SOHAN BANWARILAL KUMAWAT,MUMBAI V. INCOME TAX OFFICER-WARD 42(1)(5), MUMBAI

ITA 1778/MUM/2025

AI Insights

The case involves Sohan Banwarilal Kumawat, the appellant, who contested the orders of the National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2012-13. The primary issues revolved around the reopening of proceedings under section 147 of the Income Tax Act, 1961, and the addition of Rs. 38,42,236 as unexplained cash credits under section 68, related to the sale of shares of M/s Diamant Infrastructure Ltd. The AO had initially added the entire sale proceeds as unexplained, citing manipulation by a syndicate group. The CIT(A) upheld these additions, leading to the appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398136 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2012-2013
• Other Referred Cases: Sh. Udit Kalra, Ms. Suman Poddar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASIF KAR MALI
• Assessee Lawyers: HIMANSHU GANDHI
• Keywords: Set aside; Opportunity of being heard; Unexplained cash credit; Unexplained expenditure; Penny stocks; Bogus
• Section: 147; 148; 68; 69C; 234B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “J(SMC)” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SHRI GIRISH AGRAWAL (ACCOUNTANT MEMBER) I.T.A. No. 1778/Mum/2025 Assessment Year: 2012-13 Sohan Banwarilal Kumawat C/o CA Himanshu Gandhi, 16th Floor, D Wing, Trade World Building, Kamala Mills Coumpound, Lower Parel Maharashtra-400013 PAN:AXUPK2886R Vs. Income Tax Officer- Ward 42(1)(5) Kautilya Bhawan, Bandra Kurla Complex, Mumbai-400051 (Appellant) (Respondent) Appellant by Shri Himanshu Gandhi Respondent by Shri Asif Karmali, SR. D.R. Date of Hearing 02.06.2025 Date of Pronouncement 05.06.2025 ORDER Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 28/01/2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2012-13 on following grounds of appeal : 2 ITA no.1778/Mum/2025; A.Y. 2012-13 Sohan Banwarilal Kumawat “1. On the facts and circumstances of the case and law, the Ld CIT(A) erred in confirming the action of the Ld AO in reopening the proceedings u/s 147 of the Income Tax Act, 1961 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming addition of Rs.38,42,236 being the sale proceed of sale of shares of M/s Diamant Infrastructure Ltd under section 68 of the Income Tax Act, 1961 as unexplained cash credits by alleging that transaction incurred by the appellant are non- genuine. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in not deleting the estimated income of Rs. 5,63,785/- (being 5% of Rs. 1,12,75,697/-) transaction in shares other than Shares of Diamant Infrastructure Ltd) and erred in remitting the issue to the file of Ld AO for proper computation even though all details were available before him. 4. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming charging of interest under section 234A and 234B of Income Tax Act, 1961. 5. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.” Brief facts of the case are as under: 2. The assessee is an individual and filed its return of income on 17/10/2012, declaring total income at Rs.4,04,230/-. A search action was carried out in the case of Sh. Naresh Jain and Associates throughout the country by DIT (Inv.) Mumbai. The search action revealed of the working and operation of a syndicate which organised a racket for generating bogus LTCG/ bogus STCG/bogus Loss, as required by various beneficiaries. 2.1 The Ld.AO observed that, the assessee is also one of the beneficiary, wherein he indulged in the purchase and sale of penny stock, being M/s Diamant Infrastructure Ltd. Notice u/s 148 was thus issued to the assessee. The Ld.AO referred to the 3 ITA no.1778/Mum/2025; A.Y. 2012-13 Sohan Banwarilal Kumawat findings of the Investigation Wing and observed that, there were certain penny stocks which were decisively proven to be manipulated by the syndicate group members. Relying on the decision in the case of Sh. Udit Kalra passed by the H’ble Delhi Tribunal & decision of H’ble Delhi High Court in the case of Ms. Suman Poddar, the Ld.AO added the entire sale proceeds of Rs. 38.42 lakhs as unexplained cash credit. 2.2 The AO further added Rs. 1,15,267/-, which represented 3% of total sale proceeds, as commission paid by the assessee to various brokers/exit providers. 2.3 The Ld.AO observed that the assessee indulged in share trading through NSE and BSE for a total amount of Rs. 1.51 crores. After reducing Rs. 38.42 lakhs, which was separately brought to tax, the AO was left with the balance amount of Rs. 1.12 crores. 2.4 The Ld.AO also observed that the assessee had purchased and sold many scrips during the year but the quantitative details like the period of holding and the quantum of shares etc. were not furnished in the absence of such details, the AO added an amount of Rs. 563785/-, which represented 5% of this balance amount of Rs. 1.12 crores. Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A). 3. The Ld.CIT(A) upheld the additions made by the Ld.AO by observing as under: “In the instant case, the AO had brought on record that the scrip dealt with by the appellant i.e. M/s. Diamant Infrastructure Ltd. is a penny stock company. The Investigation Directorate had given detailed findings indicating bogus LTCG/LTCL being claimed by a large number 4 ITA no.1778/Mum/2025; A.Y. 2012-13 Sohan Banwarilal Kumawat of beneficiaries by transacting in the shares of the said company. The investigation report contained the modus-operandi of involvement of operators, intermediaries and the beneficiaries. Relying on all the judicial pronouncements cited above, it is felt that the AO had rightly held the amounts transacted by the appellant in penny stock company as bogus. The addition made by the AO is upheld, Ground no. 2 is dismissed. Ground no. 3 is against the addition made of Rs. 115237 7/-, added as unexplained expenditure u/s 69C of the Act. It is seen from the Assessment Order that the AO presumed payment of commission to the brokers and the exit providers and estimated an expenditure which is calculated @3% of the sale proceeds of Rs. 38.42 lakhs. There is nothing on record to suggest any such expenditure being incurred by the assessee. There can be no presumption with respect to any expenditure. Considering the same, the addition made by the AO is directed to be deleted. Ground no. 3 is allowed. Ground no. 4 & 6 are against the addition made of Rs.563785/-. The AO observed that the appellant had undertaken transaction of Rs 15117933/- comprising of purchase and sale of shares. After reducing the amount of Rs. 38.42 lakhs, which was separately added, the balance amount of transactions is of Rs. 11275697/-. On the grounds that the quantitative details and the period of holding differed for each of the scrips, the AO estimated the income @5% on this balance amount. The appellant pleaded that the AO erred in adding the impugned amount as STCG. After perusal of the assessment order and the submission of the assessee, it is felt that the issue should be set aside to the file of the AO for proper computation. The assessee is directed to furnish all the relevant details to the AO and the AO is directed to assess any income generated out of the balance share transactions of Rs. 1.12 crores. Ground no. 4 & 6 are set aside to the AO.” Aggrieved by the order of the Ld.CIT(A) assessee is in appeal before this Tribunal. 4. The Ld.AR submitted that, the assessee did not take any benefit of the loss earned from sale of alleged stock, M/s. Diamant Infrastructure Ltd. It is submitted that, the assessee offered only commission income earned from financial and brokerage activities under 44AD. Refereeing to the computation 5 ITA no.1778/Mum/2025; A.Y. 2012-13 Sohan Banwarilal Kumawat of income filed before this Tribunal and the return of income placed at page 4 of the paper book, the Ld.AR submitted that, no capital gain loss was claimed, which is admitted by the Ld.AO in the assessment order. He thus submitted that, no addition can be made in the hands of the assessee on a notional basis. 4.1 On the contrary the Ld.DR submitted that, except for the bank statements nothing was filed by the assessee in respect of the trading activity carried on by it amounting to Rs. 1,51,17,933/- He submitted that, the Ld.AO in the assessment order observed that, assessee sold and purchased at the floor of NSE/BSE the said quantity, out of which, the sale proceeds received by the assessee while transacting in the script of M/s. Diamant Infrastructure Ltd, is to the tune of Rs.38,42,236/- disallowed. 4.2 It is noted that, the Ld.AO made ad hoc disallowance 3% towards commission u/s.69C in respect of the sale proceeds received from sale of Diamant Infrastructure Ltd. 4.2.1 And 5% of the total sale purchase transaction under taken by the assessee was disallowed due to non filling of the quantitative details and the period of holding of the other scripts. 5. In the interest of the justice we deem it appropriate to remit this issue back to the Ld.AO for denovo consideration to verify the transaction of sale and purchase undertaken by the assessee in various scripts at BSE-NSE floors. 5.1 Needless to say that, merely because Diamant Infrastructure Ltd. is alleged to be a penny stock, unless correlation is made in respect of the phenomenal price rise with a transaction under taken by the assessee addition cannot be 6 ITA no.1778/Mum/2025; A.Y. 2012-13 Sohan Banwarilal Kumawat made in the hands of the assessee unless the Ld.AO makes out a case of unaccounted money through impugned shares in the hands of the assessee no disallowance can be made in respect of the same. 6. With the above direction we remit this issue back to the Ld.AO to considerate afresh in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. Accordingly the grounds raised by the assessee stands partly allowed for statistical purposes. In the result the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 05/06/2025 Sd/- Sd/- (GIRISH AGRAWAL) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 05/06/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai "