Ronak Ashvin Sanghavi Vs ITO (ITAT Mumbai)
The Mumbai ITAT deleted additions made against Ronak Ashvin Sanghavi on account of alleged bogus Long-Term Capital Gains (LTCG) from shares of GFL Finance India Ltd., holding that the Revenue had failed to produce any cogent evidence linking the assessee with any price manipulation or accommodation entry arrangement.
The assessee had earned LTCG of ₹12.25 lakh on sale of shares purchased through a recognised stock exchange and claimed exemption under section 10(38). Based on information received from the Kolkata Investigation Wing regarding alleged penny stock transactions, the Assessing Officer reopened the assessment and treated the entire sale consideration of ₹14.43 lakh as unexplained cash credit under section 68. An additional amount of ₹43,307, being 3% of the alleged gain, was also added under section 69C as presumed commission paid to entry operators.
Before the Tribunal, the assessee demonstrated that the shares were purchased through a SEBI-registered broker, payments were made through banking channels, shares were held in a demat account, sales were routed through the stock exchange, and Securities Transaction Tax (STT) had been paid. The assessee had also sought cross-examination of persons whose statements formed the basis of the investigation report, but such opportunity was denied.
The Tribunal observed that the assessee had produced complete documentary evidence including contract notes, demat statements and bank records. Neither the AO nor the CIT(A) had brought any adverse material to discredit these documents. Importantly, no independent investigation was carried out to establish any nexus between the assessee, his broker and the alleged price-rigging activities. There was also no evidence that the assessee’s broker had been found by SEBI or any authority to be involved in manipulation of the scrip.
Relying on various High Court decisions, including the Bombay High Court ruling in PCIT v. Indravadan Jain (HUF), the Tribunal held that genuine stock exchange transactions supported by documentary evidence cannot be disregarded merely because the scrip was later identified as a penny stock or because general investigation reports existed against other persons. Suspicion, however strong, cannot substitute evidence.
Accordingly, the Tribunal deleted the addition of ₹14.43 lakh under section 68 and, as a consequence, also deleted the alleged commission addition of ₹43,307 under section 69C.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by assessee is directed against the order of ld. CIT(A)/(ADDL/JCIT(A), Thiruvanantpuram) dated 17.12.2025 for Assessment Year (AY) 2013-14. The assessee has raised following grounds of appeal:
“1. The order dated 17/12/2025 bearing No. ITBA/NFAC/S/250/2025-26/1083790642[1] by the CIT[A], National Faceless Appeal Centre, Delhi is arbitrary, against natural justice, unlawful, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed.
2. On facts and in the circumstances of the case and in law the C.I.T.(Appeals) has erred in confirming the addition made u/s 68 of the Income Tax Act, 1961 amounting to Rs. 14,43,569/- on account Long Term Capital Gain claimed exempt under section 10(38) of Income Tax Act, 1961 by the appellant, even though the assessee has furnished all the relevant documents / papers with respect to the said transactions.
3. On facts and circumstances of the case and in law the CIT(Appeals) has erred in confirming addition made u/s 69C of the Income Tax Act, 1961 amounting to Rs. 43,307/- being commission paid @ 3% of the Long Term Capital gain.
4. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal.”
2. Brief facts of the case are that assessee is individual filed his return of income for A.Y. 2013-14 on 22.07.2013 declaring income of Rs. 14,90,440/-. Initially, the assessment was completed under section 143(1). Subsequently, the case was reopened on the basis of information that as per information in ITD data system based on investigations carried out by Kolkata Investigation Wing, which revealed that a number of persons availed bogus Long Term Capital Gain, on payment of commission through penny stock company. The assessee is one of the persons who is beneficiary of such entry of Long-Term Capital Gain (LTCG). The assessee has shown Long Term Capital Gain on sale of script of GFL Finance India. On the basis of such information the case of assessee was reopened under section 147. Notice under section 148 dated 15.09.2016 was served on the assessee. During re-assessment the assessing officer (AO) on perusal of computation of income noted that the assessee has shown LTCG of Rs. 12,25,549/- on sale of shares of GFL Finance India. The assessee purchased 13818 shares on 07.12.2011 at Rs. 2,14,732/- and sold these shares from 23.01.2013 to 28.01.2013 on total sale value of Rs. 14,43,569/-. The shares were purchased at a very low price and sold at a high price. The AO in para-17 of his order recorded that statement of assessee was recorded on 19.12.2017. The AO during assessment by referring modus operandi of penny stock scrip issued show cause notice to the assessee as to why sale consideration received on sale of such share should not be treated as unexplained cash credit under section 68. The AO recorded that assessee filed reply and it was examined. The assessee also requested for cross-examination of parties on whose statement his case was reopened. The request of assessee was rejected on the ground that parties who was made statement is located in Kolkata. The AO treated the entire sale consideration of Rs. 14,43,569/- as unexplained credit under section 68. The AO also added 3.00% of commission that is Rs. 43,307/- in the assessment order dated 28.12.2017.
