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TMI Blog2025 (5) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the price of the shares of the company were manipulated and the company was a penny stock. Therefore, the assessment was reopened and ultimately order of assessment u/s 147/144B of the act was passed thereby making additions 4. Aggrieved by the order of assessment, assessee preferred appeal, however, Ld.CIT(A) after considering the claim of both the parties restricted the additions to the tune of Rs. 92,68,701/- thereby partly allowed the appeal. 5. Aggrieved by the order of Ld. CIT(A) assessee preferred the present appeal before us on the grounds mentioned herein below: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not deciding reopening of the case which was beyond the period of six years. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming stand of A.O. for not providing opportunity of cross examination of the persons including Naresh Jain whose statements have been used against the appellant for making the above addition. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming stand of A.O. for not share the material (report and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be made after the assessee has been given a reasonable opportunity of setting out his case. 7. As the representative of 'Sovereign', Ld. A.O. supposed to follow the basic norms of a quasi- judicial authority i.e. to provide us the material to be against us. In the matter of Dhananjaykumar Singh (402 ITR 91) the Hon'ble Patna High Court has held as under: "It is a cardinal principle of law that if relevant materials and objections are produced before a quasi-judicial authority, the quasi-judicial authority is duty- bound, under law, to advert to them, discuss them and then reject them by recording reasons." 8. In this regard, we would like to draw your attention to the judgment of the Hon'ble Supreme Court delivered in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice. It is a serious f law which renders the order a nullity. 9. We would also like to refer to the judgment of the Hon'ble Apex Court delivered in the case of CIT Vs. Od ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turnover Tax and the payments of same are reflected in Purchase contact notice. (Page 09 of Paper Book) 15. 10,000 share of Ravinay Trading Company Limited was received in her Demat Account maintained in Central Depository Services ( I) Ltd on 25.04.2012 vide ISIN: INE812K01019. (Page 13 of Paper Book) 16. She sold share on following dates. 11.07.2013 1000 shares @ 696.35 15.07.2013 1000 shares @ 770 25.07.2013 1000 shares @ 771.25 12.08.2013 500 shares @ 880 27.08.2013 1500 shares @ 1100 Total Shares 5000 shares 17. The said script was split into 1:5 shares. Consequently, the appellant received 50,000/- shares on 18.09.2013. She sold 50,000 shares on the dates mentioned in the chart given below: 18.09.2013 1500 Shares @ 135.95 31.10.2013 8000 Shares @ 131.10 08.11.2013 1200 Shares @ 132 25.11.2013 4000 Shares @ 120 28.11.2013 11000 Shares @ 122.50 15.07.2013 1000 17.07.2013 1000 29.07.2013 1000 14.08.2013 500 27.08.2013 1500 18.09.2013 5000 18. The Sales contact note clearly reveals about the sale of Price per share, Quantity of Shares sold time of share sold. The appellant had paid Service Tax, Securities Transaction Tax, Stampt Duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd factual data it was clear that NLC was neither penny or a shell company nor were the transactions fictitious, that the she had solely purchased the shares for the purpose of investment on the basis of fundamentals and valuation of the company. It was brought to the notice of the AO that no "information" existed on which the assessment was reopened under section 147 of the Act. 26. It was submitted before the ld. AO. that SEBI or any other regulatory authority had not passed any order against Appellant. 27. But, the ld.AO without considering the above arguments, held that the prof it arising out of sale of shares was not genuine and made an addition of Rs. 1.07 crores to the income of the assessee. 28. I would like to draw your honor's attention towards the Quarterly Financial results of Ravinay Trading Co Ltd (Nyssa Corporation Ltd.) which is as follows:- Quarter Revenue from Operation ( In lakhs) Net Profit (in Lakhs) EPS June 2012 1205.79 215.85 7.19 Sep 2012 1123.43 167.99 5.60 Dec 2012 532.24 69.01 2.30 Mar 2013 307.97 -60.55 -2.02 29. Also Please take note the annual results of Ravinary Trading co. Ltd (Nyssa Corporation Ltd) F. Y Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed Held, yes [Para 3] [In favour of assessee] 33. We would like to draw your kind attention to the judgment of the Hon'ble jurisdictional high court delivered in case of Principal Commissioner of Income-tax v/s. Indravadan Jain, HUF reported in [2023] 156 taxmann.com 605 (Bombay) held as under. While allowing the appeal filed by respondent, the Commissioner (Appeals) deleted the addition made under section 68. The Commissioner (Appeals) has observed that the Assessing Officer himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The Commissioner (Appeals) also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The Commissioner (Appeals) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuine and addition made by Assessing Officer was rightly deleted Held, yes [Para 7] [ In favour of assessee] 35. In the case of PCIT vs. Smt Krishna Devi [2021] 126 taxmann.com 80, the Hon'ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon'ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains. 40. We would also like to place reliance on the decision of Hon'ble Gujrat High Court delivered in the case of Principal Commissioner of Income-tax (Central) v/s. Affluence Commodities (P.) Ltd reported [2024] 161 taxmann.com 476 (Gujarat) whereas held as under. Section 28(i) of the Income-Tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2015-16 Assessee was engaged in trading penny stocks, specifically shares of AIGL and KPL, during relevant period Assessing Officer alleged that purchases were made at artificially high prices and sold at significantly lower rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, and thus, no substantial question of law arose against same Held, yes [Para 4] [ In favour of assessee] 42. Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal Revenue submitted that order of Tribunal was ex-facie erroneous, illegal and perverse because Tribunal deleted additions without appreciating that transaction was pre-arranged as well as sham and was carried out through penny scrip company - However, Tribunal had observed in impugned order that assessee was continuously dealing in share trading of various shares/scrips and said fact was not disputed - Further, Tribunal had observed that scrip of VAS was not black listed by SEBI at relevant point of time Tribunal had also considered order passed by SEBI and nowhere in said order, scrip of VAS was blacklisted or was pennystock or sham and bogus scrips/shares Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of information from DGIT ( Inv.), Kolkata that some companies were engaged in business of issuing pennystocks for which there were large number of beneficiaries claiming bogus long-term capital gain/short-term capital loss/business loss/speculation loss, Assessing Officer found that assessee was one of beneficiaries of said racket and had earned prof it on sale of investments in equity shares of a company, (Rutron) and claimed same as exempt under section 10(38) Assessee had produced relevant records to show allotment of shares by company on payment of consideration by cheque and he dematerialized shares in D-mat account which was also an independent material and said evidence could not be manipulated Further, Assessing Officer had not brought any material on record to show that assessee had paid over and above purchase consideration - Whether in absence of any evidence, it could not be held that assessee had introduced his own unaccounted money by way of bogus long-term capital gain - Held, yes [Paras 9 and 10] [ In favour of assessee] 45. Pavankumar Bachhraj Chandan reported in [2024] 161 taxmann.com 674 (Mumbai Trib.) whereas held as under. Section 68, read with sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and earned a Long Term Capital Gain therein which was claimed as exempt in relevant assessment years - Assessing Officer noted that statement of some persons were recorded by DDIT, Kolkata to show that 'P' ltd was a company engaged in providing bogus accommodation entries Assessing Officer held that long term capital Gain earned by assessee was bogus for reason that there was an unusual rise in price of script and further investigation wing had investigated trading of this company and found that accommodation entry providers were rigging price - Accordingly, he made addition under section 68 Whether since assessee had submitted details of purchase of shares, payment for purchase of shares through banking channel, and had produced order of SEBI where assessee along with others had been exonerated in any manipulation, it clearly proved genuineness of transaction Held, yes Whether further since Assessing Of f icer had not made any inquiry about genuineness of these transaction on documents submitted by assessee and relied only on evidences collected by DDIT Kolkata which were good only for reopening of assessment and for making an addition holding that transaction were bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Quantity of Shares sold time of share sold. The assessee had paid Service Tax, Securities Transaction Tax, Stamp Duty, Turnover Tax and Sebi Turnover Tax, as required by the law. 16. However, AO was of the view that NCL (Nyssa Corporation Ltd) was a penny stock company as per the information received from the investigation wing and the shares were manipulated by broker to give bogus entries of LTCG/LTCL. Therefore assessee was considered to be one of the beneficiaries of the non-genuine LTCG. 17. From the records, we also noticed that during the course of assessment, the assessee was not provided with the statement of said Naresh Jain or any other material used by the AO against the assessee. Even in spite of specific request in this regard made by the assessee, which in our considered view is against the principles of natural justice as the assessee should have been provided fair chance to defend his case. Reliance in this regard is placed on the decision of Hon'ble Apex Court in the case of Tin Box Company 218 of 249 ITR wherein it was held that "assessment orders must be made after the assessee has been given a reasonable opportunity of setting out his case". And in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied to him. 21. We also noticed that since A.O. did not supply the copy of any statement to assessee not even provided with the opportunity to cross examination the person whose statement were used against the assessee, therefore under these circumstances no additions could have been made. 22. Even nothing has been placed on record to show or point out that assessee was related in any manner whatsoever with the company or its director Naresh Jain. Even from the records, we noticed that no preferential shares of the company were granted, whereas the assessee had purchased the shares of M/s Ravinary Trading Corporation Ltd (Now known as Nyssa Corp Ltd) RTC through registered broker. Hence, it can safely be concluded that the assessee was a genuine and regular investor and the share transactions are genuine. Reliance in this regard is placed on the decision of the Supreme Court judgment in the case of "Union of india & Ors. Vs Ashish Agarwal" (Civil Appeal No. 3005/2022, dated 04.05.2022) wherein it was held that A mere mentioning of the name "Naresh Jain" does not suffice the material relied upon by the Revenue. 23. Even we further found that NLC (Nyssa Corporation Ltd) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax V/s. Kuntala Mohapatra [2024] 160 taxmann.com 608 (SC) wherein the Hon'ble Court dismissed SLP filed by the department and held as under: Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 - Capital gains Income arising from transfer of long term securities (Illustrations) Assessment year 2014-15 Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' - On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing Officer's reliance on statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal while dismissing the appeals filed by the revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The Tribunal therefore had rightly concluded that there was no merit in the appeal. [Para 4] 29. Hon'ble Bombay High Court in the case of Commissioner of Income-tax-13 V/s. Shyam R. Pawar reported in [2015] 54 taxmann.com 108 (Bombay) held as under. Section 68 of the Income- tax Act, 1961 Cash credit (Share dealings) Assessment years 2003-04 to 2006-07 - Assessee declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assessee to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus loss Sale of shares) - Assessment year 2011-12 - An information was received from Deputy Director ( Inv.) wherein, it was intimated that VIL was a pennystock which was used to provide accommodation entry of bogus LTCG/loss to beneficiaries It was further intimated that assessee was one of beneficiaries/member of this accommodation entry syndicate On basis of same, addition was made to income of assessee on account of bogus loss on sale of scrip of VIL by it - It was noted that Commissioner (Appeals) and Tribunal had observed that as per SEBI report, script VIL was not blacklisted and was not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker account copies, bills for sales, and bank statements and held that purchases were made through a recognized broker via cheque, establishing their genuineness and, thus, he directed Assessing Officer to delete addition of LTCG claimed as exempt under section 10(38) Tribunal upheld Commissioner (Appeals) decision stating that there was no evidence implicating assessee or broker in any wrongdoing related to SNCFL script - Whether in view of concurrent findings of fact that there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [ In favour of assessee] 35. Hon'ble Mumbai tribunal in case of Ramprasad Agarwal reported in [2018] 100 taxmann.com 172 (Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. Section 68 of the Income-tax Act, 1961 Cash credit (Bogus LTCG on sale of shares) - Assessment year 2014-15 Assessee had sold shares of a company held by it and claimed exemption under section 10(38) on account of long- term capital gain (LTCG) arose on such sale of shares Assessing Officer, being of view that said trading transactions of purchase and sale of shares were not been effected for commercial purpose but to create artificial gains with a view to evade taxes, made an addition under section 68 It was observed that assessee had purchased shares from open market, D-mated scrips and subsequently sold same in stock exchange Further, there was no discrepancies in documents filed by assessee claiming deductions under section 10(38) and revenue had not brought on record any materials linking assessee in any dubious transactions relating to entry, price rigging or exit providers Even in SEBI report, there was no mention or reference to involvement of assessee Whether, therefore, impugned addition was to be deleted - Held, yes [Para 16] [ In favour of assessee] 38. In the case of Gopal Nihchaldas Pariani reported in [2023] 152 taxmann.com 252 (Mumbai - Trib.) held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e report given by the Investigation Wing. However, the details furnished by the assessee would show that the assessee has claimed exemption of Long Term Capital Gain u/s. 10(38) of the Act only to the extent of Rs. 1,30,46,297/-. 12. Be that as it may, we notice that the assessee has purchased shares of M/s. Nyssa Corporation Ltd. in the year 2003 and 2006 and sold the shares in June, 2014. Thus, we notice that the assessee has held these shares for a period ranging from 8 years to 11 years. The Ld.AR further submitted that M/s. Nyssa Corporation Ltd. is one of the group companies of the assessee. It was submitted that Mr Ravindra Kumar V Ruia was a major shareholder in M/s Ravinay Trading Co Ltd (now known as M/s Nyssa Corporation Ltd) in the years 2003 to 2006. He was also a major shareholder in the assessee company in the years 2014-15 and 2015-16. Thus, we notice that the assessee had held the shares of M/s Nyssa Corporation Ltd for quiet long period, which is not the modus Operandi adopted in generation of alleged bogus long term capital gains. The Ld.AR further submitted that the purchase and sale of shares is supported by proper evidences and bank transactions. We notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial consistency and judicial discipline and also taking into consideration the totality of facts and circumstances as discussed in detail in the above paras, we direct the AO to delete the additions made u/s 68 of the Act. Consequently the grounds raised by the assessee are allowed. ITA No. 4616/Mum/2024, A.Y 2015-16 41. Now we take appeal filed by the revenue, the revenue has taken the following grounds of appeal: "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,04,652/- holding as investment pertaining to F.Y. 2012- 13 and sustaining the additions to Rs. 92,68,701/- holding as bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,04,652/- holding as investment pertaining to P.Y. 2012- 13 and sustaining the additions to Rs. 92,68,701/- holding as bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961, by ignoring the fact that assessee has total bogus unexplained cash credits u/s. 68 of the Income Tax Act, 1961 amounting to Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration Ltd (formerly Ravinay Trading Co. Ltd) to the assessee?" 6. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/-made u/s. 68 of I.T. Act, in not appreciating the fact that investigation wing of the income Tax Department, on the basis of gathered evidences, has revealed that Mr.Naresh Jain and his Groups has manipulated stock prices of various scrips including of M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) 'a penny stock to provide false entries of capital gains and losses and that established collusion among Mr. Naresh Jain, stock Promotors, brokers and intermediaries to facilitate these Sham Transactions and found that assessee was one of the beneficiary by transacting in sham transactions in the scrip M/s NYSAA Corporation Ltd (formerly Ravinay Trading Co. Ltd) 'a penny stock?" 7."Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) in deleting the addition of Rs. 15,04,652/- out of Rs. 1,07,91,711/-made u/s. 68 of LT. Act, in not appreciating the fact that there was huge price jump in the script of M/s NYSAA Corporation L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the additions of Rs. 15,04,652/-. Therefore we have decided to take up all the grounds together and adjudicated the same through the present consolidated order. 43. We have heard the counsels for both parties and perused the material placed on record. From the records we noticed that CIT(A) while deleting the part addition had recorded the following findings which are reproduced herein below: However, on the quantum of addition, it is stated that the amount of investment of Rs. 15,04,652/- made in FY 2012-13, relevant to the AY 2013-14, was made out of the balance sheet of the assessee and therefore, only the amount of Gain of Rs. 92,68,701/- should be treated as income u/s. 68, being Unexplained Cash Credit and not the entire consideration received by her for Rs. 107,91,771/-. Therefore, the assessee gets relief of Rs. 15,04,652/-. The AO is directed to modify his addition accordingly. 44. After evaluating the facts of the present case and hearing the parties, we noticed that it is an undisputed fact that the amount of investment Rs. 15,04,652/- was made by the assessee in F.Y 2012-13 relevant A.Y 2013-14 and the same are reflected in the balance sheet of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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