Case Law Details
Anirudh Anil Gaggar Vs ITO (ITAT Mumbai)
The assessee appealed against the order dated 16.06.2025 passed by the National Faceless Appeal Centre (NFAC) for Assessment Year 2011-12. The appeal challenged the validity of the reassessment proceedings as well as the denial of exemption under Section 10(38) of the Income-tax Act, addition under Section 68 in respect of long-term capital gains arising from sale of shares of JMD Telefilms Ltd., and the addition of ₹3,54,250 under Section 69C towards alleged commission.
The assessee, an individual engaged in derivative trading and investment in shares, filed a return declaring total income of ₹14,24,050 and claimed exemption under Section 10(38) on long-term capital gain of ₹1,14,68,337 arising from the sale of shares of JMD TAnirudh Anilelefilms Ltd. The Assessing Officer treated the scrip as a penny stock, denied the exemption, treated the sale consideration of ₹1,18,08,337 as unexplained cash credit under Section 68, and made a further addition of ₹3,54,250 under Section 69C towards alleged commission for obtaining an accommodation entry. The CIT(A) upheld these additions.
Before the Tribunal, the assessee submitted that the transactions were genuine and supported by documentary evidence, including the gift deed showing acquisition of shares from the assessee’s father, capital account, balance sheet, demat statements, contract notes issued by a SEBI-registered broker, demat transaction statements, Securities Transaction Tax (STT) certificates and evidence of receipt of sale consideration through banking channels. It was contended that the shares were acquired through a genuine gift, held for more than twelve months and sold through a recognised stock exchange after payment of STT, thereby satisfying the conditions for exemption under Section 10(38). The assessee also argued that the Assessing Officer had not conducted any independent enquiry and had relied only on a general Investigation Report of the Directorate of Investigation, Kolkata, without establishing any nexus between the assessee and the alleged accommodation entry operators. It was further pointed out that the assessee sold the shares at an average price of about ₹59 per share, although the scrip had reached around ₹145 per share during the relevant period.
The Revenue supported the orders of the lower authorities and submitted that JMD Telefilms Ltd. had been identified as a penny stock by the Investigation Wing. It contended that the investigation had revealed a modus operandi involving manipulation of share prices to generate bogus exempt long-term capital gains and argued that the assessee’s transaction formed part of such an arrangement. The Revenue further submitted that production of contract notes, demat statements and banking records did not by itself establish the genuineness of the transactions in view of the surrounding circumstances.
After considering the material on record, the Tribunal observed that the assessee had produced documentary evidence establishing acquisition, holding and sale of the shares through recognised channels. These included the gift deed, demat statements, contract notes issued by a SEBI-registered broker, stock exchange transaction details, STT payment details and proof of receipt of sale proceeds through banking channels.
The Tribunal found that the Assessing Officer had not brought any specific material on record to establish that the assessee was involved in manipulation of the scrip or had obtained any accommodation entry. It observed that the additions were primarily based on general information regarding the modus operandi in penny stock cases without establishing any direct nexus between the assessee and the alleged operators. According to the Tribunal, generalised investigation reports alone could not displace the documentary evidence furnished by the assessee unless supported by independent corroborative material.
The Tribunal also noted that the shares had been sold through a recognised stock exchange after being held for more than twelve months and that the transactions were subjected to STT. It further observed that the assessee had sold the shares at an average price of about ₹59 per share despite the scrip having reached a higher market price, and stated that this indicated that the transaction could not be treated as pre-arranged merely on the basis of price movement.
On these facts, the Tribunal held that the assessee had discharged the primary onus of establishing the genuineness of the transactions. Since the Revenue failed to produce cogent material to rebut the documentary evidence or establish that the assessee was a beneficiary of any accommodation entry, the addition under Section 68 and the consequential denial of exemption under Section 10(38) were held to be unsustainable. The Tribunal directed deletion of the addition made by the Assessing Officer. Having allowed the appeal on merits, the Tribunal treated the legal grounds challenging the reassessment proceedings as academic and did not adjudicate them. The appeal was accordingly allowed. The order was pronounced on 30.06.2026.
Cases Discussed
- CIT v. Shyam R. Pawar (Bombay HC), 229 Taxman 256
- CIT v. Smt. Jamnadevi Agarwal & Ors. (Bombay HC), 328 ITR 656
- Allana Cold Storage Co. Vs ITO (Bombay HC), 287 ITR 1 (Bom)
- Asian Paints Ltd. Vs. Dy.CIT (Bombay HC), (2008) 290 ITR 90 (Bom)
- Bayer Material Science (P) Vs. DCIT (Bombay HC), 382 ITR 333 (B’bay HC)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by assesse arises out of the order passed by NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] dated 16/06/2025 for A.Y. 2011-12, on the following grounds of appeal:-
“1. The assessment order in pursuance of nonet return is void & illegal and, therefore, bad in law.
2. The ld. CIT(A) erred in confirming validity of jurisdiction assumed by the ITO u/ s 147 of the Act.
3. The ld. CIT(A) erred in holding that the assessment made was in accordance with law even if no opportunity was given to the appellant to cross examine the persons whose statements were heavily relied upon in drawing the adverse inference in the light of the fact that no corroborative evidence was brought on record to support the said statements and he did not appreciate that giving of opportunity to cross-examine was highly imperative in the facts and circumstances of the case and non-giving thereof has violated the principles of natural justice which has rendered the assessment as null and void.
4. The assessment order is also void and bad in law as the ITO commenced the assessment proceedings simultaneously with the furnishing of reasons recorded without waiting for disposal of objections that may be raised to re-opening of the assessment thereby violating the mandate of the jurisdictional high court laid down in the case of Allana Cold Storage Co. Vs ITO 287ITR 1 (Bom); Asian Paints Ltd. Vs. Dy.CIT (2008) 290 ITR 90 (Bom); and Bayer Material Science (P) Vs. DCIT 382 ITR 333 (B’bay HC).
5. The ld. CIT(A) erred in confirming the action of ITO of denying the appellant’s claim of exemption u/s 10(38) of the Act in respect of gain on sale of shares of JMD Telefilms Ltd., alleged to be a penny stock, and adding the sale proceeds thereof of Rs.11808337/ – as unexplained cash credits u/s 68 of the Act.
**5.i.** In doing so, the ld. CIT(A) did not appreciate that the plethora of evidence placed on record were not dislodged by the ITO who made the addition merely on the basis of some generalized report of the Investigation Wing / statements of alleged entry operators recorded by some other officers of the Deptt., without he himself making any independent enquiry into the matter and that too based on incorrect assumption of facts.
**5.ii.** Further in doing so, the ld. CIT(A) merely reproduced the appellant’s submissions made before him but did not consider the same in their proper perspective in adjudicating the grounds of appeal.
**5.iii.** Moreover, the ld. CIT(A) erred in relying on the decision of the Kolkata HC in the case of Swati Bajaj & Others in preference to the binding decisions of the jurisdictional high court relied upon by the appellant. Besides, in dismissing the appeal, the ld. CIT(A) merely relied on the said decision without establishing how the facts of the said case is identical to the facts of the appellant.
6. The ld. CIT(A) erred in confirming the action of the AO in making addition of Rs. 354250/ – as unexplained expenditure u/s 69C of the Act.
Your appellant, therefore, submits that the assessment order be annulled and in the alternative the additions so made be deleted.
Your appellant craves leave to add to, delete, amend or alter all or any of the grounds of appeal at or before the date of hearing.”
2. Brief facts of the case are as under:-
The assessee, an individual, is engaged in the business of derivative transactions and also invests in shares. During the year under consideration, the assessee earned capital gains/ (losses) from transactions in around 110 scrips, while the investment portfolio as on the year-end comprised approximately 71 scrips. The assessee filed the return of income declaring total income of Rs.14,24,050/- and claimed exemption u/s 10(38) of the Income-tax Act, 1961 in respect of long-term capital gain of Rs.1,14,68,337/- arising from sale of shares of JMD Telefilms Ltd.
2.1. The Ld.AO denied the exemption claimed u/s 10(38) of the Act by treating the said scrip as a penny stock and the resultant gain as a bogus transaction. Accordingly, the sale consideration of Rs.1,18,08,337/- was treated as unexplained cash credit u/s 68 of the Act. Further, an addition of Rs.3,54,250/- was made towards alleged commission paid for obtaining accommodation entry of exempt long-term capital gain.
Aggrieved, the assessee challenged the aforesaid additions on merits as well as the validity of the assessment proceedings.
2.2. Before the Ld. CIT(A), the assessee submitted that the Ld. AO had not pointed out any specific discrepancy, defect, or inconsistency in the documentary evidences furnished during the course of assessment proceedings. It was contended that the Ld. AO had neither recorded any finding that the documents submitted by the assessee were false, fabricated, or bogus nor brought any independent material on record to discredit their genuineness and authenticity. The assessee further submitted that, in the absence of any adverse material directly linking the assessee with any alleged accommodation entry, the evidences furnished could not be disregarded merely on the basis of a generalized Investigation Report of the Directorate of Investigation, Kolkata. It was thus contended that the Ld.AO was not justified in denying the exemption claimed u/s 10(38) of the Act and making consequential additions u/s.68 and towards alleged commission without establishing any specific nexus between the assessee’s transactions and the alleged bogus activities. The Ld.CIT(A), however upheld the order of the Ld.AO.
Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
3. On merits, the Ld.AR submitted that the Ld. AO erred in denying the exemption claimed by the assessee u/s 10(38) of the Act and in treating the long-term capital gain arising from sale of shares of JMD Telefilms Ltd. as unexplained cash credit u/s 68 of the Act. It was submitted that the assessee had duly substantiated the genuineness of the transactions by furnishing complete documentary evidences, including the gift deed evidencing acquisition of shares from the assessee’s father, capital account and balance sheet reflecting the investment, demat statements evidencing holding of shares, contract notes issued by the SEBI-registered broker, demat transaction statements, STT certificates and ledger account evidencing receipt of sale consideration. The Ld. AR contended that the shares were acquired through a genuine gift, held for more than twelve months, and subsequently sold through a recognized stock exchange with payment of STT, thereby satisfying all the statutory conditions prescribed for claiming exemption u/s 10(38) of the Act.
3.1. The Ld. AR further submitted that the Ld. AO had not brought any independent material on record to establish that the assessee was involved in any accommodation entry transaction or that the impugned share sale was pre-arranged or sham. It was argued that the addition was made merely on the basis of the generalized Investigation Report of the Directorate of Investigation, Kolkata, which only referred to the alleged modus operandi adopted by certain operators in penny stocks, without establishing any specific nexus between the assessee and such alleged activities. It was submitted that the report and statements relied upon by the Revenue did not specifically implicate the assessee or establish that the assessee had obtained any bogus long-term capital gain entry.
3.2. The Ld.AR further submitted that the conditions for invoking section 68 of the Act were not satisfied since the identity of the broker, genuineness of the transaction through BSE platform, and the receipt of sale consideration through banking channels were duly established. It was contended that once the assessee had discharged the primary onus by producing relevant documentary evidences, the burden shifted upon the Revenue, which had failed to bring any rebuttal material to disprove the same.
3.2.1. The Ld.AR invited our attention to the market data collected by the Ld.AO from the BSE and submitted that although the scrip had touched a high of Rs.145/- per share during the relevant period, the assessee had sold the shares at an average price of around Rs.59/- per share. It was contended that this fact itself demonstrated the commercial nature of the transaction, as a beneficiary of an alleged accommodation entry would ordinarily have sold the shares at the peak price to maximize the artificial capital gain.
3.3. The Ld.AR submitted that, the documentary evidences furnished by the assessee remained uncontroverted and, in the absence of any adverse material directly linking the assessee with the alleged manipulation of penny stocks, the addition could not be sustained merely on the basis of suspicion, generalized investigation reports, or third-party statements. Reliance was placed on the decisions of Hon’ble Bombay High Court in CIT v. Smt. Jamnadevi Agarwal & Ors. reported in 328 ITR 656 and CIT v. Shyam R. Pawar reported in 229 Taxman 256 to contend that genuine transactions carried out through recognized stock exchanges and supported by documentary evidences cannot be disregarded without bringing contrary material on record.
3.4. On the contrary, the Ld.DR supported the orders of the lower authorities and submitted that the assessee had claimed exemption u/s 10(38) of the Act in respect of long-term capital gain arising from sale of shares of JMD Telefilms Ltd., which was identified as a penny stock by the Investigation Wing. It was submitted that the investigation revealed a modus operandi involving manipulation of share prices to provide bogus long-term capital gains entries to beneficiaries, and the assessee’s transaction was part of such arrangement.
3.5. The Ld.DR contended that mere furnishing of contract notes, demat statements, and banking details does not establish the genuineness of the transaction when the surrounding circumstances indicate manipulation. It was submitted that the abnormal appreciation in the value of the scrip and the resultant exempt gain clearly demonstrated that the transaction was a colourable device. The Ld.DR argued that the assessee failed to discharge the onus cast u/s 68 of the Act and the Ld.AO was justified in relying upon the Investigation Report and making the additions.
We have perused the submission advanced by both sides in light of records placed before us.
4. The assessee has claimed exemption u/s 10(38) of the Act in
respect of long-term capital gain arising from sale of shares of JMD Telefilms Ltd. The Ld. AO denied the claim by treating the transaction as a bogus penny stock transaction and made addition u/s 68 of the Act, primarily relying upon the Investigation Report of the Directorate of Investigation, Kolkata.
4.1. On perusal of the records, we find that the assessee had furnished various documentary evidences in support of the transactions, including the gift deed evidencing acquisition of shares, demat statements reflecting the holding, contract notes issued by the SEBI-registered broker, details of transactions executed through the stock exchange, STT payment details, and proof of receipt of sale consideration through banking channels. These evidences establish the acquisition, holding and sale of shares through recognized channels.
4.2. We further note that the Ld.AO has not brought any specific material on record to establish that the assessee was involved in any manipulation of the scrip or had obtained any accommodation entry. The addition has been made mainly on the basis of general information regarding modus operandi adopted in penny stock cases, without establishing any direct nexus between the assessee and the alleged operators. Generalised investigation reports, by themselves, cannot displace the documentary evidences furnished by the assessee unless supported by independent corroborative material.
4.3. We also note that the shares were sold through a recognized stock exchange after holding the same for more than twelve months and the transactions were subjected to STT. Further, the fact that the assessee sold the shares at an average price of around Rs.59/-per share, despite the scrip having touched a higher market price, also indicates that the transaction cannot be treated as a prearranged transaction merely on the basis of price movement.
4.4. In view of the aforesaid facts, we hold that the assessee had duly discharged the primary onus cast upon him by establishing the genuineness of the transactions. Since the Revenue has failed to bring any cogent material to rebut the documentary evidences or establish that the assessee was a beneficiary of any accommodation entry, the addition made u/s 68 of the Act and the consequential disallowance of exemption claimed u/s 10(38) of the Act cannot be sustained. Accordingly, the addition made by the Ld. AO is directed to be deleted.
Since we have adjudicated the issue on merits in favour of the assessee and deleted the additions made by the Ld. AO, the legal grounds raised by the assessee challenging the validity of reassessment proceedings become academic in nature.
Accordingly, we do not deem it necessary to adjudicate the said grounds at this stage.
In the result, appeal filed by assessee is allowed.
Order pronounced in the open court on 30/06/2026.
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