Case Law Details
Daljit Batra Vs ITO (ITAT Delhi)
Conclusion: Where assessee substantiated purchase, holding and sale of shares of YICL through documentary evidence, DEMAT records, contract notes, STT payments and banking transactions, and Revenue failed to establish any nexus between assessee and alleged price-rigging operators, exemption under section 10(38) could not be denied merely on suspicion or penny-stock allegations. Accordingly, additions under sections 68 and 69C were deleted.
Held: Assessee, an individual, filed his return declaring total income of ₹22.29 lakh. During scrutiny assessment, the Assessing Officer noticed securities transactions aggregating to ₹11.12 crore reflected in STT records. The assessee explained that he had earned exempt LTCG of ₹10.78 crore from sale of shares of YICL and, therefore, had not offered the same to tax. Assessee submitted that he had originally acquired shares of Anax Com Trade Ltd. through preferential allotment in November 2012 by making payment through banking channels. Subsequently, after stock split and amalgamation of Anax Com Trade Ltd. with YICL pursuant to an order of the Bombay High Court, the assessee received shares of YICL which were held in DEMAT form. During the relevant year, such shares were sold through registered stock brokers on recognised stock exchanges after payment of STT. AO, relying upon investigation wing reports and observations regarding YICL being a penny stock, treated the entire LTCG of ₹10.78 crore as unexplained cash credit under section 68 and further made addition of ₹21.57 lakh under section 69C towards alleged commission paid for obtaining accommodation entries. Commissioner (Appeals) confirmed both additions. It was held that assessee discharged the initial burden of proving genuineness of the transaction by furnishing comprehensive documentary evidence covering purchase, holding and sale of shares. Purchase consideration had been paid through banking channels; shares were dematerialised; sales were executed through recognised stock exchanges and registered brokers; STT was paid; and sale proceeds were received through banking channels. AO failed to bring any direct or indirect evidence on record to establish that the assessee had participated in price manipulation or had routed unaccounted money in the guise of exempt LTCG. Mere reliance on investigation reports, SEBI proceedings concerning third parties, abnormal appreciation in share price, or general allegations regarding penny stocks could not justify rejection of otherwise substantiated transactions. The theory of human probabilities and surrounding circumstances could not override unimpeached documentary evidence in absence of cogent material linking the assessee with alleged accommodation entry operators. No independent enquiry or investigation was conducted by AO to establish that the impugned transactions were sham. Since LTCG was held to be genuine and eligible for exemption under section 10(38), consequential addition under section 69C towards alleged commission expenditure for obtaining accommodation entries also could not survive.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by assessee against the order dated 20.08.2025 of Ld. Commissioner of Income Tax (Appeals)-24, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-10/10240/2018-19 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 17.12.2018 passed u/s 143(3) of the Act pertaining to Assessment Year 2016-17.
2. Brief facts of the case are that the assessee is an individual, e- filed his return of income on 27.07.2016, declaring total income of INR 22,29,890/-. The case of the assessee was selected for scrutiny under CASS for the reason whether the investment relating to security transactions are duly disclosed. Thereafter, statutory notice u/s 143(2) of the Act was issued on 17.02.2017 followed by notices u/s 142(1) alongwith questionnaire from time to time. The AO noticed that assessee has entered into security transaction of INR 11,12,97,473/- as per the STT return available with the Department and paid 0.1% STT on the said transaction. Since no income was declared with respect to such security transaction in the return of income filed, the AO asked the assessee to explain the reasons for the same. The assessee submits that during the year under appeal, he has earned LTCG of INR 10,78,90,609/- from the sale of equity shares of Yamini Investment Company Ltd. [“YICL”] and since the LTCG on the same was exempt u/s 38 of the Act, therefore, this transaction was not disclosed in the return of income filed. Thereafter, AO made no inquiries or verification of the transactions and based on the investigation carried out by Investigation Wing and order of SEBI with respect to YICL, AO alleged that the company YICL is a penny stock company and held that the transaction of sale of shares of YICL is not real but sham transaction. Accordingly, LTCG of INR 10,78,90,609/- claimed as exempt was held as unexplained credits and made the addition u/s 68 of the Act of the same. The AO further made addition of INR 21,57,812/- u/s 69C of the Act as unexplained expenditure by holding that assessee must have paid 2% commission for obtaining accommodation entry of LTCG. Thereafter, total income of the assessee was assessed at INR 11,22,78,310/-.
3. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide impugned order has uphold the addition on the basis of surrounding circumstances and further placing reliance on various judgments wherein it is held that the LTCG in a penny stock company is a sham transaction.
4. Aggrieved by the said order, assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
5. Grounds of appeal Nos. 1 to 7 are with respect to the confirmation of addition of INR 10,78,90,609/- made u/s 68 of the Act and Ground of appeal No.8 is with respect to the addition of INR 21,57,812/- made u/s 69C of the Act by alleging the same as unexplained commission paid for obtaining bogus LTCG.
6. Apart from this, the assessee has taken additional grounds of appeal with respect challenging the validity of the notice issued u/s 143(2) of the Act no in the specified format as per CBDT Circular. However, the same was not pressed, thus the same is dismissed.
7. Since all the remaining effective grounds of appeal are inter-linked and inter-connected therefore, all are taken together for consideration.
8. Before us, Ld.AR for the assessee submits that during the course of assessment proceedings, assessee has filed all the relevant details of purchase of shares of Anax Com Trade Limited [“ACTL”] and its subsequent amalgamation with YICL after getting approval from the Hon’ble Mumbai High Court, copy of the DMAT account statements and evidences of sale of shares in recognized stock exchange through reputed member brokers. The assessee submits that he had purchased 2,50,000 shares of ACTL in November, 2012 and payment was made through banking channel. The shares certificate alongwith allotment letter and bank statement evidencing the payment of purchases consideration from HSBC Bank of the assessee were filed before the AO. Thereafter, the shares were split in the ratio of 1:10 and after that, in terms of the order dated 09.05.2014 of Hon’ble Bombay High Court, the company M/s ACTL got amalgamated with YICL and assessee got shares of YICL in the swap ratio of 10:8 and post-amalgamation, assessee had 25 Lakhs shares of YICL. These shares were hold by the assessee in his DEMAT account with M/s Religare Securities Ltd. During the year under appeal, assessee has sold shares through member brokers i.e. M/s. Religare Securities Ltd. and M/s. Shri Parsaram Holding Pvt. Ltd. through recognized stock exchange.
9. The assessee further filed copies of sale invoices issued by the respective brokers alongwith the copy of Form 10DB in respect of the STT paid. The assessee further filed copy of bank statement and copy of ledger accounts of the assessee in the books of both the brokers confirming the sale of shares and credit of receipts in his bank accounts. The assessee further submits the copy of DEMAT account statement from where said shares were transferred. Copies of all these documents filed before the lower authorities alongwith respective submissions are placed at pages 11 to 147 of the Paper Book filed before us.
10. Ld. AR for the assessee further submits that purchases of the shares of ACTL were through preferential allotment and sales was made through recognized stock exchange and SEBI regulated intermediaries and the considerations were transferred through banking channel. The assessee had paid STT and claimed the shares such as exempt u/s 10(38) of the Act. The assessee has discharged the initial onus by furnishing complete details of purchases and sales of shares, source of investment, mode of investment, details of sales made and copies of the allotment letter as well as sales bills in this regard. Ld. AR submits that assessee is a regular and systematic investor in stocks and securities and investment / sale of shares of YICL is not the solitary transaction carried out by the assessee.
11. Ld. AR for the assessee submits that assessee since regularly traded in the stocks where assessee has earned substantial amount of profits from the sale of shares of YICL. Ld. AR drew our attention to the judgement of Co-ordinate Mumbai Bench of Tribunal in the case of Rajendra Kumar Mundra (HUF) vs ITO in ITA No.1000/Mum/2024 dated 06.08.2025 wherein the transaction of capital gain from the sale of shares of YICL was held as genuine transaction and the LTCG declared was held as genuine and exempt u/s 10(38) of the Act. Ld.AR further placed reliance on the judgement of Co-ordinate Bench Delhi Bench of Tribunal in the case of Sujit Madan vs DCIT in ITA No.3436/Del/2023 wherein vide order dated 20.01.2025, the coordinate bench held the capital given arisen from sale of shares of YICL as genuine. Ld.AR further placed reliance on the judgement of Hon’ble Delhi High Court in the case of Pr. CIT vs Krishna Devi reported in 126 taxmann.com 80 wherein the Hon’ble Delhi High Court has held that “if the evidences and proofs were submitted with respect to the sale of shares, on mere suspicion alone, the addition cannot be made and the theory of human behavior and pre-ponderance of probability cannot be cited as basis to turn to blind eye on the evidences produced by the assessee.”
12. Similarly in the case of Udita Gupta vs ACIT in ITA No.2532/Del/2022 vide order dated 11.2025, the Co-ordinate Bench of the Tribunal has held that the transaction of sale of shares of YICL is genuine transaction. Ld.AR thus prayed that the additions towards the genuine LTCG of INR.107890609/- claimed as exempt u/s 10(38) be held as genuine and further requested to delete the addition of INR 21,57,812/- made u/s 69C of the Act as unexplained expenditure as alleged commission paid to obtain the accommodation entry of bogus LTCG deserves to be deleted.
13. On the other hand, Ld. CIT DR heavily placed reliance on the judgment of the lower authorities and submits that assessee has not shown exempt income in ITR filed therefore, the credits received from the sale of the shares of YICL remain undisclosed and unexplained. Ld. CIT DR further submits that Ld. CIT(A) had discussed this issue at length and in para 5 of its order, has observed that assessee has failed to establish the genuineness of the transactions of the sale of the shares of YICL. Ld. CIT DR submits that on comparison of the prices of the shares of YICL, it could be seen that there was substantial increase without any basis and financial strength of the company is also doubtful which has been discussed by the AO at page 5 to 89 of the order.
14. Ld. CIT DR submits that the lower authorities have been able to establish that the sale of shares of YICL is a sham transaction and therefore, requested for the confirmation of the addition so made by the lower authorities.
15. In re-joinder, Ld. AR submits that merely for omission of disclosing the exempt income in the return of income filed, the genuine transaction of sale of shares carried out through banking channel and the profit earned thereon is exempt from tax, could not be held as undisclosed and explained transaction and further it could not be hold that the assessee has deliberately hide the transaction and therefore, solely on this ground, genuine transaction cannot be held as bogus and sham transaction more particularly when no independent inquiry or investigation was made by the AO . He prayed accordingly.
16. Heard the contentions of both the parties at length and perused the material available on record. It is observed that assessee has filed all the relevant details with respect to the transaction of purchase of shares of ACTL, its amalgamation with YOCL, kept the shares in DMAT A/c and its subsequent sales. The AO without having any information/material in his possession in para 3.1 to 3.7 of the assessment order, on mere assumptions and presumptions observed that transaction of sale of shares of YICL is mere accommodation entry and the entire transaction as sham transaction. There is no direct or indirect evidence against the assessee brought on record by the AO to allege the transaction as sham transaction. The AO as well as Ld. CIT(A) has tried to make out a case of circumstantial evidence and surrounding circumstances without their being any material to suggest so. The assessee has filed following details to establish the transaction as genuine, which are as under:-
(i) Copy of share allotment letter at the time of subscribing the shares;
(ii) Copy of shares certificate having certificate and distinctive nos.
(iii) Copy of bank statement from which payment for acquisition of share was made;
(iv) Copy of the order of Hon’ble High Court for amalgamation;
(v) Copy of DEMAT account statement evidencing the dematerialization of shares;
(vi) Copy of sales bills through which shares were sold in the recognized stock exchange;
(vii) Copy of the statement of the accounts of the assessee in the books of brokers;
(viii) Copy of Form 10BB in support of STT paid; and
(ix) Copy of bank statement wherein sale proceeds were credited.
17. By filing the aforesaid evidences, assessee has discharged the burden casted upon him to establish the transaction of sale of share of YICL as genuine a transaction. It is also a matter of fact that investment in shares of ACTL which were later merged with YICL is not the solitary transaction carried out by the assessee in shares and securities rather he is a regular investor and having large investment which is evident from the copy of DEMAT account statement filed before us. However, the AO except making bald statements with respect to the genuineness of the transaction carried out by the assessee and holding the same as sham transaction without bringing out on record any material quoted by making independent inquiry or investigation which could suggest that the assessee has entered into transaction of sale of share through the alleged inter-mediaries for obtaining accommodation entries of LTCG. The shares were sold through registered broker and the assessee has paid STT which fact has not been denied. Under identical circumstances in the case of Sujit Madan vs DCIT (supra), the Co-ordinate Bench of ITAT, Delhi has held the transaction in shares of YICL is genuine. The relevant observations of the Co-ordinate Bench as contained in para 10-15 are as under:-
10. “We find that the lower authorities brushed aside the submissions and all the documents filed during the course of the respective proceedings and merely relied upon the information received through CRIU module of insight portal and failed to conduct an independent inquiry against the claim of the assessee. Absolutely, there is no direct or indirect evidence against the assessee which has been brought on record by the lower authorities to justify the addition by denying the claim of exemption under section 10(38) of the Act for the assessee. The lower authorities had merely relied on third party information in this regard. It is pertinent to note that the transaction of purchase of shares made by the assessee in this regard has been accepted and no doubts or adverse inference has been drawn on the same. These investments in shares were made in September 2012. The payments for the same had been made by account payee cheque out of the disclosed bank account by the assessee. These shares were duly dematerialized and were held by the assessee for more than three years. Seeing the fact that the shares were going down drastically as stated supra, the assessee decided to sell the shares in three different tranches during the year under consideration. These shares were admittedly sold through a recognized, through a registered share broker in the recognized stock exchange in the open market after duly suffering STT. Hence, there is absolutely no reason for the lower authorities to doubt the transaction carried out by the assessee.
11. The Learned CITA relied on the order passed by Securities and Exchange Board of India (SEBI) dated 4-9-2023 in the case of Yamini Investment Company Limited restraining certain parties from accessing the securities market. The said order clearly specified the list of persons involved in the manipulation of the scrip and artificial rigging of share prices and who were the actual beneficiaries by obtaining ill –gotten gains through the scrip of Yamini Investment Company Limited . On perusal of the said order, neither the assessee’s name nor the share broker through which assessee traded are reflected and hence no adverse inference could be drawn on the assessee herein. We also find that SEBI order had also taken cognizance of the fact that stock split benefit of 1:10 was obtained by some of the persons in this scrip, whereas the assessee had bought the shares earlier to the date of stock split itself. Further the period of SEBI enquiry was from Sept 2013 to Jan 2014 , whereas the assessee sold shares in June 2015 and Feb 2016. Nowhere the assessee’s conduct fall under any of the adverse effects reflected in the order of SEBI. Hence the reliance placed on the order of SEBI does not come to the rescue of the revenue in the peculiar facts and circumstances of the instant case.
12. The ld DR vehemently placed reliance before us on the decision of the coordinate bench of Mumbai Tribunal in the case of Aakruti Ketan Mehta vs ITO in ITA No. 53/Mum/2023 for AY 2014-15 dated 31.01.2024 wherein, the Tribunal had made a passing observation in para 30 that the SEBI had adjudicated and found that the entire trading of the shares in the stock market qua scrip of Sunrise Asian Ltd was only a plot to provide accommodation entry to certain parties who had approached them to provide accommodation entry. The Tribunal also had held that even though there cannot be any direct evidence against the assessee but all these entries had cast a shadow of test of genuineness of the transaction which requires juridical frown and condemnation. Further, the Tribunal had also placed reliance on the decision of the Hon’ble Calcutta High Court in the case of PCIT Vs. Swati Bajaj reported in 139 taxmann.com 352 (Cal HC). Further, in para 31 of the said order, the Tribunal also records the fact that they are not inclined to go into the details of various judgments wherein, addition have been deleted on the scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground that assessee has not given cross examination. Further, in the said paragraph, the Tribunal had extensively relied on the SEBI’s Investigation carried out with regard to said scrip.
13. We have already dealt extensively regarding the SEBI order as passed in respect of Yamini Investment Company Ltd shares by clearly bringing on record that the said order does not either directly or indirectly implicate the assessee in any manner whatsoever and all the allegations levelled in the said SEBI order does not apply factually to the assessee- be it with regard of stock split or the period of enquiry carried out by SEBI etc. The SEBI order is for the enquiry conducted from September 2013 to Jan 2014 with regard to behavior of the said scrip in the stock market whereas the assessee had sold the share in June 2015 and February 2016. Even if the scrip is to be construed as tainted scrip, the assessee cannot be implicated or linked with the alleged tainted persons merely because certain tainted persons were involved in the artificial rigging in the share price. Further, even in the Mumbai Tribunal relied upon by the ld DR vehemently, there is an observation that people who had approached the tainted parties in order to get accommodation entries in the form the exempt long term capital gains. There is absolutely no evidence brought on record by the revenue in the instant case before us that assessee had either approached the alleged tainted parties/ entry operators who were involved in artificial rigging of share price of Yamini Investment Company ltd in order to receive accommodation entries in the form of exempt long term capital gains. It is pertinent to note that assessee has been holding the share from September 2012 onwards and the price of the very same scrip in the open market in October 2014 was ranging from Rs. 452 to 496 per share. Considering the drastic fall in the said scrip, the assessee had chosen to sell it in three tranches at the price 61.70 per share; Rs 58.15 per share and Rs. 30.85 per share. This is classic case of assessee falling in the category of gullible investor who had been hit by the declining market prices due to alleged manipulation and artificial rigging of share prices carried out by some 3rd party who are totally unconnected with the assessee. Hence, in our considered opinion, reliance placed on the decision of the Mumbai Tribunal would not come to the rescue of the revenue. Further, we find our view is further fortified by the decision of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Smt Krishna Devi reported in 431 ITR 361 (Del); decision of the Hon’ble Allahabad High Court in the case of PCIT Vs. Smt Renu Agarwal 153 taxmman.com 578 and decision of the Hon’ble Madhya Pradesh High Court in the case of CCIT (OSD) Vs. Nilesh Jain (HUF) 163 taxmann.com 229, among others. Now we are left with a situation wherein, the Hon’ble Jurisdictional High Court has decided in favour of the assessee and some non-Jurisdictional High Court had given divergent views. When there is a decision of Hon’ble Jurisdictional High Court, the same would prevail over other High Courts , Tribunal and this Tribunal need not take cognizance of the Hon’ble Non- Jurisdictional High Court or for that matter any other Tribunal decision. The law is very well settled by the decision of Hon’ble Supreme Court in the case of Union of India Vs. Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of the Hon’ble Jurisdictional High Court would have higher precedence value than the decision of the Hon’ble Non Jurisdictional High Court or the Tribunal. Hence, we deem it follow the decision of the Hon’ble Jurisdictional High Court in the instant case before us.
14. Further, we find that in assessee’s brother’s case, Shri Rajiv Madan, in respect of identical facts of sale of shares of Yamini Investment Company Limited, the income tax department had accepted the claim of short term capital gains disclosed by him to be genuine in the reopened assessment proceedings under section 143(3) read with section 147 of the Act dated 26-5-23. The learned AR placed on record the copy of the said assessment order in pages 53-56 of the synopsis. This evidence also goes against the department wherein for the same set of shares, in case of assessee’s brother, the entire transactions have been accepted as genuine by the department whereas, exactly contrary view has been taken in the case of the assessee herein.
15. In view of the aforesaid observations, we hold that there is absolutely no case made out by the revenue for justifying the denial of exemption under section 10(38) of the Act in the facts and circumstances of the instant case . Accordingly, the Ground Nos. 2, 3 and 5 raised by the assessee are hereby allowed.”
18. Similarly, the Co-ordinate Bench of Mumbai Tribunal in the case of Rajendra Kumar Mundra (HUF) vs ITO has accepted the transaction of sale of share in YICL as genuine transaction. The relevant observation of the Co-ordinate Bench as contained in para 5 to 16 are reproduced as under:-
5. “We have heard counsels for both the parties, perused the material placed on record, judgments cited before and also the orders passed by the revenue authorities. From the records, we noticed that assessee was allotted 20,000 equity shares of M/s Anax Com Trade Ltd., on 21.01.2013 for a value paid amounting to Rs. 2,00,000/- on the face value of Rs. 10/- per share. However the said company split the face value of shares from Rs. 10 to Rs. 1 and in this way assessee got 2,00,000 shares and the same were also converted by merger / amalgamation following Bombay High Court order into 1,60,000 shares of Yamini Investments Company Ltd (Yamini). In this regard, assessee has placed on record ‘allotment letter, bank statement’ highlighting the payment made towards purchase of the said shares and also placed on record the order of Hon’ble High Court by which the company M/s Anax Com Trade Ltd was merged with Yamini Investments Company Ltd., which are at paper book page No. 51 to 95.
6. However looking at the market volatility and better returns, the assessee sold equity shares at recognized Bombay Stock Exchange (BSE) through broker IIFL securities Ltd and Arcadia Share & Stock Broker Pvt Ltd at various rates after paying STT, the details of which are contained herein below:
7. In order to prove the said contention the assessee had already placed on record the copy of sale bills issued by the broker and copy of broker ledger through whom the shares were sold which are at paper book page No. 96 to 118. The assessee had also placed on record complete details pertaining to purchases, scheme of court of merger, D-MAT Accounts & sale notes (Broker’s note) etc. All the payments have also been received through stockbroker of recognized stock exchange through banking channels, and in this regard copy of Bank Account Statements has been placed on record at Paper Book Page no. 42 to 50.
8. We noticed that even the Price of script Yamini Investments Company Limited was being determined, at recognized stock exchange, which is not in control of assessee. Even the number of shares held is determined and approved by Hon. Bombay High Court as per the scheme of merger.
9. As noticed above from the record, the assessee is not dealing only in one such scrip. However, the assessee has been a regular investor and earning gains/losses from investing in shares of many companies and no other gain (long term or short term) has been questioned by income tax department.
10. Thus only because of the fact that the income tax department got the information from investigation wing that Yamini Investments Company Limited is a penny stock, it doesn’t automatically means that the assessee has indulged into misappropriation. The similar flow of transaction was pronounced in the recent decision of the Coordinate Bench in the case of Vinay Kumar Dhingra HUF v/s ITO in Delhi bench of ITAT on 28 June 2021 where all the facts of transaction are similar to that of the above case.
11. The fact remains that the shares of Anax Com Trade Limited were purchased and were received in the Demat account and payment is made through banking channel vide account payee cheque, thus no question of raising doubt about the purchase of shares by the assessee is sustainable. After the merger of Anax Com Trade Limited and Yamini Investments Company Limited, the shares of Anax Com Trade Limited were converted into shares of Yamini Investments Company Limited in Demat account as per the scheme of merger. We also noticed that all the transactions were being carried out through SEBI registered stockbrokers and Members of BSE, a recognized stock exchange of India and through Scheduled Commercial Banks. Since the assessee had complied with all the terms and conditions of section 10(38) i.e. shares are held by the assessee for more than 12 months (approx. 28 Months), paid STT of Rs. 9,191/- at the time of sale, transaction is being carried out through recognized stock exchange in India as per procedure by SEBI and even the rates are not decided by any of the parties, but by open market on demand and supply basis. Thus it cannot be said that the above transactions are a bogus transaction ignoring the facts and documentary evidences available on record.
12. It is also hereby important to note that the transactions were carried out in an open market and in a recognized stock exchange hence prices of shares are not controlled / managed by the assessee. Similar view has also been taken by the Coordinate Bench of ITAT in the case of ITO-(24)(3)(1), Mumbai V/s M/s Indravardan Jain HUF. It was noticed by the bench that the investigations into penny stocks cannot necessarily mean that all transactions are bogus. The nature of the transaction does not change just because there is an investigation or because it is a penny stock.
13. Further, the AO has not been able to place on record any evidence about the mutual connivance of the assessee and the operators. There is absolutely no evidences with regard to the fact that the assessee had given cash to any entry operators. Since the shares were sold through recognised stock exchange on which the assessee had paid Security Transaction Tax (STT) and other statutory taxes. The same were paid through proper banking channel. It is well known fact that when the shares are sold at online platform the stock exchange, the seller of the shares does not know as to whom the shares are being sold. The shares are transferred in DMAT form to the stock exchange clearing house and the seller only receives sales consideration from the stock exchange through the share broker. Therefore, neither the seller knew the purchasers, nor the purchasers knew the seller. Thus in absence of any corroborative evidence that both Seller and Purchaser have indulged into some clandestine transactions, there is not even a remote possibility of hobnobbing. Therefore, In our view, in such circumstances the assessee cannot be said to be a part of the group indulging into rigging of share prices of the script as alleged by the AO and confirmed by the Ld. CIT(A).
14. We noticed that during the course of assessment proceedings, the assessee had submitted following documents to substantiate his claim of long term capital gain which is exempted under section 10(38) of the Act:-
-
- Copy of share allotment
- Copies of sale bills
- Copy of bank statement
- Copy of D-mat account
- Copy of contract notes
15. It is pertinent to mention that the assessee had sold the shares during the months of June 2015 and July 2015 in the FY. 2015-16 from a price range of Rs. 49.20/- to 58.90/- per share and the price of the share was fluctuating in the same range for next 12-20 months even after the shares were sold by the assessee. And the factual position is contained in the below mentioned graph.
16. Since, the assessee had purchased the shares directly from the Company under Private Placement and sold at Bombay Stock Exchange through its share brokers and the shares were received directly from the company and then dematerialized and on sale, the D-mat shares were delivered to the clearing corporation of BSE through its share broker. However, the AO denied the claim of long-term capital gain on sale of shares u/s 10(38) of the Act and made addition of LTCG u/s 68 of the Act. Whereas, the shares had been directly allotted by the company and the payment had been made through account payee cheques duly disclosed by assessee in the earlier year and said purchase of shares was evidenced not only from the bank statement but also by the allotment of shares. Thus, possession of the shares were not in doubt at all because the same were also reflected in the D-mat account.
Hence, the nature of the transaction was clearly purchase and sale of shares and the source of the credit. From the material facts on there was no evidence or any whisper on record that some unaccounted money had been routed. Thus, in our view there is absolutely no case made out by the revenue for justifying the denial of exemption u/s 10(38) of the Act in the case of the assessee.”
19. The Co-ordinate Bench of the Delhi Tribunal in the case of Udita Gupta after considering the facts, has following the order of Rachna Gupta vs ACIT in ITA No.5418/Del/2018 & 2531/Del/2022 order dated 20.12.2024 has held that the transaction of sale of shares of YICL is genuine. The relevant observations as contained in para 6 to 12 of the order are as under:-
6. “Considered the rival submissions and material placed on record. Taking into consideration the contention of ld. AR, we are of the considered view that in the case of Rachna Gupta (supra), the Co-ordinate Bench vide order dated 20.12.2024 has taken into consideration two scrips i.e. M/s Yamini Investment Pvt. Ltd. and M/s. Goenka Business & Finance Ltd. in AY 2016-17. In paras 9 to 13, all the aspects have been examined to benefit the said assessee and the findings certainly apply mutatis mutandis to the case of assessee also. For the sake of brevity, findings in para 9 to 13 in the case of Rachna Gupta (supra) are reproduced as under:-
9. Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares directly from the company and through share transfer from other party, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: –
“1. The following question of law is proposed:
“Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?”
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 Ramkrishna 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 judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. 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 properly analysed 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.”
10. Further, the Hon’ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: –
“8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453.
9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.
10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter.
11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.
15. Accordingly, the present appeals are dismissed.”
11. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed.
12. In the result, appeal filed by the assessee is allowed.
13. With regard to appeal for AY 2016-17, since the facts are exactly similar except change in scrips bought and sold by the assessee i.e. Yamini Investment Pvt. Ltd. and Goenka Business & Finance Ltd. to AY 2015-16 our above findings in AY 2015-16 are applicable mutatis mutandis in AY 2016-17. Accordingly, the appeal being ITA No.2531/Del/2022 for AY 2016-17 filed by the assessee is allowed.”
20. Similar view has been taken by various Co-ordinate Benches of the Tribunal. The Hon’ble Jurisdictional High Court in the case of PCIT vs Krishna Devi (supra) held that theory of human probability cannot be applied mechanically to disregard the direct documentary evidences available without any contrary material brought on record by making independent inquiries or investigation.
21. As observed in the instant case, the AO has not made any independent inquiry or investigation whatsoever before reaching to the conclusion that the transaction of shares in YICL and long term capital given declared by the assessee is a sham and bogus transaction. On the contrary, the assessee has discharged his burden by filing all the necessary and plausible evidences in support of the transaction carried out by it which has been discussed herein above.
22. In view of the above facts and circumstances of the case and by respectfully following the judgments of Hon’ble Delhi High Court, Hon’ble Bombay High Court and of the Co-ordinate Benches of the Tribunal, we are of the considered view that the assessee has entered into a genuine transaction of purchase and sale of shares of YICL which cannot be held as bogus and sham transaction without any contrary material brought on record by the AO and mere suspicion and assumptions and presumptions, the entire transaction was held as bogus and addition was made. Accordingly, we hereby delete the addition made by the AO in respect of the genuine LTCG declared by the assessee of INR 10,78,90,609/- made u/s 68 of the Act.
23. Since we have already held the long terms capital gain as genuine, the addition made of INR 21,57,812/- u/s 69C of the Act as unexplained expenditure being 2% of the alleged commission paid for obtaining the accommodation entry of so-called bogus LTCG is hereby, deleted. All the grounds of appeal of the assessee are thus allowed.
24. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 14.05.2026.
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