SHRENIK KUMAR VIRCHAND MARDIA ,MUMBAI V. ITO WARD 23(3)(6), MUMBAI

ITA 558/MUM/2025

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The case revolves around an appeal by Shrenik Kumar Virchand Mardia against the order of the National Faceless Appeal Centre, which upheld the reassessment made by the Income-tax Officer under sections 147 and 144B of the Income-tax Act, 1961. The reassessment was based on the suspicion that the assessee's transactions in shares of AMML, a company identified as a shell company, were sham transactions aimed at generating bogus long-term capital gains. The Tribunal examined the evidence presented, including bank statements, contract notes, and demat account statements, and found that the assessee had substantiated the genuineness of the transactions. The Tribunal also noted that the Investigating Authority's report, which formed the basis of the reassessment, did not specifically implicate the assessee in any wrongdoing.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24051 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Other Referred Cases: CIT vs Shyam R Pawar, PCIT-3, Mumbai vs. Ziauddin A Siddique, Vijayrattan Balkrishan Mittal vs Dy.CIT, Archit Gupta vs. ACIT, PCIT V/s Swati Bajaj
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITHA KAUSHIK SRDR
• Assessee Lawyers: R.M. JAIN
• Keywords: Set aside; Corroborative evidences; Unexplained expenditure; Income from undisclosed sources; Cost of acquisition; Reopening of assessment; Capital Gains; Accommodation entries; Earning of tax free income; Share purchase agreement; Bogus
• Section: 147; 148; 250; 139(1); 68; 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFOR SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND MISS PADMAVATHY S. ACCOUNTANT MEMBER ITA No. 558/Mum/2025 (Assessment year: 2015-16) Shrenik Kumar VirchandMardia, Ground Floor, 38, Champa Galli, Kalbadevi, H.O. Mumbai- 400 002 PAN: AABPM7666H vs Income-tax Officer, Ward 22(3)(6), Mumbai, Piramal chambers Dr S.S. Rao Marg, Parel, Mumbai- 400 012 APPELLANT RESPONDENT Assessee by : Shri R.M. Jain Respondent by : Ms. Kavitha Kaushik (SRDR) Date of hearing : 21/03/2025 Date of pronouncement : 24/03/2025 O R D E R PER ANIKESH BANERJEE, J.M: The instant appeal of the assessee was filed against the order of the National Faceless Appeal Centre, Delhi (NFAC)[for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2015-16, date of order06.12.2024.The impugned order was emanated from the order of the Assessment Unit, Income-tax Department (in short, ‘the A.O.’) 2 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia passed under section 147 read with section 144B of the Act, date of order 30/05/2023. 2. The assessee has taken the following grounds of appeal:- “1. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming in reopening the case under section 148 of the Act which is bad in law. 2. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. for not providing opportunity to cross examination of the person whose statements are used against me. 3. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. for not proving evidence and materials which are used against me. 4. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. for not allowing long term capital gain of Rs. 2,04,42,976 as exempt u/s 10(38) of the IT Act. 5. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. for addition of Rs.4,08,860/- as commission paid to entry provider without any evidence or materials. 6. The assessee craves leave to add, alter, or amend the existing grounds of appeal on or before the date of hearing.” 3. The brief facts of the case are that the assessee filed a return of income for the impugned assessment year under Section 139(1) of the Act, declaring a total income of Rs.3,70,480/-. Subsequently, upon receiving information from the Investigation Wing, the Ld. AO discovered that the assessee had traded in the stock of M/s Appu Marketing & Manufacturing Ltd, also known as Ejecta Marketing Ltd (hereinafter referred to as \"AMML\"), through the Bombay Stock Exchange (BSE). The said scrip was identified as a shell company. In connection with this transaction, the assessee earned a capital gain of Rs.2,04,42,976/- and 3 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia claimed the same as Long-Term Capital Gain (LTCG), seeking exemption under Section 10(38) of the Act.Pursuant to this information, the Ld. AO issued a notice under Section 148 of the Act and, after due proceedings, passed an assessment order under Sections 147/143(3) of the Act, treating the aforesaid transaction as a sham. Consequently, the Ld. AO added the entire amount of Rs.2,04,42,976/- to the assessee’s total income. Additionally, the Ld. AO computed a commission of 2% on the purported LTCG, amounting to Rs.4,08,860/-, and made an addition under Section 69C of the Act, attributing it to unexplained expenditure.In reliance on the report of the Investigation Wing, the Ld. AO found that Mr. Prakash Jajodia was the controller and operator of AMML and several other penny stock companies listed on the stock exchange. The modus operandi of these transactions was extensively detailed in the Investigation Wing’s report, which indicated that Mr. Jajodia was engaged in providing accommodation entries to various parties. Based on his statement, the Ld. AO concluded that the assessee was one of the beneficiaries who received accommodation entries concerning transactions in AMML shares.Ultimately, the Ld. AO determined that an income of Rs.2,09,34,035/- had escaped assessment in the hands of the assessee. After deducting the purchase cost of the shares, the net capital gain of Rs.2,04,42,976/- was treated as bogus LTCG and was added to the assessee’s total income. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and submitted all relevant documents as evidence supporting the genuineness of the impugned transaction. However, the Ld. CIT(A) upheld the assessment order.Dissatisfied with the appellate decision, the assessee has now filed the present appeal before us. 4 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia 4. The Ld.AR argued and filed a written submission containing pages 1 to 92 which is kept in the record. The Ld.AR stated that the assessee purchased 1,10,000 shares of AMML on 05/10/2013 for a sum of Rs.11 lakhs. The said payment was made from his bank account. The shares were posted in demat account since 25/10/2013. Out of the said shares, the assessee sold 31800 shares between 19/12/2014 to 16/02/2015 through SEBI registered broker, M/s Allwyn Securities Ltd on BSE platform. On the said sale, STT was paid and the same can be seen in bill and or contract note of Allwyn Securities Ltd. The payment of sale consideration was received through banking channel. 5. During the assessment proceedings and in appeal, the asessee submitted all the relevant documentsas evidence supporting the genuineness of the impugned transaction, which are as follows:- Sr.No. Particulars APB page No. a.Copy of sale of shares through Allwyn Securities Ltd 47-66 b.Copy of demat account for the period FY 2013-14 & 2014-15 67-69 c.Ledger copy of Allwyn Securities Ltd &Global report 70-71 d.Copy of bank statement for payment of Purchase of shares and payment receivedfor sale of shares. 72-78 6. The Ld.AR stated that all the documents were submitted by the assessee by a letter dated 13/06/2022 in relation to show cause notice under section 148A(b) of the Act. The assessee complied the notice vide letter dated 13/05/2023 filed on 5 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia 13/05/2023 and requested for copy of the statement of Mr. Jajodia and other relied upon documents of the department. The assessee had further requested for cross-examination of Mr. Prakash Jajodia. The Ld. AR stated that the Ld. AO passed the final order by passing the letter of the assessee filed on 13/05/2023. Further, all the documents were submitted before the Ld.CIT(A) by a letter dated 25/10/204 which is annexed in APB pages 87-92. The issue was further raised that the said scrip was duly suspended by the SEBI published the list of 331 listed shell companies and restricted them in terms of trading in stock market. The name of AMML was found to be appearing at serial No.4 of the said list. So the status of the AMML is in question related to this transaction in stock exchange platform. In the result, the Ld.AR submitted the documents, which reveal that the said suspension was revoked with effect from 21/11/2016. The relevant document is kept in the record. The Ld. AR respectfully relied on the following judgements which are as follows: - 1. CIT vs Shyam R Pawar 229 Taxman 256 (Bom) 2. PCIT-3, Mumbai vs. Ziauddin A Siddique, ITA No. 454 of 2018 dated 12/07/2023 3. Vijayrattan Balkrishan Mittal vs Dy.CIT 121 taxmann.com 100 (Mum. Trib.) 4. Archit Gupta vs. ACIT [2024] 168 taxmann.com 219 (Delhi-Trib.) 7. The Ld.DR argued vehemently and relied on the order of the revenue authorities. The Ld.DR stated that the entire transaction is a sham transaction 6 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia and Mr. Prakash Jajodia, who is the operator of the said transactions, is usually providing the accommodation entry. So accordingly, the assessee is also taken this accommodation entry from the person related to this scrip. He invited our attention in appeal order page 15, paragraph 5.3.3 to 5.3.5, which are extracted below: “5.3.3 The Assessing Officer found that as per BSE data, the share price of the script registered a massive growth of about 155% during F.Y. 2014-15 within 5 months. Further it was found that the SEBY found M/s Appu Marketing and manufacturing Ltd. (Ejecta Marketing) to be violating various norms and involve in fraudulent trade. The name of this company also appeared in the list of 331 shell companies. 5.3.4 The appellant could not prove purchase of shares through stock Exchange payment of Rs.11 lakh was made to one \"KULTI on 05:10.2013. The Assessing Officer thus found that the purchases were off market. 5.3.5 In case of PCIT V/s Swati Bajaj 2022 139 Taxman.com 352, Hon'ble Kolkata High court held that, \"None of the assessees before us have shown to have to made any risk analysis before making their investment in a \"penny stock\". If according to them they have blindly taken a decision to invest in insignificant companies they having done so at their own peril have to face the consequences. Thus, the conduct of the assessees before us probabilities the stand taken by the revenue, rightly the mind of the assessee as an investor was taken note to deny the claim for exemption. It is in this background that the human probabilities would assume significance. As observed earlier the doctrine of preponderance of probabilities could very well be applied in cases like the present one.\" 8. We heard the rival submission and considered the documents available in the record. We find that the assessee has purchased the shares off-line 1,10,000 shares of AMML. Out of that the assessee sold 31,800 shares and received the amount through banking channel. All the relevant documents are duly submitted 7 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia before the revenue authorities like bill, contract note, bank statement, ledger copy of the broker, which are also annexed in the paper book filed before the Bench. The assessee during the assessment proceeding filed the letter dated 13/05/2023, annexed in APB pages 44 to 46 where the assessee asked for the relied upon documents and the statement of Mr. Jajodia. But by passing the alleged letter of the assessee the impugned assessment order was passed by the Ld. AO. The sale transactions of these shares were also conducted through a banking channel, and the LTCG amounting to Rs. 2,04,42,976/- earned and claimed as exempt income under Section 10(38) of the Act. This exemption applies as the sales were conducted on the Bombay Stock Exchange (BSE) and the requisite Securities Transaction Tax (STT) was duly paid. The Ld. AO, however, treated the LTCG as bogus based on an interim report by the SEBI. Upon examining the final report, we note that SEBI subsequently withdrew the restrictions imposed in its interim order against the AMML vide notice no. 20161116-32 dated 16/11/2016. Furthermore, there is no evidence to suggest that the assessee engaged in price rigging or manipulation of share prices. The assessee submitted all necessary documentation related to the LTCG transactions before the Ld. AO, including contract notes, share certificates, DEMAT account statements, broker confirmations, and transactions through banking channel records. The Ld. AO did not reject any of these primary pieces of evidence. In this context, the Hon’ble Bombay High Court in Shyam R. Pawar (supra) held that when details of share transactions are substantiated by DEMAT account statements and contract notes, and the Assessing Officer fails to prove 8 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia such transactions as bogus, the capital gains cannot be treated as unaccounted income under Section 68 of the Act. Same view is taken in the case of Ziauddin A Siddique (supra). Similarly, the Coordinate Bench-E of ITAT-Mumbai in Vijayrattan Balkrishan Mittal (supra) observed that additions under Section 68 cannot be sustained when the assessee has provided sufficient evidence to establish the identity, source, and nature of the transactions, and the Assessing Officer has not identified any deficiencies in such documents. In the case of Archit Gupta (supra) the coordinate bench of ITAT-Delhi held that where all characteristics of penny stock existed in present case, however, revenue had not brought on record any materials linking assessee in any of dubious transactions relating to entry, price rigging or exit providers and even in SEBI report, there was no mention or reference to involvement of assessee, impugned reopening of assessment on ground that assessee had earned LTCG on sale of shares through accommodation entries was unjustified. Conversely, the Ld. DR relied on the judgment in Pr. CIT-V, Kolkata vs. Swati Bajaj, 139 taxmann.com 352 (Cal). While we have respectfully considered this case, we note that the Tribunal disposed of 89 appeals in a single consolidated order without taking into account the specific facts of each case. Such a generalized exercise lacks merit when proper facts are not considered. In the present case, the Ld. DR’s argument primary related to transaction which is nothing but accommodation entry. However, it is crucial to note that the assessee sold the shares during the period from 19/12/2014, to 16/02/2015, in a staggered manner. Although SEBI had withdrawn suspension by the notice dated 16/11/2016 w.e.f. 21/11/2016. 9 ITA No.558/Mum/2025 Shrenik Kumar VirchandMardia Upon careful evaluation, we find that the Ld. AO based his allegations against the assessee solely on the report of the Investigating Authority of the Department, without conducting any independent inquiry of his own. Consequently, in the absence of any specific supporting evidence, we find no justification to uphold the allegations.Furthermore, the Ld. AO failed to consider the assessee’s letter dated 13/05/2023, wherein a request was made for the supply of relied-upon documents. Given these circumstances, we are of the considered view that the impugned appellate order is unsustainable. Accordingly, the additions of Rs.2,04,42,976/- and Rs.4,08,860/- are quashed, and the appeal order is set aside. 9. In the result, the appeal of the assessee bearing ITA 558/Mum/2025 is allowed. Order pronounced in the open court on 24th day of March 2025. Sd/- sd/- (MISS PADMAVATHY S.) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 24/03/2025 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 "