IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCH “H” MUMBAI

BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND

SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

ITA No. 4862/MUM/2014

Assessment Year: 2005-06

ITO-24(3)(1) M/s Arvind Kumar Jain HUF

C-11, 7th floor, B.K.C. 497/A, Pampa Co-Opt HSG
Bandra (E) Vs. Scoc. Gajanand Colony Road
Mumbai-400051. Goregaon West
Mumbai-400062.
PAN No. AAAHI1007M
Appellant Respondent

Revenue by : Mr. M.C. Omi Ningshen, DR

Assessee by : Mr. Naveen Kumar Mishra, AR

Date of Hearing : 21/06/2017

Date of pronouncement : 18/09/2017

ORDER

PER N.K. PRADHAN, A.M.

This is an appeal filed by the Revenue. The relevant assessment

year is 2005-06. The appeal is directed against the order of the
Commissioner of Income Tax (Appeals)-34, Mumbai and arises out of
the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act
1961, (the ‘Act’).

2. The grounds of appeal filed by the Revenue are against the

deleting of the addition of Rs.44,43,680/- made by the Assessing Officer

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(AO) by treating the Long Term Capital Gains (LTCG) as unexplained

cash credit u/s 68 of the Act.

3. Briefly stated, the facts of the case are that the assessee filed its
return of income for the AY 2005-06 on 16.02.2006 declaring total
income of Rs.19,294/-. The AO received information from the Deputy
Director of Income Tax (Inv.)-Unit-IV (4) that (i) the assessee had shown
sale proceeds of shares in the scrip ‘Ramkrishna Fincap Ltd.’ as LTCG
and claimed exemption, (ii) the assessee had claimed to have purchased
that scrip at Rs.3.12 per share in the year 2003 and sold the same at
Rs.165.83 per share in the year 2005, (iii) those scrips were penny-stock
and the capital gain declared was only accommodation entries, (iv) the
broker M/s Basant Periwal & Co. through whom the transactions were
effected had appeared as ‘DRI probing evasion by firms via jama
kharchi’, who indulged in market manipulation and price manipulation
through synchronized and cross deal in scrip of Ramkrishna Fincap Ltd.,
(v) SEBI had passed an order dated 09.07.2009 regarding the
irregularities and synchronized trades carried out in the scrip of
Ramkrishna Fincap Ltd. by the broker M/s Basant Periwal & Co.

In view of the above, the AO reopened the assessment by issuing

notice u/s 148. After going through the submission of the assessee, the
AO held that the scrip of Ramkrishna Fincap Ltd. is nothing but a penny
stock. The assessee had done transactions with M/s Basant Periwal &
Co. in only one transaction i.e. ‘Ramkrishna Fincap Ltd.’, that too in the
particular period for which SEBI had given a specific finding.

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 ITA No. 4862/Mum/2014 3

Considering the above facts, the AO brought to tax the LTCG of

Rs.44,24,385/- shown by the assessee as unexplained cash credit u/s 68.

4. Aggrieved by the order of the AO, the assessee filed an appeal

before the Ld. CIT(A). The Ld. CIT(A) relied on the decision by the
Hon’ble Delhi High Court in the case of M/s Rajat Export Import India
Pvt. Ltd. vs. ITO 341 ITR 135 (Del) and held the reopening by the AO as
valid.

4.1 Regarding the merit of the case, the AR of the assessee submitted
before the Ld. CIT(A) that:

1. That no opportunity to cross examination has been given

2. Shares have been purchased, demated and sold for which necessary
bills have been issued.
3. Shares have been sold through demat a/c and against the sale
payment has been received by a/c payee cheque etc.
4. STT shares have been sold on recognized stock exchange on which
STT have been paid.

4.2 The Ld. CIT(A) having gone through the copy of bank pass book,
broker’s bills for purchase and sale of shares, contract note, demat
account, statement of STT , held that the AO did not have any material
on record to show that the sale of shares were bogus. The Ld. CIT(A)
relied on the order of the Tribunal mentioned at para 3.6 of the
appellate order and also the decision in the case of CIT vs. Arun Kumar
Agarwal (HUF) (2012) 26 taxmann.com 113 (Jharkhand) and deleted
the addition of Rs.44,24,385/- made by the AO.

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 ITA No. 4862/Mum/2014 4

5. Before us, the Ld. DR submits that the assessee had done only one
transaction in the whole year through the broker M/s Basant Periwal &
Co. in the scrip of Ramkrishna Fincap Ltd. and the broker was situated in
Kolkata whereas the assessee was located in Mumbai and all other
security transactions were carried out by the assessee through brokers
in Mumbai. The broker M/s Basan Periwal & Co. had indulged in
synchronized trading in the scrip of Ramkrishna Fincap Ltd. and had
artificially inflated the price of the shares and were only issuing bogus
bills/accommodation entries. SEBI had conducted enquiries and found
that the broker M/s Basan Periwal & Co. had indulged in market
manipulation and inflated the price of the scrip. As per the order dated
31.08.2010 passed by SEBI Ramkrishna Fincap Ltd. had no net worth for
such price hike of the shares from Rs.3.12 per share to Rs.165.83 per
share. The Ld. DR further submits that the Calcutta Stock Exchange Ltd.
had imposed penalty on M/s Basant Periwal & Co. for issuance of false
contract notes to its members and this fact clearly shows that the
transactions were not genuine.

6. Per contra the Ld. counsel of the assessee files a Paper Book (P/B)
enclosing a copy of decision in the case of Smt. Bharti Arvind Jain vs. ITO
(ITA No.6102/Mum/2016) – ITAT ‘SMC’ Bench, Mumbai, CIT vs. Shyam
R. Pawar (2015) 54 taxmann.com 108 (Bom.), ITO vs. M/s Indravadan
Jain HUF (ITA No. 4861/Mum/2014) – ITAT ‘I’ Bench, Mumbai, Arun
Kumar Agarwal (supra), Chandrakant Babulal Shah vs. The Assessing
Officer, Ward-16(2)(4) (ITA No. 6108/Mum/2009) – ITAT ‘C’ Bench,
Mumbai, Mayur M. Shah (HUF) vs. ITO (ITA No. 2390/Mum/2013) –

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 ITA No. 4862/Mum/2014 5

ITAT ‘SMC’ Bench, Mumbai, Asst. Commissioner of I.T. 14(3) vs. Shri
Ravindrakumar Toshniwal (ITA No.5302/Mum/2008) – ITAT ‘D’ Bench,
Mumbai and Smt. Durgadevi Mundra vs. ITO (ITA No.1175/Mum/2012)
– ITAT ‘SMC’ Bench Mumbai.

7. We have heard the rival submissions and perused the relevant

materials on record. The reasons for our decisions are given below:

Exactly a similar issue arose before the ITAT ‘I’ Bench, Mumbai in
the case of M/s Indravadan Jain HUF (supra). In that case also the
assessee had shown sale proceeds of shares in the scrip ‘Ramkrishna
Fincap Ltd.’ as LTCG and claimed exemption under the Act. Further the
assessee had claimed to have purchased the scrip at Rs.3.12 per share in
the year 2003 and sold the same in the year 2005 for Rs.155.04 per
share. Also the AO held that these scrips were found to be penny stock
and the capital gains declared was held to be only accommodation
entries. Further, the broker M/s Basant Periwal and Co. through whom
the transactions were effected had appeared as “DRI probing evasion by
firms via jama kharchi” who indulged in price manipulation through
synchronized and cross deal in scrip of ‘Ramkrishna Fincap P. Ltd.’
Furthermore, it was also communicated that SEBI had passed an order
dated 09.07.2009 regarding the irregularities and synchronized trades
carried out in scrip of ‘Ramkrishna Fincap Ltd.’ by the broker M/s
Basant Periwal & Co. The AO did not accept the assessee’s claim of LTCG
and made an addition of it as unexplained cash credit u/s 68. In appeal,
the Ld. CIT(A) deleted the addition and allowed the appeal of the

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assessee. The Revenue filed appeal against the order of the Ld. CIT(A)
before the ITAT. The Tribunal held as under:

“8. We have considered rival contentions and carefully gone through the
orders of authorities below and found from the record that the AO has
treated the share transaction as bogus on the plea that SEBI has initiated
investigation in respect of Ramkrishna Fincap Pvt. Ltd. The AO further stated
that investigation revealed that transaction through M/s Periwal and Co. on
the floor of stock exchange was more than 83%. We found that as far as
initiation of investigation of broker is concerned, the assessee is no way
concerned with the activity of the broker. Detailed finding has been recorded
by CIT(A) to the effect that assessee has made investment in shares which
was purchased on the floor of stock exchange and not from M/s Basant
Periwal and Co. Against purchases payment has been made by account payee
cheque, delivery of shares were taken, contract of sale was also complete as
per the Contract Act, therefore, the assessee is not concerned with any way of
the broker. Nowhere the AO has alleged that the transaction by the assessee
with these particular broker or share was bogus, merely because the
investigation was done by SEBI against broker or his activity, assessee cannot
be said to have entered into ingenuine transaction, insofar as assessee is not
concerned with the activity of the broker and have no control over the same.
We found that M/s Basant Periwal and Co. never stated any of the authority
that transaction in M/s Ramkrishna Fincap Pvt. Ltd. on the floor of the stock
exchange are ingenuine or mere accommodation entries. The CIT(A) after
relying on the various decision of the coordinate bench, wherein on similar
facts and circumstances, issue was decided in favour of the assessee, came to
the conclusion that transaction entered by the assessee was genuine. Detailed
finding recorded by CIT(A) at para 3 to 5 has not been controverted by the
department by bringing any positive material on record. Accordingly, we do
not find any reason to interfere in the findings of CIT(A). Moreover, issue is

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also covered by the decision of jurisdictional High Court in the case of Shyam
R. Pawar (supra), wherein under similar facts and circumstances,
transactions in shares were held to be genuine and addition made by AO was
deleted. Respectfully following the same vis-à-vis findings recorded by CIT(A)
which are as per material on record, we do not find any reason to interfere in
the order of CIT(A).”

In Shyam R. Pawar (supra), it has been held by the Hon’ble

Bombay High Court that where DMAT account and contract note
showed details of share transaction, and Assessing Officer had not
proved said transaction as bogus, capital gain earned on said transaction
could not be treated as unaccounted income u/s 68.

In the case of Arun Kumar Agarwal (HUF) (supra), the Hon’ble

Jharkhand High Court has held that where assessee’s broker share
transaction was bone fide in all respect, merely because share broker
was tainted violating SEBI regulations, would not make assessee’s share
transactions bogus.

The ratio of the above decisions is applicable to the instant case.

7.1 Facts being similar, we follow the order of the Co-ordinate Bench
in M/s Indravadan Jain HUF (supra) and uphold the order of the Ld.
CIT(A).

8. In the result, the appeal is dismissed.

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Order pronounced in the open Court on 18/09/2017.

Sd/- Sd/-
(SAKTIJIT DEY) (N.K. PRADHAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai;
Dated: 18/09/2017
Rahul Sharma, Sr. P.S.

Copy of the Order forwarded to :

1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai

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