Jignesh H Shah Vs DCIT (ITAT Mumbai)
Documentary Evidence Cannot Be Disregarded Merely by Branding Shares as Penny Stock: Mumbai ITAT Deletes ₹68.41-Lakh Addition
The assessee earned long-term capital gains of ₹68,41,479 from the sale of shares of Sunrise Asia Ltd. and claimed exemption under Section 10(38). The Assessing Officer treated the transaction as bogus penny-stock accommodation and made an addition under Section 68, besides adding estimated commission of ₹2,73,660 under Section 69C.
The Mumbai ITAT noted that the assessee had produced complete supporting evidence, including purchase and sale contract notes, demat statements and bank statements establishing payments for purchase and receipt of sale consideration. The AO did not identify any specific defect in these documents and relied merely on a third-party investigation report without bringing independent evidence connecting the assessee with any price manipulation or accommodation-entry arrangement.
The Tribunal further observed that identical additions concerning the same scrip had been deleted in several decisions. It particularly relied upon the Gujarat High Court ruling in PCIT v. Divyaben Prafulchandra Parmar, against which the Revenue’s SLP had been dismissed by the Supreme Court.
Following the principles of judicial consistency and binding precedent, the Tribunal directed deletion of the ₹68.41-lakh addition under Section 68 and the consequential ₹2.74-lakh commission addition under Section 69C. The assessee’s appeal was allowed.
List of Cases Discussed / Relied Upon
- PCIT v. Divyaben Prafulchandra Parmar, [2024] 169 taxmann.com 473 (Gujarat High Court), pertaining to AY 2014-15.
- Principal Commissioner of Income- Prafulchandra Parmar, [2025] 172 taxmann.com 572 (SC), SLP (Civil) Diary No. 4475 of 2025.
- ITO-32(2)(1) v. M/s Liberal Realtors LLP, ITA Nos. 449 & 450/Mum/2021.
- Shri Shripal Raj Lodha v. DCIT, ITA No. 619/Mum/2020, Central Circle -4(4).
- Narayan Ramchandra Rathi v. ITO, ITA No. 4811/Mum/2018.
- Arun S. Tripathi v. PCIT, ITA No. 2560/Mum/2018.
- Anraj H. Shah (HUF) v. ITO, ITA No. 4514/Mum/2018.
- Anjana Sandeep Rathi v. ACIT, ITA No. 4369/Mum/2018.
- ITO-5(3)(1), Ahmedabad v. Devyani Dharmendra Shah, ITA No. 576/Ahd/2020.
- Sita Devi Agarwal v. ITO, Ward-4(1), Jaipur, ITA No. 56/JP/2022.
- Ashok Agarwal v. ACIT, Circle-1, Jaipur, ITA No. 124/JP/2020.
- Kumari Ayushi Nyati v. ITO, ITA No. 203/Ind/2019.
- Smt. Manorama Devi Sharma v. ITO-3(1), Indore, ITA No. 39/Ind/2019.
- Shri Shiv Narayan Sharma v. ACIT-3(1), Indore, ITA No. 889/Ind/2018.
- Kishanchand Chellaram v. CIT (1980) 125 ITR 713.
- Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006).
- Pr. CIT v. Ziauddin A Siddique, Income Tax Appeal No. 2012 of 2017 dated 04/03/2022.
- CIT vs Shyam R Pawar, 229 Taxman 256 (Bom).
- Pr.CIT vs Smt. Krishna Devi, 431 ITR 361 (Del).
- CIT vs Swati Bajaj, [2022] 446 ITR 56 (Calcutta).
- Union of India vs Kamalakshi Finance Corporation Ltd, 55 ELT 43 (1991).
- PCIT vs Smt. Renu Aggarwal, [2023] 456 ITR 249 (SC).
- Suman Poddar case.
- Sumati Dayal v. CIT.
- Smt. Geeta Khare v/s ACIT-Cir-3, Kalyan, ITA No. 4267/Mum/2018, date of pronouncement-29/05/2019.
- Principal Commissioner of Income-tax (Central)-1 v. NRA Iron & Steel (P.) Ltd, (2019) 103 taxmann.com 48 (SC).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. NFAC dated 19-Dec-2025 for the Assessment Year 2014-15. The Assessee has raised the following grounds of appeal:
1. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Ld. Assessing Officer of issuing notice u/s 148 on borrowed satisfaction merely relying on t he basis of alleged information received without any independent application of mind thereon.
2. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Ld. Assessing Officer of completing the assessment u/s 143(3) read with section 147, without providing the material or information in his possession and without providing any opportunity of cross examination of the witnesses relied upon by the Assessing Officer and thus violating the law laid down by Honorable Supreme Court in the case of Kishanchand Chellaram v. CIT (1980) 125 ITR 713 and Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006.)
3. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Ld. Assessing Officer in treating the transaction of the sale of shares of M/s Sunrise Asian Ltd. as bogus and sham and has erred in confirming the addition of Rs. 68,41,479/- as unexplained cash credit under section 68 of the Act.
4. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of not granting the exemption of long terms capital gain under section 10(38) of the Act o n sale of listed equity shares sold through recognized stock exchange which has duly been subjected to security transaction tax (S.T.T.) on surmises, conjecture and suspicion.
5. In the facts and circumstances of the case and in law, the Learned CIT (A) ha s erred in confirming addition in respect of commission of Rs. 2,73,660/- estimated at 4 per cent of Rs.68,41,479/-, as unexplained expenditure under section 69C of the Act.
6. The appellant craves leave to add, alter, delete or modify all or any of the ab ove grounds of appeal. All the above grounds are without prejudice to each other.
2. We first take up Ground Nos. 3 to 5, as these grounds are interrelated and interconnected and relates to challenging the additions made by the Assessing Officer (“AO”) and upheld by the learned CIT(A) under Section 68 of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2014- 15. Therefore, we have decided to adjudicate these grounds by way of the present consolidated order.
3. At the very outset, the learned AR submitted that the issue under consideration is covered by the decisions of various coordinate Benches of the Tribunal.
4. We have heard the learned counsels for both the parties, perused the material placed on record, t he judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we notice that the assessee had purchased 5,000 shares of Sunrise Asia Limited through broker M/s Santoshima Leasing Finance and Investment (India) Limited fo r a consideration of Rs. 1,00,000/- at the rate of Rs. 20/- per share by way of an account- payee cheque. These shares were purchased in dematerialised form and credited to the assessee’s demat account.
5. The assessee had also purchased 11,000 shares of M /s Santoshima Leasing Finance and Investment (India) Limited on 24.05.2011 and 27.05.2011 through the broking firm M/s Mihir Consultancy and Trading Private Limited. These shares were initially purchased in physical form and were subsequently dematerialized in the name of the assessee and credited to his demat account.
6. Subsequently, M/s Santoshima Leasing Finance and Investment (India) Limited was amalgamated with Sunrise Asia Limited. Consequently, the assessee received 10,960 shares of Sunrise Asia Limited in exchange for the shares held by him in the amalgamated company.
7. Thereafter, the assessee sold 1,900 shares of Sunrise Asia Limited in March 2013 for a consideration of Rs. 8,50,158/- 2013-14. The assessee further sold 14,060 shares of Sunrise Asia Limited during April, June and November 2013 for a consideration of Rs. 68,41,479/- during the year under consideration, i.e., Assessment Year 2014 -15.
8. In order to substantiate the genuineness of the transactions in the said scrip, the assessee submitted the following documentary evidences:
a. Copy of the contract notes for purchase of shares;
b. Copy of the demat account statement;
c. Copy of the contract notes for sale of shares;
d. Copy of the bank statement reflecting receipt of the sale consideration on account of sale of shares; and
e. Bank statements evidencing the payments made towards purchase of shares and receipt of sale consideration.
9. However, while completing the assessment, the AO made the impugned addition by holding that the scrip in which the assessee had traded was a penny stock.
10. In this regard, it was specifically submitted by the learned AR that the assessee had discharged the initial onus cast upon him by placing on record all the relevant documentary evidences. It was further submitted that the AO could not point out any specific defect in the documents furnished by the assessee and had merely relied upon a third- party report without bringing any independent material on record to disprove the genuineness of the transactions.
11. Furthermore, the learned AR submitted that the issue under consideration is squarely covered by the decisions of various coordinate Benches of the ITAT and by the Hon’ble Supreme Court, wherein the very same scrip was involved. It was submitted that, after considering the entire factual position and the financial position of the said scrip, various coordinate Benches of the ITAT and the Hon’ble High Court had deleted the additions made in similar cases.
12. In support of his submissions, the learned AR relied upon, inter alia, the following judicial precedents:
a) Decision of the Hon’ble Gujarat High Court
PCIT v. Divyaben Prafulchandra Parmar, [2024] 169 taxmann.com 473 (Gujarat High Court), pertaining to the same Assessment Year, i.e., AY 2014-15.
It is also pertinent to note that Canara Bank, a Government- controlled public sector bank, held 11.26% of the shares of Sunrise Asia Limited. Therefore, a transaction involving a company in which a PSU bank was holding such a substantial shareholding could not, by itself, be termed as bogus. This fact was also noticed by the Hon’ble Gujarat High Court. It is further pertinent to note that the Department preferred an SLP against the aforesaid judgment of the Hon’ble Gujarat Hig h Court before the Hon’ble Supreme Court. The said SLP was dismissed by the Hon’ble Supreme Court in Principal Commissioner of Income- Prafulchandra Parmar, [2025] 172 taxmann.com 572 (SC), SLP (Civil) Diary No. 4475 of 2025.
b) Decisions of the Hon’ble ITAT, Mumbai
ITO- 32(2)(1) v. M/s Liberal Realtors LLP, ITA Nos. 449 & 450/Mum/2021;
Shri Shripal Raj Lodha v. DCIT, ITA No. 619/Mum/2020, Central Circle -4(4);
Narayan Ramchandra Rathi v. ITO, ITA No. 4811/Mum/2018;
Arun S. Tripathi v. PCIT, ITA No. 2560/Mum/2018;
Anraj H. Shah (HUF) v. ITO, ITA No. 4514/Mum/2018; and
Anjana Sandeep Rathi v. ACIT, ITA No. 4369/Mum/2018.
c) Decision of the Hon’ble ITAT, Ahmedabad
ITO- 5(3)(1), Ahmedabad v. Devyani Dharmendra Shah, ITA No. 576/Ahd/2020.
d) Decisions of the Hon’ble ITAT, Jaipur
Sita Devi Agarwal v. ITO, Ward-4(1), Jaipur, ITA No. 56/JP/2022; and Ashok Agarwal v. ACIT, Circle-1, Jaipur, ITA No. 124/JP/2020.
e) Decisions of the Hon’ble ITAT, Indore
Kumari Ayushi Nyati v. ITO, ITA No. 203/Ind/2019;
Smt. Manorama Devi Sharma v. ITO- 3(1), Indore, ITA No. 39/Ind/2019; and
Shri Shiv Narayan Sharma v. ACIT-3(1), Indore, ITA No. 889/Ind/2018.
13. In all the aforesaid cases, the additions made by the respective Assessing Officers were deleted after considering the relevant facts and circumstances of the cases.
14. Considering the totality of the facts and circumstances of the case, as discussed above, and respectfully following the aforesaid judicial precedents, as well as the doctrine of judicial consistency and binding precedent, we set aside the order passed by the learned CIT(A) and direct the AO to delete the impugned additions.
15. Since we have deleted the impugned additions, the remaining grounds become academic in nature and, therefore, do not require any separate adjudication.
16. In the result, appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 20.08.2026.
