ITO Vs Neelam Mor (ITAT Mumbai)

In this case, the Revenue challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had deleted an addition of Rs. 13,57,75,985 made under Section 68 of the Income-tax Act, 1961. The addition related to long-term capital gains (LTCG) claimed as exempt under Section 10(38) on the sale of shares of Pine Animation Pvt. Ltd., which the Assessing Officer (AO) treated as bogus penny stock transactions.

The assessee had acquired shares of Pine Animation Pvt. Ltd. through preferential allotment in March 2013 by investing Rs. 20 lakh through banking channels. The shares were subsequently dematerialized and sold through recognized stock exchanges during the relevant assessment year. On sale of 12,98,500 shares, the assessee earned LTCG of Rs. 13,57,75,985 and claimed exemption under Section 10(38).

The Revenue’s case was based primarily on information received from the Investigation Wing, Delhi, which had identified Pine Animation Pvt. Ltd. as a penny stock company allegedly involved in providing accommodation entries in the form of exempt LTCG. The AO also relied upon an interim order issued by SEBI, wherein certain entities, including the assessee, had been restrained from dealing in securities pending investigation. According to the AO, the substantial increase in the share price lacked commercial justification, indicating that the transactions were arranged to convert unaccounted money into tax-exempt gains. Consequently, the AO treated the sale proceeds as unexplained cash credits under Section 68 and also made an addition under Section 69C towards alleged commission paid for obtaining accommodation entries.

The CIT(A), however, deleted the additions after examining the documentary evidence furnished by the assessee. The evidence included the preferential allotment offer letter, share application forms, bank statements evidencing payment for acquisition of shares, demat account statements showing credit and debit of shares, contract notes issued by registered brokers, broker reports from SMC Global Securities Ltd. and Kotak Mahindra Bank Ltd., proof of receipt of sale proceeds through banking channels, and details of Securities Transaction Tax (STT) paid on the transactions. The CIT(A) observed that the AO had not found any defects in these documents.

A significant aspect of the case involved SEBI proceedings relating to Pine Animation Pvt. Ltd. The interim SEBI order dated 08.05.2015 had restrained the assessee and other entities from accessing the securities market. However, after conducting a detailed investigation, SEBI passed a final order dated 19.09.2017, holding that no adverse evidence existed against 114 entities, including the assessee, regarding their involvement in price manipulation of the company’s shares. Although SEBI continued proceedings against certain other entities, the restrictions imposed on the assessee were revoked. The CIT(A) considered this final SEBI order as an important piece of evidence favouring the assessee.

The CIT(A) further observed that the AO had relied almost entirely on the Investigation Wing report and the earlier interim SEBI order without conducting any independent inquiry. No evidence had been brought on record to establish any direct link between the assessee and the alleged entry operators or price manipulators. The CIT(A) noted that merely because the shares had been acquired through preferential allotment or because the company was later categorized as a penny stock, the transactions could not automatically be treated as bogus when supported by documentary evidence.

The ITAT Mumbai examined the findings of the CIT(A) and upheld the deletion of the additions. The Tribunal observed that the assessee had discharged the burden of proving the genuineness of the transactions by producing relevant documentary evidence relating to acquisition, holding, and sale of the shares. The AO had neither rebutted these documents nor carried out any meaningful verification to establish their falsity.

The Tribunal also emphasized that the final SEBI order had specifically exonerated the assessee from allegations of price manipulation. The AO’s reliance on the earlier interim SEBI order, while ignoring the subsequent final order, was found to be misplaced. The Tribunal held that the findings of the Investigation Wing were general in nature and did not specifically implicate the assessee.

It was further noted that the shares had been sold through recognized stock exchanges using registered brokers, with sale proceeds received through normal banking channels. The Tribunal observed that, in such transactions, buyers and sellers generally do not know each other. Therefore, in the absence of evidence demonstrating any transfer of unaccounted money between the parties, it could not be presumed that the transactions represented accommodation entries.

The Tribunal reiterated the principle that suspicion, however strong, cannot substitute legal evidence. It held that additions under Section 68 cannot be sustained solely on the basis of presumptions, conjectures, or general investigation reports without corroborative material linking the assessee to the alleged wrongdoing. Since no cogent evidence had been produced to establish that the assessee had participated in price manipulation or introduced unaccounted income in the guise of exempt LTCG, the additions were unsustainable.

Accordingly, the Tribunal upheld the order of the CIT(A) deleting the additions made under Sections 68 and 69C. It dismissed the Revenue’s appeal and affirmed that the assessee’s claim of exemption under Section 10(38) could not be denied merely on the basis of suspicion unsupported by evidence. The Tribunal concluded that the documentary records, coupled with the final SEBI findings, established the genuineness of the transactions.

SEO-Friendly Titles with SEO Descriptions

ITAT Deletes LTCG Addition Because Suspicion Alone Cannot Replace Evidence in Penny Stock Cases

SEO Description: ITAT Mumbai held that additions under Section 68 cannot be sustained merely on suspicion regarding penny stock transactions. The Tribunal ruled that documentary evidence and absence of direct incriminating material supported the assessee’s LTCG claim.

ITAT Allows Exempt LTCG Claim Because Final SEBI Order Exonerated the Investor

SEO Description: The Tribunal relied on SEBI’s final order, which found no adverse evidence against the assessee in the alleged price manipulation case. It held that ignoring the exonerating SEBI findings while relying on interim observations was unjustified.

ITAT Rejects Bogus LTCG Allegation Due to Lack of Independent Inquiry by AO

SEO Description: ITAT ruled that the Assessing Officer could not rely solely on investigation reports without conducting independent verification of the assessee’s evidence. The decision emphasizes the need for corroborative material before invoking Section 68.

ITAT Deletes Section 68 Addition Because Share Transactions Were Supported by Documentary Evidence

SEO Description: The Tribunal found that bank statements, demat records, contract notes, and broker reports established the genuineness of the transactions. It held that properly documented share transactions could not be disregarded without contrary evidence.

ITAT Holds Penny Stock Addition Unsustainable Because Assessee Was Not Linked to Price Manipulation

SEO Description: The ruling clarified that the mere existence of price manipulation in a scrip does not automatically implicate every investor. In the absence of evidence connecting the assessee to the manipulation, the addition was deleted.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal is filed by the Department against the order of Ld. NATIONAL FACELESS APPEAL CENTRE (NFAC) vide DIN: ITBA/NFAC/S/250/2024-25/1071110670(1) dated 11-Dec-2024 for the Assessment Year 2015-16. The Department has raised the following grounds of appeal:

1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire disallowance of Rs. 13,37,75,985/ made by the AO on account of bogus LTCG claimed u/s. 10(38) of the Income-Tax Act, 1961, by selling preference shares of penny stock scrip” M/s. Pine Animation Pvt. Ltd ?”

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire disallowance, without considering the fact that the action of the AO was based on the report of the Pr. Director Investigation Wing of Income-Tax Deptt. Delhi, in respect of transactions of some penny stock companies carried out at NSE and BSE, which was found to be controlled by some hawala Traders, used either for giving artificial gain in the form of LTCG/STCG or STCL to the beneficiaries as per their requirements to evade tax and assessee was found to be one of such beneficiary, who has traded in the penny script, M/s. Pine Animation Pvt. Ltd. (Scrip Code 511421), used to bring her unaccounted money, into her books in the guise of Capital Gain ?”

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire disallowance of Rs. 13,37,75,985/- made by the AO, without considering the fact that there was huge price jump of Penny Stock of M/s. Pine Animation Pvt. Ltd. (Scrip Code 511421), which resulted into suddenly increased of company’s revenue by 9703% Le from Rs. 8,94,000/-in F.Y. 2011-12 to Rs. 86,13,67,52 in F.Y. 2013-14, in-spite of very negligible wealth. worth and without any economic rationale which clearly established that there was an arrangement of converting the un-accounted income into legitimate income under the garb of exempt LTCG/STCG, without paying any taxes and the assessee’s involvement was established in such transactions by availing accommodation entries to defraud the revenue with the clear and planned intension to evade tax ?”

4. Whether on the facts and circumstances of the case and in law, the Ld. CITYA) has erred in deleting the entire disallowance of Rs. 13,37,75,985/-, by ignoring the fact that though the SEBI vide its order ?Ltd. 19.09.2017, has held that there is no adverse evidence against the assessee were found in manipulation of penny stock M/s. Pine Animation Pvt. Ltd, but failed to disclosed any details with the evidences and basis on which the assessee have been acquitted along with other beneficiaries, in violation of provisions of SEBI Act, in case of manipulation of price of pennuj stock M/s. Pine Animation Pvt. Ltd ?”

5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciated the fact that even the SEBI has not denied in its report, that manipulation of price in penny stock M/s. Pine Animation Pvt. Ltd, has been exercised by the promoters/directors during the period F.Y. 2011-12 to 2014-15 and the assessee has transacted in the same period where the manipulation of price was at pick range, henceforth the SEBI has continue its investigation proceedings on promoters/directors/exit providers even after its order Dated. 19.09.2017?”

6. Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred in deleting the entire disallowance, by ignoring the fact that in such cases where there was a suspicious or bogus trade, the onus is on the assessee to establish the genuineness of price hike and also to prove that price of penny stock in which he was traded to claimed LTCG/STCG or loses was not manipulated, as reliance is placed on Hon’ble Calcutta High Court in the decision in the case of Pr. CIT Vs. Swati Bajaj (L.A. No. GA/2/2022 in ITAT No. 6 of 2022, Dated. 14.06.2022 and during the re-assessment proceedings, the assessee has failed to prove that the price of penny stock, M/S. Pine Animation Pvt. Ltd. was not manipulated?”

7. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire disallowance by ignoring the direct and circumstantial evidences in view of the decision in Durga Prasad (1971) 82 ITR 540 (SC) and Sumati Dalal (1995) 80 Taxmann 89(SC)/1995) 2014 ITR 801(SC) (1995), rendered by the Hon’ble Supreme Court, wherein it was held that the court and tribunal have to judge the evidence before it by applying the test of human probabilities, the surrounding circumstances, which had been exercised by the Assessing Officer?”

8. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is erred in deleting the entire addition, without appreciating the fact that, the Hon’ble ITAT, Kolkata in the case of Manoj Jain (HUF) in ITA No 1782/KOL/2018, treated the penny stock transaction as income from other sources instead of LTCG/STCG, and the same was upheld by the Hon’ble High Court Calcutta (2024) 164 com 133 (Calcutta), which has been confirmed by the Hon’ble Supreme Court by dismissing SLP in SLP (c) of 21636/2024 Dated. 20.09.2024 ?”

9. The tax effect involved in this case is Rs. 4,17,38,107/-, which is above the prescribed limit as per CBDT’s Circular No. 09/2024 Dated. 17.09.2024 and Circular No. 09/2024 Dated. 17.09.2024. However, this case falls under the exception within the ambit of exceptional clause 3.1(h), of the CBDT’s Circular, wherein it is stated that in cases involving Organized Tax Evasion” including of bogus LTCT/STCG/losses through penny stocks the decision to file appeal/SLP shall be taken on merit.

10. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary..

2. All the grounds raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the entire disallowance of Rs. 13,57,75,985 made by the AO on account of alleged bogus LTCG claimed under Section 10(38) of the Act by the assessee in respect of sale of preferential shares of penny stock scrip of M/s Pine Animation Pvt. Ltd. Therefore, we have decided to adjudicate these grounds through the present consolidated order. The Ld. DR appearing on behalf of the Revenue, while relying upon the order of the AO, also relied upon the written submissions filed before us.

3. On the contrary, the Ld. AR appearing on behalf of the assessee placed reliance upon the order passed by the Ld. CIT(A).

4. We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that before proceeding further, it is necessary to evaluate the order passed by the Ld. CIT(A) while adjudicating these grounds. The operative portion of the order of the Ld. CIT(A) is contained in paragraphs 21 to 41 and the same is reproduced herein below:

Ground no 3 to 9 are related to addition made by AO under section 68 of the Act on account of bogus LTCG from Pine Animation Pvt Limited- I have considered the order of assessing officer and submissions filed by appellant and perused the materials available on record.

The brief facts of this issue are that the assessee is an individual deriving income from capital gains and income from other sources. The Id. AO observed that during the A.Y. 2015-16, the assessee had sold the shares of Pine Animation Ltd (formerly known as Four K Animation Ltd) and claimed the long-term capital gains thereon as exempt u/s 10(38) of the Act in the return of income. In the opinion of the Id. AO, the said scrip of Pine Animation Ltd is categorized as Penny Stock and hence the long-term capital gains derived from sale of such scrip is to be treated as bogus. Accordingly, the Id. AO sought to examine the purchase and sale details of those shares from the assessee. The details of purchase and sale of shares together with the respective date, number of shares, mode of payment for purchase of shares, name and address of the broker through the shares were sold in recognized stock exchange and computation of long-term capital gains were duly furnished by the assessee before the Id. AO.

The assessee had applied for preferential allotment of equity shares of Pine Animation Ltd of the face value of Rs 10 each and the assessee had made payment of Rs 20,00,000/-which was debited from her account on 11.03.2013. The shares were allotted and transferred in the name of the assessee on 15/03/2013.Share certificate was issued to assessee on 20/05/2013. These shares were converted into demat account by the assessee on 07.04.2014.Shares were sold in the month of August 2014 and September 2014 on BSE through SMC Global securities and Kotak Mahindra Bank Limited.

During the year under consideration, the assessee earned Long Term Capital Gains (LTCG) of Rs 13,57,75,985/- on sale of shares of Pine Animation Ltd, which has been claimed as exempt u/s 10(38) of the Act. It is not in dispute that the shares of Pine Animation Ltd were purchased by the assessee as per the decision and guidance of Shri Anand Mor, brother-in-law of the assessee and he is the main person in the family who takes investment decisions on behalf of the entire family. Shri Anand More in his statement recorded by the investigation wing had stated that he was advised by one of his acquaintances to invest in the preferential issue of shares of Pine Animation Ltd.

The Id. AO has relied upon SEBI’s interim order in the case of Pine Animation Ltd whereby it is noted that price manipulation in scrip of Pine Animation Ltd was done so as to arrange entry of bogus LTCG to various beneficiaries. The name of the assessee figured in this interim order of SEBI as one of the beneficiaries. The Id. AO broadly held that shares were purchased by appellant directly from Pine Animation on 15/03/2013 shares were actually issued after laps of two months. But rights over these shares were created on 15/03/2014 only. On 7/04/2014 these shares were credited in Demat account. Assessee not having any knowledge of share transaction. Financials of Pine were also not lucrative. Company was incurring losses for FY, 09-10, FY 10-11, FY11-12. Shares were purchased offline by assessee. Thus, considering all the materials on record, the Id. AO had made addition u/s 68 of the Act as LTCG on sale of shares of Pine Animation Ltd was not found genuine and it was an arranged transaction to bring in unaccounted money in the books of accounts. The Id. AO has made addition u/s 69C of the Act in respect of unexplained commission expenditure allegedly paid to entry operators to arrange for alleged bogus LTCG.

The order passed by Ld. AO is considered. It is not in dispute that the assessee furnished the following documents in support of his contentions before the lower authorities: –

a) Copy of offer letter by Pine Animation Ltd for issue of preferential allotment of shares.

b) Complete details of bank accounts held by the assessee together with the bank statements evidencing the payments made for purchase shares.

of shares and sale proceeds credited in the bank account for sale of

c) Payments made by account payee cheques for purchase of shares and investment made in shares were duly reflected in the books of accounts of the assessee in the the year year of of purchase. purchase

d) Copy of letter dated by Pine Animation Ltd intimating that the shares ssee of 15.09.2014 have been allotted to the assessee on 15.13.2014

e) Copy of Dermat statement of the assessee showing inward entry of shares of Pine Animation Ltd.

f) Documentary evidences for Sale of shares of Pine Animation Ltd from in the form of Registered Share Broker’s Contract Notes.

(g) Copy of Demat account evidencing debit (outward entries) of sold shares;

h) Copy of Bank statement showing amounts received from the share broker in respect of shares sold and

i) Details of Securities Transaction Tax (STT) paid on sale of shares through recognized stock exchange in BSE Platform.

j) Details of long-term capital gains earned by the assessee.

The shares were sold on various dates during the AY 2015-16. A total of 12,98,500 shares were sold on various dates and the total consideration received was Rs. 13,57,75,985. The shares were purchased on 11.3.2013 for a cost of Rs. 20,00,000/-. The shares are sold from demat accounts maintained in SMC Global Securities Ltd. and Kotak Mahindra Bank Ltd.

k) The report from SMC Global Securities Ltd. and Kotak Mahindra Bank Ltd. (broker of the Appellant) which provides complete details of the shares sold were submitted. There was nothing adverse brought on record to prove that this was false.

i) SEBI ORDER ruling in favour of the Appellant not considered Further, the Appellant submitted the following additional information / documents which indicates that there was no manipulation in this transaction before AO:

The Appellant submitted the order of Securities Exchange Board of India (SEBI) Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, in the matter of Pine Animation Limited wherein it was held that detailed investigation has been carried out on the preferential allotees for their role in manipulation of the share price of Pine Animation Limited. In its detailed order it was held that the preferential allotees are not engaged in manipulation of the price of the share. The findings in the order (Para9 at Page 7) are provided below for ready reference:

…9. Upon completion of investigation by SEBK the following are noted as regards 114 entities who were identified as Preferential Allottees, Exit Providers and LTP Contributors vide the interim order.

SEBI’s investigation did not find any adverse evidence against them to show any connection/nexus witt PAL or ils Promoters Directors or Promoter related entities or any cole in price manipulation volume manipulation in the scrip of PAL Hence, violation of provisions of SEBI Act, SCRA, PFUTP Regulations, etc., were not observed in respect of the following 114-enlities.”

27. The Appellant being a preferential allottee is included as one of the identified parties. The order of the SEBI dated September 19, 2017.

There was an Ad Interim Ex-parte order dated 08.05.2015 passed by SEBI in case of Pine Animation Ltd wherein it was alleged that the LTCG earned by various allottees on preferential basis were not genuine. The assessee’s name being preferential allottee, was also included in the said order. Accordingly, the said company i.e. Pine Animation Ltd and the assessee together with various other parties were restrained from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner by SEBI, till their final investigation was completed. However, on completion of final investigation, the SEBI has passed a final order dated 19/09/2017 where it has been held that investigations did not find any adverse evidence/findings in respect of violation of provisions of SEBI (Prohibition of Fraudulent and unfair Practices relating to Securities Market) Regulations, 2003 in respect of 114 persons including the assessee herein, even though the scrip of Pine Animation Ltd was manipulated by some operators whose names have been duly listed in the said order.

This final order of SEBI dated 19/09/2017 was also placed on record by the assessee before the Id. CIT(A)

In this case the Id. AO had relied on the findings of the investigation wing of Delhi and an interim order dated 08.05.2015 passed by SEBI wherein assessee and the company Pine Animation Ltd were prevented from accessing the securities market either directly or indirectly in any manner whatsoever, till the completion of final investigation by SEBI. The main grievance of the Id. AO ils that rise in share price of Pine Animation Ltd is devoid of commercial principle A market factors, that transactions are based on mutual connivance on part of assessee and operators, that assessee resorted to preconceived scheme to procure bogus long term capital gains and hence the transactions are not Bonafide that SEBI also passed an interim order in the case of Pine Animation Ltd holding that share prices were determined artificially by manipulations that these are close circuit transactions and are pre structured; that assessee had failed to discharge her onus cast on her that net worth of Pine Animation Ltd is negligible and that its share prices were artificially rigged; that investigations prove that cash is routed through various accounts to provide these bogus long term capital gain entries. The Id. AO by making these observations proceeded to treat the sale proceeds of the shares as unexplained cash credit u/s 68 of the Act.

During assessment proceeding the documentary evidences submitted by the assessee were found to be genuine and no adverse inferences were drawn by the Id.AO. The transactions were carried out by the assessee in the open market through a registered share broker at the prevailing market prices. Payments were received by the assessee by account payee cheques from the stock exchange through the registered broker. Amounts received on sale of shares were duly subjected to levy of Securities Transaction Tax (STT) at the applicable rates.

From the assessment order it can understood that AQ has completely relied on the Delhi investigation report and SEBI order.

Ld. AO had not proved with any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so-called entry operators and brokers who were involved in artificial price rigging of shares. No evidence is brought on record to prove that assessee was directly involved in price manipulation of entry operators. It is not in dispute that the assessee and entry made purchase of shares in off-market through preferential allotment of shares by the concerned company. Now the next issue that arises for consideration is as to whether an off-market purchase of shares could be taken as a ground to declare the entire transaction as sham. In our considered opinion, the transactions could not be treated as sham merely because they are done in off-market, if the assessee had discharged his onus of proving the fact that shares purchased by him were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares is reflected in Demat account and sale of shares are through Demat account. More so, when there is no dispute regarding the purchase price and sale price of shares. View is further fortified by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Jamnadevi Agarwal reported in 328 ITR 656 (Bom) wherein it was held that-

“From the documents produced before the Court it was seen that the shares in question were, in fact, purchased by the assessee on the respective dates and the company had confirmed to have handed over the shares purchased by the assessee. Similarly, the sale of the shares of the respective buyer was also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessee were in conformity with the market rates prevailing on the respective dates, as was seen from the documents fumished by the assessee. Therefore, the fact that some of the transactions were off-market transactions could not be a ground to treat the transactions as sham transactions.

On a perusal of those documentary evidences, the Tribunal had arrived at a finding of fact that the transactions were genuine. Nothing was brought to notice of the Court that the findings recorded by the Tribunal were contrary to the documentary evidences on record. Therefore, no substantial question of law arose from the order of the Tribunal.”

In the present case independent enquiries were conducted by SEBI and SEBI had passed an interim order dated 08.05.2015 in the case of Pine Animation Ltd, wherein the assessee and Pine Animation Ltd together with some others, were restrained from accessing thes restrained from accessing the securities market, either directly or indirectly in any manner whatsoever, till the final investigation by SEBI is completed. After completion of the final investigation, SEBI had passed a final order dated 19.09.2017 in the case of Pine Animation Ltd clearly acquitting 114 persons which admittedly included the assessee on the plea that they were not involved in artificial price rigging of shares. In the said order, SEBI had listed out the names and PAN of various persons who were involved in artificial price rigging of shares and the list of beneficiaries together with exit providers. Hence even SEBI does not allege any involvement of the assessee herein with the manipulation of share prices. The relevant operative portion of the SEBI order dated 19/09/2017 is reproduced hereunder:-

10. Considering the fact that there are no adverse findings against the aforementioned 114 entities with respect to their role in the manipulation of the scrip of PAL, I am of the considered view that the directions issued against them vide interim order dated May 08, 2015 which were confirmed vide Orders dated June 02,2016, July 05, 2016, August 22, 2016, and June 02,2017 need not be continued.

11. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 118 of the SEBI Act, hereby revoke the Confirmatory Orders dated June 02,2016, July 05, 2016, August 22, 2016, and June 02,2017 qua aforesaid 114 entities (paragraph 9 above) with immediate effect.

12. The revocation of the directions issued vide the abovementioned orders (at paragraph 11) is only in respect of the entities mentioned at paragraph 9 of this order in the matter of Fine Animation Limited. As regards remaining entities in the scrip of PAL, violations under SEBI Act, SCRA, PFUTP Regulations, etc., were observed and SEBI shall continue its proceedings against them. Hence, the directions issued vide Orders dated July 05, 2016, August 22, 2016, and June 02, 2017 against the remaining 62 entities shall continue.

The name of the assessee is reflected in Serial Number 87″ which is part of 114 entities acquitted by SEBI, SEBI, on whom clean chit has been given.

The assessee had held the shares in the instant case for 16 months in the case of Pine Animation Ltd and then sold the shares in the open market at prevailing market prices. From the above order of SEBI, it is very clear that SEBI, based on its investigations and replies given by various parties, had ordered either to take action against certain parties or had acquitted certain parties on the ground that they are not involved in the price manipulation. In any case, the assessee has been duly discharged by SEBI on the ground that she is not involved in price manipulation of scrip of Pine Animation Ltd. Hence it could be safely concluded that the assessee herein is merely a gullible investor, who had resorted to make investment in the shares of Pine Animation Ltd based on market information through the guidance of her brother-in-law and had sold the shares in the open market in prevailing market prices. It is not the case of the Id. AO that assessee herein had directly sold the shares in the secondary market with clear knowledge of the name of the person to whom the said shares were sold. In open market transactions, the buyer and seller are not supposed to know each other unless it is a case of ‘block deals. Same is the case of the assessee herein. Admittedly, the assessee’s case does not fall under the category of ‘block deals.

One of the findings of the Id. AO, of his order is that assessee does not have elaborate experience in share trading and that the isolated investment made by the assessee is in Pine Animation Ltd. The Brother in law of the assessee Shri Mor had in his statement recorded by the investigation wing had stated that all the investments in shares on behalf of the family members were carried out by him and that those investments were made based on inputs received from known friends and market information.

Hence the entire addition has been made merely by placing reliance on the Delhi Investigation Wing report which are more general in nature and does not implicate the assessee herein in any manner whatsoever. In this background, the only logical recourse would be to place reliance on the order passed by by SEBI SEBI pointing pointing out out the the malpractices malpractices by by certain parties and taking action against them since assessed has been finally discharged in the list of 114 entities in final order of SEBI dated 19.09.2017 after its detailed investigations, the transaction carried out by the assessee cannot be termed as bogus. In the present the AO had primarily relied SEBI interim order dated 08.05.2015 passed in the case of Pine Animation Ltd. This SEBI Interim order is subsequently revoked on 19.09.2017 duly acquitting the assessee as stated supra. The main basis for denying the exemption u/s 10(38) of the Act was the reliance placed on the Interim order of SEBI dated 08.05.2015, wherein the assessee’s name was included as one of the beneficiaries and to have indulged in mal practices. Later pursuant to detailed investigations. carried out by SEBI, a final order was passed on 19.09.2017, wherein specifically the assessee along with remaining 113 entities had been discharged by SEBI stating that those 114 entities were not involved in price manipulation of scrip of Pine Animation Ltd. When the final SEBI order dated 19.09.2017 was placed before the Id. AO in assessment proceedings. The Id. AO held that contention of assessee is not acceptable as SEBI order says that no adverse inference was drawn by SEBI. It is nowhere mention in SEBI order that assessee has not taken entry from Pine Animation Limited.

This office is unable to persuade to accept the argument submitted by AO.

This aspect was subject matter of adjudication by the Co-ordinate Bench of this Tribunal in the case of Sunita Chaudhry vs ITO in ITA No. 143/Mum/2022 for A.Y. 2013-14 dated 13.10.2022 wherein it held as under:-

12. We find that despite the aforesaid inferim order dated 06/09/2017 passed by SEBI being specifically mentioned by the assessee in her objections before the AO as well as in her submission before the learned CIT(A), the impugned addition was sustained. Since, the very transaction of the assessee in the scrips of First Financial Services Ltd, which resulted in long term capital gains to the assessee, has been found to be not violative of provisions of relevant Act and Rules by investigation and even the initial restraint o the SEBI upon necessary no basis in sustaining the 06/09/2017 therefore WAR er was revoked vide interim impugned addition made by the Ae by treating the said transaction to be a penny stock transaction resulting in bogus long term capital gains. Accordingly, we direct the AO to delete the impugned addition of Rs 84,45,050. Further, since the other addition of Rs 22,712 by AO is also consequent to the aforesaid impugned addition, therefore, the said addition is also directed to be deleted.

Now another issue that arises is as to whether the Id. AO merely on the basis of Delhi investigation wing report could come to a conclusion that the transactions carried out by the assessee as bogus. In my considered opinion, the Id. AO is expected to conduct independent verification of the matter before reaching to the conclusion that the transactions of the assessee are bogus. More importantly, it is bounden duty of the Id. AO to prove that the evidences furnished by the assessee to support the purchase and sale of shares as bogus. This view is further fortified by the decision of Hon’ble Delhi High Court in the case of PCIT vs Laxman Industrial Resources Ltd in ITA No. 169/2017 dated 14.03.2017. It is well settled that the suspicion however strong could not partake the character of legal evidence. Hence the greater onus is casted on the revenue to corroborate the impugned addition by controverting the documentary evidences furnished by the assessee and by bringing on record cogent material to sustain the addition. No evidence has been brought on record to establish any link between the assessee herein with the entry operators who were allegedly involved in price rigging of shares artificially or any other person named in the assessment order being involved in any price rigging and also the exit provider. This onus is admittedly not discharged by the revenue in the instant case.

Further Hon’ble Jurisdictional High Court in the case of CIT vs Shyam S Pawar reported in 54 taxmann.com 108 (Bom), it was held that where Demat account and contract note showed details of share transaction and the Id.AO had not, proved the said transaction as bogus, the long-term capital gain earned on said transaction could not be treated as unaccounted income i u/s 68 of the reproduced below :

5. We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee’s DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee’s role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.

6. It is in that regard that we find that Mr. Gopal’s contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs. 25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal’s order are not vitiated by any error of law apparent on the face of the record either.

7. As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.

8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/- Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.

The transactions actions of sate of shares were donetinine platform of BSE through the registered share broker from whom the mwhom the received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the open platform. In such a situation, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the Id AO. There is absolutely no evidence brought on record whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. Hence, I hold that in the absence of any material to show that huge cash was transferred from one side to another, addition cannot be sustained.

That all the observations, conclusions and findings of the Id. AO are based on suspicion, surmises and hearsay. It is trite law that the suspicion howsoever strong cannot partake the character of legal evidence. The entire case of the revenue hinges upon the presumption that the assessee has ploughed back her own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back her unaccounted income in the form of LTCG. Reliance in this regard is placed on the decision of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT reported in 80 taxmann.com 284 (Mumbai-Trib.) (SB) The Tribunal observed as under:

46……… Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability applied to weigh the evidences of either side and draw a conclusion in favour of a patty which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee.

The Hon’ble Jurisdictional High Court in the recent case of PCIT vs Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 had held as under: –

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 Ramakrishna 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 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 judgement of the Apex Court in Principal Commissioner of Income Tax (Central)- 1 vs. NRA Iron & Steel (P) Ltd (2019) 103 taxmann.com 48 (SC) 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 property analyzed 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.

The Hon’ble Calcutta High Court in the case of Mis Classic Growers Ltd. vs. CIT in ITA No. 129 of 2012 had observed that in that case, the Id. AO found that the formal evidences produced by by the the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the Id. AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the Id. AO but he miserably failed to substantiate that. The Hon’ble High Court held that the transactions were at the prevailing price and therefore the suspicion of the Id. AO was misplaced and not substantiated.

The assessee’s case before undersigned is in a much stronger footing as no action has been initiated on the Broker by SEBI and even the action initiated on the assessee by SEBI vide Interim order dated 08.05.2015 were finally revoked by SEBI in its final order dated 19.09.2017.

The Hon’ble Calcutta High Court in the case of CIT vs Bhagwati Prasad Agarwal reported in 2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009, had observed that the Assessee claimed exemption of income from Long Term Capital Gains. However, the Id. AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded there. He therefore held that the transactions were bogus. The Hon’ble High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by Hon’ble High Court. In the instant case of the assessee before us, no such enquiries were even sought to be made by the Id. AO with the stock exchange to understand whether the transactions carried out in online platform of BSE were genuine or not. Hence the assessee’s case before undersigned stands on a better pedestal.

The Hon’ble Jharkhand Jharkhand High Court in the case in the case of CIT vs Arun Kumar Agarwal HUF reported in 210 taxman 405 (Jharkhand) had rendered the similar decision on identical facts and circumstances as under: –

10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enquiry report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and Bonafide and if he show his Bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who Bonafide entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case.

11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground ofsteep rise in the shares. If within a period of one year, the share price has risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in this case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the cases wherein the gap in the purchase and sale of the shares was narrowest. In other cases, as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessee even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessee had held the shares much prior to 12 months of the sale of the shares.

12. Hence, these Appeals are dismissed.

It is found that the assessee had duly proved the nature and source of credit representing sale proceeds of shares of Pine Animation Ltd within the meaning of section 68 of the Act. The sale proceeds have been received by the assessee from the stock exchange through the SEBI registered share broker by account payee cheques through regular banking channels. We find that the three ingredients of section 68 of the Act are duly fulfilled by the assessee in the instant case. Hence there is no question of making any addition as unexplained cash credit u/s 68 of the Act in the instant case.

The final SEBI order dated 19.09.2017, wherein the assessee was duly discharged by SEBI as not to be involved in the price manipulation of scrip of Pine Animation Ltd is one of the clinching evidence in favour of appellant. Reliance is also placed on the co-ordinate bench decision of Mumbai tribunal in the case of Vijayrattan Balkrishan Mittal in ITA No. 3248/Mum/2019 dated 01.10.2019 which was rendered in the context of sale of shares of Pine Animation Ltd and stated that the facts in the present assessee’s case are exactly identical with facts prevailing in the case of Vijayrattan Balkrishan Mittal.

Following decisions of Mumbai Tribunal on Pine Animation on identical issue are also relied upon by under signed-

Accordingly, respectfully following the multiple judgement of jurisdictional ITAT with respect to Pine Animation, the addition made u/s 68 of the Act in respect of sale proceeds of shares of Pine Animation Ltd by treating the same as non-genuine is hereby deleted.

Result:

In the result, the appeal filed by the appellant is Partly Allowed.

5. After meticulously going through the facts of the present case, we noticed that the assessee, during the year under consideration, filed her return of income declaring LTCG of Rs. 13,57,75,985 arising from the sale of 12,98,500 shares of M/s Pine Animation Pvt. Ltd. and claimed the same as exempt under Section 10(38) of the Act. As per the facts on record, the said shares were acquired by the assessee through preferential allotment on 11.03.2013 for Rs. 20 lakhs and were sold during August/September 2015.

6. The case of the assessee was reopened on the basis of information received from the Investigation Wing, which identified M/s Pine Animation Pvt. Ltd. as a penny stock company involved in price manipulation and tax evasion. During the reassessment proceedings, the AO also relied upon the interim order/report of SEBI bearing Order No. SEBI/WTM/MPB/EFD-1-DRA/III/28/09/2017 in the case of Pine Animation Pvt. Ltd. against 62 entities under Sections 11(4) and 11B of the SEBI Act, 1992 read with Regulation 11(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The said order pertained to the specific period from 22.05.2013 to 30.01.2015, during which period the assessee had also transacted in the shares of the company. On the basis of the above, additions were made by the AO.

7. In order to substantiate that the transactions undertaken by the assessee in the scrip of M/s Pine Animation Pvt. Ltd. were genuine, the assessee placed on record following documentary evidences:

a. The report from SMC Global Securities and Kotak Mahindra Bank Ltd. (broker of the Appellant) provided complete details of the shares sold.

b. Source of investment in acquisition of the above shares with supporting documentary evidence was provided. The shares were purchased on 11.03.2013 and the sources of purchase were from income earned from business and salary. Copy of computation and return of income acknowledgement for the previous assessment year i.e., AY 2014­15 was submitted to establish the source of income.

c. Copy of demat account from the sub broker was submitted. Statement from the broker was enclosed.

d. The computation of income and Acknowledgement for AY 2013-14, ΑΥ 2014-15 and AY 2015-16 were also submitted.

e. Bank statements maintained during the year was also submitted. The payments were paid received through account payee cheques and transaction were done through recognized stock exchange. The inflow of shares was reflected in the demat account. The shares were transferred through demat account.

f. The shares were acquired by directly subscribing to Pine Animation Ltd. as preferential allotment. Against this, the Appellant submitted the communication letter from Pine Animation Ltd. for the preferential issue which was from Bombay Stock Exchange. Along with this, the share application form and the allotment advice was also submitted.

8. However, the AO did not carry out any independent inquiry with regard to the documents submitted by the assessee, nor was any defect found in the documents placed on record. It is pertinent to mention that the shares sold by the assessee during the year under consideration were purchased through proper banking channels and were sold from the Demat accounts maintained with SMC Global Securities Ltd. and Kotak Mahindra Bank Ltd., the details of which are contained herein below:

9. Moreover, the reports obtained from SMC Global Securities Ltd. and Kotak Mahindra Bank Ltd. also provided complete details of the shares sold, which were submitted before the AO during the assessment proceedings. However, nothing adverse was brought on record by the AO to controvert the same or to establish that the documents were false.

10. The assessee had also relied upon the bank statements along with details of the source of funds, but none of the supporting evidences were rebutted by the AO. The source and nature of the transactions were duly explained. Thus, the assessee had fully discharged the onus cast upon her to prove the genuineness of the entire transactions.

11. No cogent material was brought on record by the AO to establish that the assessee was ever involved in price rigging, and even the SEBI final order, which was in favour of the assessee, was not considered. We also find that after completion of investigation, the final report/order of SEBI specifically mentioned that the preferential allottees were not engaged in manipulation of the share price. Thus, the final SEBI order exonerated the assessee, but the same was not considered by the AO. The categorical findings in this regard are contained in paragraph 9 at page 7 of the SEBI order and the same is reproduced herein below:

…9. Upon completion of investigation by SEBK the following are noted as regards 114 entities who were identified as Preferential Allottees, Exit Providers and LTP Contributors vide the interim order.

SEBI’s investigation did not find any adverse evidence against them to show any connection/nexus witt PAL or ils Promoters Directors or Promoter related entities or any cole in price manipulation volume manipulation in the scrip of PAL Hence, violation of provisions of SEBI Act, SCRA, PFUTP Regulations, etc., were not observed in respect of the following 114-enlities.”

12. We also noticed that there was an ad interim ex parte order dated 08.05.2015 passed by SEBI in the case of M/s Pine Animation Pvt. Ltd., wherein it was alleged that the LTCG earned by various preferential allottees was not genuine. The name of the assessee, being one of the preferential allottees, was also included in the said order. Accordingly, the said company, namely Pine Animation Pvt. Ltd., along with the assessee and various other parties, was restrained by SEBI from accessing the securities market and from buying, selling, or dealing in securities, either directly or indirectly, till completion of the investigation.

13. Thereafter, upon completion of the investigation, SEBI passed the final order dated 19.09.2017, wherein it was specifically held that the investigation did not reveal any adverse evidence or findings regarding violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 against 114 persons/entities, including the assessee herein. Although the scrip of Pine Animation Pvt. Ltd. was found to have been manipulated by certain operators, the assessee was not found to be involved in such activities.

14. The said final order dated 19.09.2017 was also placed on record before the Ld. CIT(A), who duly considered the same and deleted the additions. We further find that the AO made the additions merely by relying upon the findings of the Investigation Wing of the Income Tax Department, which were general in nature and did not specifically implicate the assessee, and on the basis of the interim order dated 08.05.2015 passed by SEBI. However, the AO completely ignored the final SEBI order dated 19.09.2017 and failed to conduct any independent inquiry, despite the fact that under the said final order the assessee, along with 113 other entities, stood discharged/exonerated by SEBI.

15. Therefore, the Ld. CIT(A) rightly appreciated the said SEBI order along with the documentary evidences placed on record and correctly deleted the additions. We also place reliance upon the decision of the Coordinate Bench of the ITAT in the case of Sunita Choudhary vs ITO in ITA No. 143/Mum/2022 for AY 2013-14 wherein it was held as under:

12. We find that despite the aforesaid inferim order dated 06/09/2017 passed by SEBI being specifically mentioned by the assessee in her objections before the AO as well as in her submission before the learned CIT(A), the impugned addition was sustained. Since, the very transaction of the assessee in the scrips of First Financial Services Ltd, which resulted in long term capital gains to the assessee, has been found to be not violative of provisions of relevant Act and Rules by investigation and even the initial restraint o the SEBI upon necessary no basis in sustaining the 06/09/2017 therefore WAR er was revoked vide interim impugned addition made by the Ae by treating the said transaction to be a penny stock transaction resulting in bogus long term capital gains. Accordingly, we direct the AO to delete the impugned addition of Rs 84,45,050. Further, since the other addition of Rs 22,712 by AO is also consequent to the aforesaid impugned addition, therefore, the said addition is also directed to be deleted.

16. Further Hon’ble Jurisdictional High Court in the case of CIT vs Shyam S Pawar reported in 54 com 108 (Bom), held that where Demat account and contract note showed details of share transaction and the AO had not, proved the said transaction as bogus, the long-term capital gain earned on said transaction could not be treated as unaccounted income u/s 68. The relevant operative portion of the said judgment is reproduced below :

5. We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee’s DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt. Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee’s role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.

6. It is in that regard that we find that Mr. Gopal’s contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs. 25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal’s order are not vitiated by any error of law apparent on the face of the record either.

7. As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.

8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/- Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.

17. It is also an undisputed fact that the sale of shares was conducted through the online platform of the BSE through registered stock brokers, and the assessee received the sale consideration through proper banking channels. The broker also received commission from the said transactions. Since the transactions took place through registered brokers on the online platform of the stock exchange, neither the buyer nor the seller could have known each other, nor their respective brokers. In such circumstances, it cannot be presumed that there was any transfer of cash between the buyer and seller for converting unaccounted money of the beneficiary, as alleged by the AO.

18. It is a settled proposition of law that suspicion, howsoever strong, cannot take the place of legal evidence. In this regard reliance is being placed upon the decision in the case of GTC Industries Ltd. Vs. ACIT reported in 80 com 284 (Mumbai-trib) (SB) – The tribunal observed as under:

46………… Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability applied to weigh the evidences of either side and draw a conclusion in favour of a patty which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee.

19. Thus, considering the overall facts and circumstances of the case and the observations made hereinabove, we are of the view that the findings recorded by the AO were based purely on suspicion, conjectures, and surmises. Therefore, we are of the considered view that the Ld. CIT(A) has passed a well-reasoned order. Accordingly, we dismiss the grounds raised by the Revenue and uphold the order passed by the Ld. CIT(A).

20. In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 29.05.2026.