Case Law Details
Ronak Ashvin Sanghavi Vs ITO (ITAT Mumbai)
The Mumbai ITAT deleted additions made against Ronak Ashvin Sanghavi on account of alleged bogus Long-Term Capital Gains (LTCG) from shares of GFL Finance India Ltd., holding that the Revenue had failed to produce any cogent evidence linking the assessee with any price manipulation or accommodation entry arrangement.
The assessee had earned LTCG of ₹12.25 lakh on sale of shares purchased through a recognised stock exchange and claimed exemption under section 10(38). Based on information received from the Kolkata Investigation Wing regarding alleged penny stock transactions, the Assessing Officer reopened the assessment and treated the entire sale consideration of ₹14.43 lakh as unexplained cash credit under section 68. An additional amount of ₹43,307, being 3% of the alleged gain, was also added under section 69C as presumed commission paid to entry operators.
Before the Tribunal, the assessee demonstrated that the shares were purchased through a SEBI-registered broker, payments were made through banking channels, shares were held in a demat account, sales were routed through the stock exchange, and Securities Transaction Tax (STT) had been paid. The assessee had also sought cross-examination of persons whose statements formed the basis of the investigation report, but such opportunity was denied.
The Tribunal observed that the assessee had produced complete documentary evidence including contract notes, demat statements and bank records. Neither the AO nor the CIT(A) had brought any adverse material to discredit these documents. Importantly, no independent investigation was carried out to establish any nexus between the assessee, his broker and the alleged price-rigging activities. There was also no evidence that the assessee’s broker had been found by SEBI or any authority to be involved in manipulation of the scrip.
Relying on various High Court decisions, including the Bombay High Court ruling in PCIT v. Indravadan Jain (HUF), the Tribunal held that genuine stock exchange transactions supported by documentary evidence cannot be disregarded merely because the scrip was later identified as a penny stock or because general investigation reports existed against other persons. Suspicion, however strong, cannot substitute evidence.
Accordingly, the Tribunal deleted the addition of ₹14.43 lakh under section 68 and, as a consequence, also deleted the alleged commission addition of ₹43,307 under section 69C.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by assessee is directed against the order of ld. CIT(A)/(ADDL/JCIT(A), Thiruvanantpuram) dated 17.12.2025 for Assessment Year (AY) 2013-14. The assessee has raised following grounds of appeal:
“1. The order dated 17/12/2025 bearing No. ITBA/NFAC/S/250/2025-26/1083790642[1] by the CIT[A], National Faceless Appeal Centre, Delhi is arbitrary, against natural justice, unlawful, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed.
2. On facts and in the circumstances of the case and in law the C.I.T.(Appeals) has erred in confirming the addition made u/s 68 of the Income Tax Act, 1961 amounting to Rs. 14,43,569/- on account Long Term Capital Gain claimed exempt under section 10(38) of Income Tax Act, 1961 by the appellant, even though the assessee has furnished all the relevant documents / papers with respect to the said transactions.
3. On facts and circumstances of the case and in law the CIT(Appeals) has erred in confirming addition made u/s 69C of the Income Tax Act, 1961 amounting to Rs. 43,307/- being commission paid @ 3% of the Long Term Capital gain.
4. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal.”
2. Brief facts of the case are that assessee is individual filed his return of income for A.Y. 2013-14 on 22.07.2013 declaring income of Rs. 14,90,440/-. Initially, the assessment was completed under section 143(1). Subsequently, the case was reopened on the basis of information that as per information in ITD data system based on investigations carried out by Kolkata Investigation Wing, which revealed that a number of persons availed bogus Long Term Capital Gain, on payment of commission through penny stock company. The assessee is one of the persons who is beneficiary of such entry of Long-Term Capital Gain (LTCG). The assessee has shown Long Term Capital Gain on sale of script of GFL Finance India. On the basis of such information the case of assessee was reopened under section 147. Notice under section 148 dated 15.09.2016 was served on the assessee. During re-assessment the assessing officer (AO) on perusal of computation of income noted that the assessee has shown LTCG of Rs. 12,25,549/- on sale of shares of GFL Finance India. The assessee purchased 13818 shares on 07.12.2011 at Rs. 2,14,732/- and sold these shares from 23.01.2013 to 28.01.2013 on total sale value of Rs. 14,43,569/-. The shares were purchased at a very low price and sold at a high price. The AO in para-17 of his order recorded that statement of assessee was recorded on 19.12.2017. The AO during assessment by referring modus operandi of penny stock scrip issued show cause notice to the assessee as to why sale consideration received on sale of such share should not be treated as unexplained cash credit under section 68. The AO recorded that assessee filed reply and it was examined. The assessee also requested for cross-examination of parties on whose statement his case was reopened. The request of assessee was rejected on the ground that parties who was made statement is located in Kolkata. The AO treated the entire sale consideration of Rs. 14,43,569/- as unexplained credit under section 68. The AO also added 3.00% of commission that is Rs. 43,307/- in the assessment order dated 28.12.2017.
3. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee challenged the validity of addition under section 68 & 69C. The ld. CIT(A) confirmed the action of AO. The ld. CIT(A) confirmed the action of AO on both the additions. The ld CIT(A) has not recorded the specific submission of assessee. However, the prayer of assessee to examine the genuineness of document was rejected on the ground that assessee cannot dispute the fact that shares of the company which the assessee had dealt were insignificant in value prior to their trading. The assessee has not discharged initial onus. The assessee cannot be allowed to say that his claim has to be examined based on document that is bank details and purchase documents, details of D-Mat Account. Further aggrieved, the assessee has filed appeal before Tribunal.
4. We have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue. The ld. AR of the assessee submits that assessee purchased share of GFL Finance Ltd, on public platform that is through Bombay Stock Exchange (BSE). recognised stock exchange. The assessee purchased share through registered broker namely Trustline Securities Ltd., who is member of BSE and registered with Security and Exchange Board of India (SEBI). The shares were credited to D-Mat Account. Payments were made to account payee cheque. The shares were sold through registered broker of BSE. Securities Transaction Tax (STT) was paid. During assessment the assessee furnished complete details of purchase, payment of purchase consideration, details of sale, sale consideration was received in bank, STT was paid. The assessee discharged his primary onus in furnishing complete details. The assessee also requested for cross-examination of the persons on whose statement, the Investigation Wing formed their opinion about penny stock. The cross-examination was not allowed. Neither the name of assessee nor his broker was identified by AO. No material is brought on record to show that either the assessee or his broker was involved in price rigging of shares of GFL Financial India. The entire transactions of assessee is genuine. Once the assessee discharged his primary onus. The onus shifts on the revenue to prove it otherwise. The AO made addition of 3.00% of commission payment.
There is no evidence of unexplained commission, rather the assessee has purchased and sold the share through SEBI registered broker, who is member of BSE. The addition is without any basis. Similar addition was deleted by Mumbai Tribunal in Mukesh B Shah Vs ITO in ITA No. 2052/Mum/2025. The addition under section 68 & 69C is to deleted.
5. On the other hand, the ld. Sr. DR for the Revenue supported the order of lower authorities. The ld. Sr. DR for the Revenue submits that assessee is beneficiary of penny stock. The assessee is not regular investor. The assessee indulged in sold transaction. The AO was having sufficient material before him for making addition of unexplained credit which was based on the information with AO. The appeal of the assessee may be dismissed.
6. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various documentary evidence filed by the assessee which included summery of purchases and sale of shares, copy of bank statement, copy of contract notes, copy of Demat account and statement of holding period. We also deliberated on the case law relied ld. AR of the assessee. We find that the AO doubted the transaction of assessee on the basis of report of information in ITD system, which was based on report of Investigation Wing Kolkata. The AO made addition of sale consideration of scrips of GFL Financial India as unexplained taxable income under section 68. The AO also added 3.00% of sale transaction by taking view that the paid commissions to the entry provider. We find that before ld CIT(A), the assessee has furnished complete evidence including contract note of shares, Dmat account details, detail of bank account. However, no adverse evidence was brought against such evidence, nor the assessing officer made adverse comment on such evidences. The assessee also requested for cross examination of persons, on the basis of whom the AO inferred adverse view. No such cross examination was allowed. The AO or ld CIT(A) has not made any independent investigation of facts to connect the assessee or his broker with the transaction of alleged price rigging. So far as allegation of price rigging is concerned, no role or the activities of the brokers of assessee in price manipulation is brought on record. We find that there is no material is brought on record or adverse finding or report of SEBI about price manipulation by the broker of assessee. No independent investigation of facts was carried out by the lower authorities, if any transaction of assessee even remotely connected with entry provider.
7. We find that Hon’ble Gujarat High Court in the case of Himani M. Vakil (2014) 41 taxmann.com425 (Guj) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. Gujarat High Court in the case of Parasben Kasturchand Kocher (2021) 130 taxmann.com176 (Guj), also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished to Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. Further, we find of Hon’ble Jurisdictional High Court in the case of PCIT Vs. Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction. In a recent decision in PCIT Vs Mamta Rajiv Kumar Agarwal (2023) 155 taxmann.com 549 (Gujarat) also held that where the assessee had sold the shares and earned LTCG and the Assessing Officer alleged that transaction was penny stock deal aim at illegitimately claiming LTCG exemption under section 10(38), since there was no allegation on record suggesting the assessee or his broker involved in rigging up the price of scrips, the addition was rightly deleted by Tribunal. We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence against the assessee specific. Hence, we direct the AO to delete the addition under section 68 of Rs. 14,43,569/-. Considering the facts that we have deleted the addition under section 68, therefore, addition of unexplained expenditure under section 69C, which is otherwise consequential, is also deleted. In the result, substantial grounds of appeal raised by the assessee are allowed.
8. In the result, the appeal of the assessee is allowed.
Order was pronounced in the open Court on 04/06/2026.
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