent intention. 1.8. Further, the appellant has sold the shares through Prabhudas Lilladher Pvt Ltd. a listed stock broker under SEBI, and these shares were traded on the recognised stock exchange. The appellant has no control on the rise of price of share in any way. Also, there are multiple examples where the price of shares have increased multiple times in a short duration of time and have given investors unexpected returns. 8 ITA No.4858/DEL/2024 Few examples of such multi fold increase in price in shares are as follows:  Adani Enterprises Ltd. which is a share listed in Nifty 50 (Stock price increased from Rs.150 in June 2020 to Rs 4,190 in December 2022 which is approximately 28 times of its original price).  Waaree Renewable Technologies Ltd (Stock price increased from Rs. 100 in Feb 2023 to Rs 3037 in April 2024 which is approximately 30 times of its original price).  Oriana Power Ltd. (Stock price increased from Rs. 316 in Nov 2023 to Rs 2984 in June 2024 which is approximately 9 times of its original price)  Trent Ltd. Listed in Nifty 50 (Stock price increased from Rs. 1100 in March 2022 to Rs 8345 in Oct 2024 which is approximately 8 times of its original price)  Diamond Power Ltd. (Stock price increased from Rs. 1.95 in Sept 2022 to Rs 1899.95 in Oct 2024 which is approximately 960 times of its original price) 1.9. Similarly, the appellant had purchased the shares of Achal Investment Ltd. at Rs 3.50 in November 2012 and has sold the shares at Rs. 49.00 (approx.) in March 2015 and the stock price has gained just 14 times in a holding period of around 2.5 years. The facts stated above have been summarised for your kind reference in the Table given below: - Scrip Name Price at Low Price at High Gain in Multiple (Approx.) Time taken for Gain Adani Enterprises Ltd. (Nifty 50) 150.00 4190.00 28 times June 2020 to Dec 2022 Waaree Renewable Technologies Ltd. 100.00 3037.00 30 times Feb 2023 to April 2024 Oriana Power Ltd. 316.00 2984.00 9 times Nov 2023 to June 2024 Trent Ltd. (Nifty 50) 1100.00 8345.00 8 times March 2022 to Oct 2024 Diamond Power Ltd. Therefore, it can be validly said that where the stock price increases manifolds in a very short period of time, it does not always necessarily mean that those share prices were man We have attached below the charts of all the above 5 scrips for your kind reference: Chart of Adani Enterprises Ltd. Chart of Waaree Renewable Technologies Ltd. 9 ITA No. Diamond Power Ltd. 1.95 1899.95 960 times Therefore, it can be validly said that where the stock price increases manifolds in a very short period of time, it does not always necessarily mean that those share prices were manipulated in anyway. We have attached below the charts of all the above 5 scrips for your kind reference: - Chart of Adani Enterprises Ltd. Waaree Renewable Technologies Ltd. ITA No.4858/DEL/2024 Sept 2022 to Oct 2024 Therefore, it can be validly said that where the stock price increases manifolds in a very short period of time, it does not always necessarily ipulated in anyway. We have attached below the charts of all the above 5 scrips for your Chart of Oriana Power Ltd. Chart of Trent Ltd. Chart of Diamond Power Ltd. 10 ITA No. Oriana Power Ltd. Diamond Power Ltd. ITA No.4858/DEL/2024 11 ITA No.4858/DEL/2024 1.10. It is a trite law that unless some defects are pointed by the AO in the documents submitted, the same needs to be accepted. In this case, from the perusal of the assessment order/ CIT(A) order it shall be clear that the same does not contain even a whisper that the document submitted by the Appellant was not genuine/ were defective. It is submitted that the payments were received through banking channels and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demats accounts. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled. It may be the case that the share price of the aforesaid scrips could be subject matter of artificial price rigging, but there is no evidence brought on record by the Ld. AO that either the assessee or his stock broker was involved in connived transactions in order to earn the exempt long-term capital gains. The entire exercise of reopening and the consequential re-assessment had been made by the Id. AO only out of pure surmise and conjecture. 1.11. The assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains in a short period, does not mean that the transaction is bogus, as all the documents and evidences have been produced before assessing officer. The shares were sold on different dates through recognized stock exchange at quoted price. Hence, the AO should not doubt on the appellant’s intention just because the rise in price of shares. 2. No Cross Examination Granted To The Appellant Despite Being Specifically Asked For: It is trite law that any document or any statement which has been relied by the department is to be confronted to the assessee and the cross- examination of such person whose statement has been recorded of these persons is required to be given. In this case, the assessee has not been provided any cross-examination. 3. The whole observation in the order issued by AO is based on preponderance of probability and assumptions: 3.1. It has been directly concluded by AO in his order that the transaction undertaken is bogus and unexplained money is based merely on assumptions and which is totally unjustified and baseless. The whole observation in the order issued by AO is based on preponderance and on the basis of theory that there were no underlying fundamentals of Achal 12 ITA No.4858/DEL/2024 Investments Ltd which would have justified the price rise. The appellant states that even assuming (but not admitting) that certain persons who rigged the price of the shares, the Appellant was neither a party to the same. The appellant sold the shares at the price available on the stock market. 3.2. The Ld. Assessing Officer has alleged that the transaction by the Appellant with these particular broker or share was bogus, merely because of the findings against Nagpal Group or its activity. Appellant cannot be said to have entered into ingenuine transaction, insofar as, appellant is not concerned with the activity of the Nagpal Group and have no control over the same. The appellant is clear in her intention that she has booked profits on her investment as and when she felt was the right time to book profits. Hence, it is respectfully submitted that a mere presumption on the basis of conjectures, surmises and premises that in the guise of long-term capital gain income, appellant’s own unaccounted income/on-money, had been routed in its books of account, and without bringing on record any corroborating material or evidence, to substantiate the source and generation of ‘on-money’ by the appellant, is in contravention of the well settled and established position of Law. 4. Reliance Placed On The Alleged Investigation Report Is Bad In Law/ Cryptic: A perusal of the assessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the assessment order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the Assessee. 5. The Appellant Was Not Party To The Alleged Price Rigging: 5.1. Neither SEBI nor any other authority has made any allegation against the Appellant. Even during the investigation carried out against Nagpal Group, the authorities have not found any material showing the involvement of the Appellant. 5.2. If some persons connive to rig the prices of shares of a listed company, that would not mean that every person who sold shares of that listed company on stock exchange, was party to the design of price rigging. Since these shares are listed on the stock exchange, there would always be persons who have sold the shares without being party to the price 13 ITA No.4858/DEL/2024 rigging. The listed shares are available to every owner of shares across the country and it would be unreasonable to proceed on the basis that all such sellers throughout the country have connived to rig the share prices. 5.3. And, unless there is evidence of a particular person's connivance, it cannot be assumed that he was party to the design/ price rigging. When the Appellant observed the price of the shares rising, without being aware of the reason for increase in the price, the Appellant started selling these shares. Even if the prices would have risen on account of any alleged price rigging by certain persons, such price would be available to every owner of shares including the Appellant for selling without being aware of the price rigging. 6. Appellant is eligible to avail benefit of exemption under Section 10(38): 6.1. “Section 10(38) of the Income Tax Act states that: When you get long-term capital gains by selling equity shares of an equity-oriented mutual fund, it is exempted from Income Tax calculation. However, the Securities Transaction Tax must be paid. This is applicable only for the long term capital gain earned till 31st March 2018.” 6.2. Having stated the facts of law it can be said that Appellant is fully eligible to avail benefit of exemption under Section 10(38). The Ld. Assessing Officer has considered Long Term Capital Gain as bogus purely on surmises and conjuncture. The AO has neither found any direct or indirect incriminating material /documents against the appellant nor any evidence has been brought on record to establish any link between the appellant with the entry operators who were allegedly involved in the share price rigging. Thus, no transaction can be held as bogus unless the same is proved on the basis of sound reasoning and evidence. Further, as aforesaid the assessee has complied with the provisions of section 10(38) of income tax act and also disclosed in the ITR for the relevant year. 6.3. The appellant has claimed long term capital gain under Section 10(38) of Income Tax Act amounting to Rs. 1,20,83,456/- after deducting purchase cost of Rs. 87,500/- from sales price Rs. 1,21,71,023/- (Sale net of expenses). Also, the appellant has disclosed the amount of profit under Long Term Capital Gains amounting to Rs. 1,20,83,456/- which is 14 ITA No.4858/DEL/2024 exempt u/s 10(38) of the I.T. Act. The above facts can also be verified from the ITR-2 filed for AY 2015-16 at page no. 72 of the paper book having acknowledgement number 102630450071221 from the e-filing portal of the Income Tax. The copy of same has been annexed in page no. 61 to 74 of the paper book. 7. Reliance placed on various Judicial Pronouncements: In addition to all the above submissions and supporting documents, we would further like to place our reliance on the observations of various case laws that have been decided in favour of the appellant and have provided the benefit of exemption under Section 10(38) of IT Act. We are also enclosing judicial pronouncement of Tribunals and High Court which are listed below and the copies of same as are being enclosed in the Paper Book from Page No 89-147: 7.1. Farzad Sheriar Jehani, Mumbai vs Ito, 17(1)(4), Mumbai on 22December, 2023- ITA NO. 2065/MUM/2023 (A.Y. 2014-15) The relevant points that correlate to our case from above judgement have been reproduced as below: “Considered the rival submissions and material placed on record, we observe that the assessee is not the regular investor and had specifically made the investment in the scrip under consideration. It is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from open market, D-mated the scrips and subsequently sold the same in the stock exchange. It clearly raises several doubts on the purchase and sales transactions recorded in this case. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as unsuspecting investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. In the result, appeal filed by the assessee is allowed.” 15 ITA No.4858/DEL/2024 The above case law is attached for your kind reference in the Paper Book from Page no.89-112. 7.2. The Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held in point 8 that: - The relevant points that correlate to our case from above judgement have been reproduced as below: “Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus, the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITA NO. 2065/MUM/2023 (A.Y. 2014-15) Farzad Sheriar Jehani ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of 16 ITA No.4858/DEL/2024 the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, ITA NO. 2065/MUM/2023 (A.Y. 2014-15) Farzad Sheriar Jehani the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that \"There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.\" The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to 17 ITA No.4858/DEL/2024 allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the ITA NO. 2065/MUM/2023 (A.Y. 2014-15) Farzad Sheriar Jehani Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.” The above case law is attached for your kind reference in the Paper Book from Page no. 113-122 7.3. Mohan Lal Agarwal (Huf), Ghaziabad vs Ito, Ward- 1(4), Ghaziabad on 26November, 2018, I.T.A. No.2766/DEL/2018 The relevant points that correlate to our case from above judgement have been reproduced as below: “6. In any case, even the AO has reported no adverse report in this case, therefore, AO is directed to treat the gain earned by him as 18 ITA No.4858/DEL/2024 genuine and allow exemption u/s 10(38) of the I.T. Act for which the transactions are carried out on which STT has been paid as per law.\" 13. The aforesaid direction of the JCIT to the Assessing Officer clearly clinches the issue in favour of the assessee in both the cases. Thus, the addition made by the Assessing Officer by disallowing the Long Term Capital Gain and treating as unexplained money is deleted. 14. In the result, the appeals of both the assessees are allowed.” The above case law is attached for your kind reference in the Paper Book from Page no.123-129 7.4. Sarika Bindal, New Delhi vs Ito Ward - 5(4), New Delhi on 13 December, 2023, ITA No.1999/Del/2020 The relevant points that correlate to our case from above judgement have been reproduced as below: “2. As per the grounds of appeal, the assessee has challenged denial of exemption of Long-Term Capital Gain (LTCG) claimed under section 10(38) of the Act and additions of Rs.51,41,219/- on account of LTCG under section 69A of the Act. The assessee has also challenged addition of Rs.1,02,824/- on account of unexplained transaction expense under section 69C of the Act. 8.6 In the light of factual matrix and case laws available on record, we see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under s. 69A of the Act is not justified. The Assessing Officer has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. The judgment in Udit Kalrarelied upon by revenue was rendered in the facts of that case and is quite distinguishable. In that case, the financial resources of the company [Kappac Pharma Ltd.] was quite meager and incurring consistent losses as opposed to the facts of the present case. Also, there was specific information that assessee was beneficiary of accommodation entry. Such facts led to adverse conclusion in that case in the setting of facts of that case. 8.7 In the light of delineations, we set aside the order of CIT(A) and direct the AO to delete the additions in question. 9. In the result, appeal of assessee is allowed.” 19 ITA No.4858/DEL/2024 The above case law is attached for your kind reference in the Paper Book from Page no.130-134 7.5. Jyoti Gupta, New Delhi vs Acit, Central Circle- 29, New Delhi on 6 November, 2024, ITA No.5419/DEL/2018 The relevant points that correlate to our case from above judgement have been reproduced as below: “5.During assessment proceedings, the AO observed that assessee has earned capital gain amounting to Rs.1,11,95,949/- from sale of shares of M/s. Trinity Tradelink Ltd. and M/s. CCL International Ltd.. Relevant chart of calculation of long term capital gain and short term capital gain are extracted in the assessment order. The AO observed that assessee has earned windfall gains in both the scrips within a period of short span of time. The AO analyzed both the scrip's trade and price movement from January 12 to December 14 and analyzed the financials of both the companies and observed that share prices of both the companies rose to astronomical height and the rise of shares is not commensurate with the movement of Sensex during the same period. The company has no credentials to justify sharp price rise to the market prices and not backed up with the assets and net worth of the companies. In order to verify, the assessee was to make the personal attendance before the AO and the AO has recorded the statement u/s 131 of the Act. Not satisfied with the statement recorded u/s 131 of the Act, a show-cause notice was issued to the assessee dated 16.12.2016. After considering the submissions of the assessee, the AO found not acceptable to him. The AO proceeded to treat the transactions as penny stock and relying on the investigation report on penny stock from the Investigation Wing, he disallowed the same u/s 68 of the Act to the extent of Rs.1,28,58,450/-. 11. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon'ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed. 12. In the result, appeal filed by the assessee is 20 ITA No.4858/DEL/2024 allowed. 13. With regard to appeal for AY 2016-17, since the facts are exactly similar to AY 2014-15 our above findings in AY 2014-15 are applicable mutatis mutandis in AY 2016-17. Accordingly, the appeal being ITA No.2528/Del/2022 for AY 2016-17 filed by the assessee is allowed. 14. To sum up : both the appeals filed by the assessee are allowed.” The above case law is attached for your kind reference in the Paper Book from Page no.135-147 8. Conclusion:- 8.1. The Learned officer failed to appreciate that the provision of section 10(38) of the Income Tax Act, 1961 are attracted since the Appellant has offered explanation about the nature and source of investments supported by all documentary evidence as requested by learned officer which the learned officer erred in not considering these evidence. 8.2. The Ld. Assessing Officer has failed to bring material on record to support its finding that there has been collusion/connivance between the Broker and the appellant for the introduction of its unaccounted money. 8.3. It is respectfully submitted that a mere presumption on the basis of conjectures, surmises and premises that in the guise of long-term capital gain income, appellant’s own unaccounted income/on-money, had been routed in its books of account, and without bringing on record any corroborating material or evidence, to substantiate the source and generation of ‘on-money’ by the appellant, is in contravention of the well settled and established position of Law. 8.4. Therefore, the statutory onus, as casted upon the appellant by numerous binding judicial pronouncements of the Hon’ble ITATs and High Courts, regarding the establishment of authenticity and genuineness of the said share transactions and the resultant long term capital gain, stands fully and completely discharged and as such there is no lawful basis, whatsoever, to justify the pre-meditated presumption of considering the fully lawful exempt long term capital gain being earned by the appellant as accommodation/bogus/sham entries, without bringing any cogent material on record, and without establishing any nexus of the assessee, with the so called alleged entry operators. In view of these submission, disallowance of Rs. 1,20,83,456/- should be deleted. Prayer: - In view of the above facts, submissions, documents, legal documents and binding judgements it is requested before the Hon’ble Bench of ITAT that the addition of Rs. 1,22,25,792/- u/s 69A of the Income Tax Act made by the AO be deleted and serve the justice.” 21 ITA No.4858/DEL/2024 6 On the other hand, ld. DR for the Revenue vehemently argued that the issue involved in this case is penny stock and lower authorities have given elaborate findings, however, assessee could not explain why the assessee has made the investment on this company which has no financial capacity and not justified enough material to make investment in this company. Ld. DR prayed that addition may be sustained on the basis of detailed findings of lower authorities. 7 Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from other party, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the Revenue has not brought on record any materials linking the assessee in any of the dubious 22 ITA No.4858/DEL/2024 transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without there being any material against the assessee. We observed that Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: - “1. The following question of law is proposed: \"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?\" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. (\"RFL\") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (\"STT\") has also been paid. The 23 ITA No.4858/DEL/2024 Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs.” 10. Further, Hon’ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - “8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the 24 ITA No.4858/DEL/2024 veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out 25 ITA No.4858/DEL/2024 the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 26 ITA No.4858/DEL/2024 12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed.” 27 ITA No.4858/DEL/2024 11. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the grounds raised by the assessee. Accordingly the grounds raised by the assessee are allowed. 12. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 23rd day of April, 2025. Sd/- sd/- (YOGESH KUMAR U.S.) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.04.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "