Income Tax Appellate Tribunal - Jodhpur
Madan Lal Paliwal,Nathdwara vs Assistant Commissioner Of Income Tax ... on 30 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE DR. MITHA LAL MEENA, HON'BLE ACCOUNTANT MEMBER
AND SHRI SUDHIR PAREEK, HON'BLE JUDICIAL MEMBER
ITA No. 940/Jodh/2025
(Assessment Year - 2015-16)
Madan Lal Paliwal Assistant Commissioner of Income Tax,
That Kim, Uper ki Oden, Central Circle-1
Nathdwara, Rajsamand - 313301 Udaipur - 313001
PAN No. ABWPP 0961 C
Assessee by Shri M.S. Jhanwar, CA, Shri Sanjay Singh, CA
and Shri kamlesh Moondra, CA (Physical)
Revenue by Shri O.P. Meena, CIT-DR (Virtual)
Date of Hearing 24.03.2026.
Date of Pronouncement 30.04.2026.
ORDER
DR. MITHA LAL MEENA, A.M.:
This appeal is filed by assessee against the order of Commissioner of Income Tax, Appeal Udaipur-2 [hereinafter referred to as CIT(A)] dated 30.10.2025 with respect to assessment year 2015-16.
2. The assessee has raised following grounds of appeal:
1. That the learned CIT(A) erred in upholding the reassessment initiated under Section 147/148 for AY 2015-16 despite the fact that no incriminating material or undisclosed income relating to this year was found during the 21.02.2023 search, rendering the reopening void for want of jurisdiction.
2. That the learned CIT(A) erred in law in holding that the Section 148 notice dated 19.03.2024 was within limitation. He failed to appreciate that the extended 10-year period under Section 149(1)(b) was not available, as the search unearthed no asset representing escaped income over 50 lakh for AY 2015-16.
3. That the learned CIT(A) wrongly upheld the reopening despite material procedural lapses. In particular, the Assessing Officer did 2 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16)
4. not provide the assessee a copy of the Principal CIT's sanction obtained under Section 151, and the sanction itself appears to have been given mechanically, without due application of mind, vitiating the validity of the notice.
5. That the learned CIT(A) was not justified in rejecting the objection to the Section 143(2) notice. The scrutiny notice was issued in a legally improper manner, and this procedural illegality tainted the reassessment proceedings an aspect the CIT(A) failed to ab initio address.
6. That the learned CIT(A) erred in law by upholding the reassessment even though the Assessing Officer never disposed of the assessee's objections to reopening with a separate speaking order (as mandated by the Supreme Court in GKN Driveshafts). This omission violated fundamental procedural safeguards and invalidates the entire reassessment.
7. That the learned CIT(A) overlooked the gross violation of natural justice. The assessment was driven by third-party statements and a departmental investigation report alleging a "penny stock" scam, yet no opportunity to cross-examine the witnesses or rebut the adverse material was afforded to the assessee, fatally undermining the addition.
8. That the learned CIT(A) wrongly affirmed the addition which was based on mere suspicion and generalized allegations. The Assessing Officer's characterizations of the shares as "penny stocks" and references to scams in other cases were speculative and not supported by any direct evidence linking the assessee to undisclosed income..
9. That the learned CIT(A) failed to consider that the Assessing Officer disregarded crucial evidence and explanations furnished by the assessee. Legitimate documents including Demat statements, contract notes, and banking records evidencing the share transactions were summarily ignored, rendering the assessment perverse and in violation of Section 142(3)..
10. That the learned CIT(A) erred in law and on facts in confirming the addition of LTCG Rs. 31,60,76,674 as unexplained cash credit under Section 68. The amount represents the assessee's genuine Long-Term Capital Gains from listed shares documented share transactions that fulfilled all legal conditions for exemption under Section 10(38).
11. That the learned CIT(A) wrongly upheld the Section 68 addition even though the assessee had discharged the onus. The identity and creditworthiness of all parties (SEBI- registered stock brokers, etc.) and the genuineness of the transactions were established through official records, with no evidence that any of the assessee's own unaccounted funds circulated back.
12. That the learned CIT(A) has gravely erred in law and on facts in sustaining the ₹9,02,850 addition under Section 69C as alleged commission expense for arranging bogus LTCG. By taxing ₹18.05 Cr as income and also *0.09 Cr as expenditure on that very amount, the AO effectively double-taxed the same money, leading to an "income" exceeding receipt. Moreover, the AO's approach, which the CIT(A) has upheld, was 3 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) inconsistent: he arbitrarily applied commission to SILL shares but none to the STAL share transactions, despite both being of similar nature
13. That the learned CIT(A) has further erred in law by confirming the AO's decision of charging tax under Section 115BBE at the punitive rate for the year under appeal, which is not legally sustainable.
14. That the learned CIT(A) ought to have held the penalty proceedings invalid. The Assessing Officer's boilerplate initiation of penalty under Section 271(1)(c) - without a clear finding as to concealment or furnishing of inaccurate particulars in the assessment order was mechanical and legally unsustainable.
3. We have heard both the sides, perused the material on record, written submissions filed and the case laws cited before us.
4. The AO mentioned that submission of the assessee has been perused and verified from the record. The Assessing Officer noticed that during the period relevant to assessment year under consideration, the assessee has shown LTGC of Rs.31,60,76,674/- on sale of script of Svaraj Trading & Agencies Ltd.(STAL). Further, the LTCG has been claimed exempted u/s 10(38) of the Act. The Assessing Officer further stated that on perusal of the details of LTCG, it is evident that the assessee is one of the beneficiaries of price manipulation or rigging of share of penny stock of STAL. Therefore, a detailed show cause notice along with complete finding that STAL was a penny stock company and capital gain shown from sale of script of STAL is bogus, was issued to the assessee and that assessee was show caused as to why LTCG should not be treated bogus credit u/s 68 of the Act and an addition of Rs. 31,60,76,674/- may not be made in the total income of the assessee u/s 68 of the 4 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) Act for the year under consideration. Being not satisfied with the reply of the assessee the Assessing Officer has made an addition of Rs. 31,60,76,674/- u/s 68 of the Act and consequential addition on account of disallowance of commission/brokerage made u/s 69C of the Act with charging tax u/s 115BBE. 4.1 In appeal, the Ld. CIT (A) has confirmed the finding of the Assessing Officer by rejecting the appeal of the assessee summarily without addressing the contentions of the appellant and case law referred. Each issue raised in the appeal is discussed and adjudicated in the following paras.
4.2 The Ld. Counsel presented the appeal and briefly narrated the facts of the case that the appellant is an individual who has filed his regular return of income declaring a total income of Rs.39.27 crore for Assessment Year 2015-16. The appellant has earned long term capital gains income amounting to Rs.32.94 crore from sale of shares of M/s Svaraj Trading and Agencies Ltd. (in short 'STAL') and M/s Swadeshi Industries and Leasing Ltd. (in short 'SILL') and on the said income earned from long term capital gains, the appellant has claimed exemption u/s 10(38) of the Income Tax Act, in the return of income. A Search and seizure action was carried out at the residential premises of the appellant on 21.02.2023. However, the Search and seizure action did not lead to the discovery of any incriminating material. Following the new procedure of search assessments prescribed by the Finance Act 2021, the Assessing Officer (in short 'the AO') issued Notices u/s 148 of the Income 5 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) Tax Act for the 3 Assessment years, i.e. A.Y. 2021-22, 2022-23 & 2023-24 and that the AO issued Notice u/s 148 of the Income Tax Act for Assessment Year 2015-16 relevant under the provisions of section 149(1)(b) of the Income Tax Act which provides for assessment of escaped income beyond three years period in certain prescribed circumstances. However, the prescribed conditions of section 149(1)(b) of the Income Tax Act were never met. Proceedings u/s 148 of the Income Tax Act for the assessment year under appeal as well as for three mandatory Assessment Years 2021-22 to 2023-24 were initiated in accordance with the new procedure of search assessments applicable for search actions carried out after 01.04.2021. The AO never referred to any seized documents, or recorded statements of the appellant or his associates that unearthed undisclosed income for the year under consideration. However the AO without rebutting the reply proceeded to made addition by rejecting appellants claim of exemption u/s 10(38) of the Act. 4.2.1 The Ld. AR argued that the AO lacks jurisdiction in issuing Notice u/s 148 of the Income Tax Act, and therefore, the order passed by the Ld. Assessing Officer is without jurisdiction. The Ld. AR contended that the finding of the AO, as confirmed by the Ld. CIT(A) suffers from gross legal, factual and procedural infirmities like non supplying of copy of approval of the competent Income Tax Authority, required to be obtained before issuing Notice u/s 148, Non disposal of objections to the issuance of Notice u/s 148, falsification of approval obtained before the completion 6 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) of assessment as proposal for approval of the draft assessment order was moved a day after passing the assessment order, violation of principles of natural justice and ignoring plethora of evidences submitted in support of the claim of having earned income exempted under the head Long Term capital gains. The Ld. AR has filed detailed Submissions of 129 pages and 2 volumes of Paper book of 253 & 1203 pages in support of its contention with respect to the specific grounds of appeal.
5. In the 1st ground, the appellant has challenged the decision of the Ld CIT(A)) in upholding the reassessment proceedings initiated under Section 147/148 for Assessment Year 2015-16 despite the fact that no incriminating material or undisclosed income relating to this year was found during the search conducted on 21.02.2023, which rendered the reopening void for want of jurisdiction. 5.1. The Ld. CIT (A) while upholding the validity of reopening of assessment u/s 147/148, has observed on page 6 of the impugned order, as under:
"The appellant has challenged the reopening of assessment u/s 147/148, contending that no incriminating material was found during the search on 21.02.2023, and hence, the AO had no jurisdiction to initiate reassessment. ...
After careful consideration of the appellant's submissions, the assessment record, and the relevant law, it is found that the appellant's contentions are without merit. The appellant has challenged the reopening of assessment on the ground that no incriminating material was found during the search, that no undisclosed income was unearthed and the AO lacked jurisdiction under section 147/148. ---------- The law is well settled that once the AO forms the belief based on tangible material, reopening under Section 147/148 is valid. Reliance placed by the appellant on decisions such as CIT vs. Abhisar Buildwell and others is distinguishable, as in the present case the AO had tangible material directly linking the appellant to the transactions in question. Further, judicial precedents including Pr. CIT v. Gokul Ceramics and Dr. Lata Chouhan vs. ITO support the proposition that the AO is entitled to reopen an assessment on the basis of 7 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) material obtained during search or survey, and that the adequacy or sufficiency of such reasons cannot be questioned in appeal unless the action is found to be perverse or legally impermissible.
Accordingly, the reassessment proceedings initiated are valid and legal, and the ground of appeal challenging the reopening of assessment is dismissed."
5.2. The Ld. Counsel for the appellant has argued that no incriminating material was found and seized during the search conducted on the appellant and his group (Miraj Group) on 21.02.2023 either in the form of any papers, or digital data suggesting that the reported share transactions of Assessment Year 2015-16 were bogus that leads to any unaccounted income. The Panchnama (APB Pgs. 1048- 1057) and seized records during the search (as acknowledged in the assessment order) contain nothing relating to these Long-Term Capital Gain [in short ("LTCG")] transactions. The Ld. AR argued that since no fresh tangible material was found in search, hence reopening of the assessment is impermissible and it would tantamount to review of past records. The Supreme Court in Pr. CIT (Central) v. Abhisar Buildwell (P) Ltd. [2023] 149 taxmann.com 399 (SC), emphasized that if no incriminating material is found in a search, the completed assessment for that year remains undisturbed.
5.2.1. The Ld. AR argued that the appellant's LTCG of Rs. 32.94 crore from sale of shares was fully disclosed in the original return filed on 30.09.2015. The claim of exemption under section 10(38) was made in regular return of income, duly supported by documentation (Demat statements, contract notes, stock exchange 8 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) trade records, bank receipts of sale proceeds, SEBI records etc.). The search on 21.02.2023 did not unearth any new document proving that these disclosed transactions were either under stated or sham. In fact, the appellant even offered an explanation before the search (in a statement recorded on 04.01.2023 (APB, pages 1060-1065) in compliance of summon dated 30.08.2022 (APB pages 1058- 1059) about all share transactions and no contradiction or hidden aspect emerged. The Ld. AR argued that the reopening on the basis of facts already on record would be held as a mere change of opinion, which is impermissible under law. The law requires "reason to believe" that income escaped assessment, and that reason must be founded on new tangible material. Here, the Department had nothing on record to constitute a tangible material and there is only a generic allegation of penny-stock misuse which was never backed by any seized material evidence specific to the appellant. In support, the Ld. AR relied on various Judgement as per case laws paper book filed on record.
5.3. The Ld. DR relied on the impugned order. He has reiterated the observation and finding given by the Assessing Officer (in short "the AO") and the CIT (A) in the endorsement of the assessment order. The Ld. DR has also filed a brief written submission of 29 pages narrating the facts and observation of the Ld. CIT (A) and the AO. However, he failed to controvert the factual contention of the Ld. AR regarding absence of incriminating material, assessment order without jurisdiction 9 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) in absence of incriminating material for reopening assessment u/s148 of the act, in view of the amended provision of law. The Ld. DR also failed to rebut the factual contention of the AR regarding the genuine share transaction supported with Demat statements, contract notes, stock exchange trade records, bank receipts of sale proceeds, SEBI records etc and appellants legal claim of exemption u/s10(38) of the IT Act . The Ld. DR did not distinguish the judgments relied by the appellant in support and he did not file any contrary judgment in defense in the given set of peculiar facts of the present case.
5.4 The Ld. AR for the appellant has filed a rejoinder of 27 pages in the rebuttal to the written submissions filed by the Ld. DR. The AR has submitted that the Ld. DR in his reply has merely reproduced the finding given in the assessment order and the CIT(A) order, without any independent analysis or interpretation based on any cogent evidence. The Ld. AR further submitted that the DR has failed to bring any corroborative evidence or legal proposition to controvert the detailed legal and factual submissions made by the appellant assessee. The Counsel has vehemently argued that what is narrated by Ld. DR in his written submissions is essentially a reiteration of the same finding of the Ld. CIT(A) which is untenable under the law as had been already explained with a detailed comprehensive written submission filed on record. 10 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 5.4.1 The AR has stated that from the written submissions of the Ld. DR and from the record, it is established undisputed fact that no incriminating material was found during the course of search, and the reassessment has been made dehors any such material and that the statutory condition u/s 149(1)(b) namely, escapement of income rebutted in the form of asset amounting to Rs. 50 lakhs or more stands nullified. The Ld. AR further submitted that the DR has attempted to divorce Section 148 proceedings from the principle of incriminating material which is legally untenable when the sole trigger for reopening is a search conducted u/s 132. The Supreme Court in the case of Pr. CIT Vs. Abhisar Buildwell P. Ltd. [2023] 149 taxmann.com 399 (SC) explicitly held that while independent Section 147/148 powers are preserved, they are "subject to fulfilment of conditions as envisaged/mentioned u/s 147/148." This means the AO mush demonstrate independent "information suggesting income has escaped assessment" not merely recycle the same facts already available in the original return.
5.4.2 In rebuttal to DRs reply on discovery of tangible material, the Ld. AR further submitted that DR had conflicted to distinguish things firstly, the fact that the assessee was the Chairman of Miraj Group and existing non fact and secondly, that the discovery of new tangible material from the search. The AR argued that being the Chairman of the business group is not tangible material 11 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) for reopening an assessment and further it was an already non-identity and that in the present case were required to be shown is that new incriminating evidence whether found during the search conducted on 21.02.2023 that was not already known to the Department on which the DRs reply is conspicuously silent. The AR further contended that the entire reply of the Ld. DR about the shares allotted in 2013, price being rigged to Rs. 200 per share, purchase by Kolkata-based companies, SEBI order dated 31.08.2018, CEIB letter dated 05.03.2019 to the investigation into STAL and SILL was completed well before 2023 by the Department and Ld. DR failed to mention even a single document illused to be found or discovered during the search conducted on 21.02.2023. The AR further emphasized that it is pertinent to note that the appellant assessee Shri Madan Lal Paliwal was not one of the eight entities penalized by SEBI and that SEBI order does not even name the assessee as a manipulator. The AR strongly objected to the DRs attempt to extent the finding against Prakash Chandra Purohit to the assessee as guilt by the association which is impermissible in law. In support, he placed reliance on the judgment delivered by the Delhi High Court in the case of PCIT Vs. Smt. Krishna Devi [2021] ITA 125/2020 (Delhi HC) where the Hon'ble Court has held that the Revenue must establish a specific nexus between the assessee and the alleged manipulation, generalized allegations do not suffice. The Ld. AR further drawn our attention to 12 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) the fact that the SEBI order was also quashed in the subsequent appellate proceedings by the Securities Appellate Tribunal vide order dated 28.01.2020 and thus the allegation based on such report does not survive. 5.4.3 The Ld. AR has submitted a comprehensive rebuttal in tabular form to the DRs Assertions made in defense as under:
DR's Assertion Appellant's Rebuttal Pradeep Garg and Rajeev Sharma are auditors Both have retracted their statements. No cross- who controlled STAL/SILL penny scrip examination opportunity was provided to the assessee. Under Andaman Timber (SC), reliance on their statements without cross-examination is a "serious flaw making the order a nullity." Under CIT v. Uttamchand Jain (Bom HC), retracted confessions require independent corroborating evidence.
Directors of STAL admitted being dummy Admissions of third-party directors cannot bind directors the assessee. The assessee is not a director of STAL. Furthermore, STAL had a regular Section 143(3) assessment for AY 2015-16 where income of Rs. 2,20,87,190/- was accepted. If STAL was a mere shell, its own AO would not have accepted its income.
Bell-shape trading pattern, artificial price rigging, These are scrip-level characteristics that do not weak financials establish the assessee's involvement. The Delhi HC in Krishna Devi and the Gujarat HC in Parasben Kocher have held that generalized scrip analysis cannot substitute for assessee-specific evidence. The assessee neither traded in miniscule volumes to rig prices nor is named in the SEBI order as a manipulator.
Assessee is indirectly controlling entry-providing This is an unsubstantiated assertion. The companies assessee is not a director of STAL or SILL. Being the Chairman of Miraj Group and being a shareholder of STAL are entirely different from "controlling" STAL's trading activities. No evidence of the assessee's role in price manipulation has been produced.
Swati Bajaj (Cal HC) is applicable Distinguished on four grounds: (i) jurisdictional inapplicability (Rajasthan HC governs); (ii) no individual factual analysis in Swati Bajaj; (iii) contrary HC decisions from Delhi, Gujarat, Bombay, Orissa, Rajasthan, and MP affirmed by SC; (iv) search in present case found no 13 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) incriminating material.
Retraction without evidence of coercion is This reversal of burden is legally wrong. It is for inadmissible the Revenue to prove that the original statement was voluntary and truthful. Kailashben Mangarlal Chokshi v. CIT [2008] 328 ITR 411 (Gujarat HC) held that statements at odd hours cannot be considered voluntary if subsequently retracted. The CBDT Circular dated 10.03.2003 itself acknowledges the risk of forced confessions.
Kolkata-based provided exit entities The assessee sold shares through four SEBI-
registered brokers (IIFL, Indira, Suresh Rathi, Nirmal Bang) on the BSE platform. The identity of the purchasers on the other side of a stock exchange trade is not within the assessee's control. In an anonymous exchange-traded platform, the seller does not choose the buyer.
5.4.4 The Ld. AR has prayed that the written submissions and the case law filed on record may be considered and the appeal may be decided on the legal issues and merits of the case in the interest of justice.
5.5. Admittedly, in the present case of the appellant, no incriminating documents were found or seized during the course of search proceedings as evident from the Panchnama. Only few electronic devices were seized however no cognizance of the contents of the said electronic devices were taken by the AO, either in the Assessment Years from 2021-22 to 2023-24 for 153A proceedings or for reopening of assessment proceeding u/s 147/148 of the act of the assessment year under consideration i.e. 2015-16 which leads to the irrefutable conclusion that no material was found during the course of search & Seizure proceedings. In our view, when no material relating to the income of the appellant for any assessment year 14 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) was found during the course of search, then there was no question of existing of any incriminating material. Thus, the Ld. AO was left without jurisdiction to issue Notice u/s 148 of the Income Tax.
5.5.1. The decision relied by the CIT (A) in the case of Pr. CIT v. Gokul Ceramics (Gujarat HC, 2016) [241 Taxman 341] is not applicable to the facts of the present case as in that case a specific information from Central Excise (DGCEI) indicated unreported production and sales was received by the AO which form tangible material being received from an external investigating agency justifying belief of escapement whereas in the present case the department had only a generic "penny stock scam" report and it was not specific to the appellant. There was no external or fresh material pointing out suppression of income. Thus, the counsel Ceremic (supra) is distinguishable. Thus, the rationale of upholding reopening in Gokul Ceramics (presence of tangible external info) doesn't hold here, where such foundational material is absent. Further, SEBI report also quashed in subsequent appellant proceedings by Securities Appellant Tribunal vide order dated 28.01.2020 (APB page 1125-1129), and that this report never included name of the appellant. Thus, the allegation based on such a vague report without even mentioning the name of appellant would not by any stretch of imagination lead to a tangible material for forming reason to belief by the AO.
15ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 5.5.2. Another judgment has been relied by the Ld. CIT (A) is that Dr. Lata Chouhan vs. ITO (Madhya Pradesh HC, 2010) [329 ITR 400] is distinguishable as in that essentially, new facts come to light during survey in the case of the assessee after assessment (documents seized in survey showing income not disclosed), whereas in the present case no such evidence came out during the search on the appellant. 5.5.3. It is noted that the CIT(A) observation that the AO had tangible material directly linking to the appellant's to the transactions in question, is not supported by the material evidence on record. In fact, the only "material" the AO relied upon was an investigation report referring third-party statements about so-called penny stock scams where none of them had specifically named the appellant or showed his funds were laundered. Meaning thereby that it was essentially the same generic data that existed prior to search and that the search itself yielded nothing incriminating against the appellant. The CIT(A)'s summarily conclusion that the AO had direct evidence is thus factually incorrect. Importantly, the department or the AO never received any seized documents, nor recorded any statement of the appellant or his associates during the search to unearth undisclosed income for the year under consideration.
5.5.6. In our view, since the appellant assessee has been a shareholder who made large capital gains in a stock (a fact already existed in knowledge of the department from the return) and it would never become new material. Therefore, the 16 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) reopening of the assessment without having new material evidence would tantamount to reopening of assessment on the basis of a change of opinion, which is impermissible under law.
5.5.7. The Ld. CIT (A) has misinterpreted the judgment of Abhisar Buildwell Pvt. Ltd (SC) and summarily brushed aside the Supreme Court's landmark ruling as "distinguishable" without giving a cogent reason that how it was distinguishable. Abhisar Buildwell (2023) dealt with completed assessments in search cases and held that no additions can be made in absent incriminating material - a principle squarely applicable to the fact of the present case of the appellant. The CIT(A) offers no explanation why that ratio would not apply. The only implicit attempt made that the AO had tangible evidence from search, on a false premise as there was nothing incriminating material found and seized during the search. The AO's "reason to believe" was based on a Departmental report of penny stock misuse (a report which pre-dated to the search and was not specific to the appellant). In effect, the CIT(A) has allowed a generic allegation to substitute for the required "incriminating material". This directly conflicts with Abhisar Buildwell and a host of various judicial precedents. It is emphasized that the jurisdictional defect here is even more glaring because in Abhisar, at least the search had found some statements/documents (though held insufficient for additions); here, the search found zero evidence yet the AO reopened the case after the limitation period had 17 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) expired. In our view, the CIT(A)'s stance nullifies the Supreme Court's directive and undermines taxpayer protections.
5.5.8. It is evident from the record that the ld. CIT(A) did not address the key jurisdictional fact that the income in question was already disclosed and assessed. The term "escaped assessment" implies income that was not assessed earlier. Here, the LTCG was assessed (albeit claimed exempt) in the original return; there was no fresh income escapement discovered. The Hon'ble Bombay High Court in the case of CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) held that if the item of income cited in reasons is found to have been already assessed (or not actually escaped), the AO cannot assess other items subsequently. In the present case, the very foundation (purported bogus LTCG) was already part of the return and therefore without no new information, treating it as "escaped" income is unsustainable.
5.5.9. The Hon'ble Apex Court in the case of CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC) has held that reopening on a mere review or borrowed allegations, without fresh material, is invalid. The Hon'ble Rajasthan High Court in CIT v. Narendra G. Gorani 390 ITR 105 (Raj.) observed that in absence of incriminating material, revival of closed assessments leads to arbitrary exercise of power. 5.5.10. Considering the facts and the judicial precedents, we hold that the decision of the Ld. CIT(A) in upholding the validity of the assessment order is infirm 18 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) and perverse to the facts on record. We therefore hold that the reassessment proceedings initiated by the AO are invalid, illegal and viod ab initio and consequently the assessment order is liable to be quashed. Thus, 1st ground of appeal is allowed.
6. In the 2nd ground, the appellant challenged that learned CIT(A)) erred in law in holding that the Section 148 notice dated 19.03.2024 was within limitation as he failed to appreciate that the extended 10-year period under Section 149(1)(b) was not available, as the search unearthed no asset representing escaped income over Rs. 50 lakh for Assessment Year 2015-16.
6.1. The Ld. CIT(A) upheld that the notice under section 148 dated 19.03.2024 was within limitation period, by observing as under:
"It is found that the AO issued the notice on 20.03.2024 based on tangible information obtained during the search and subsequent investigation, which included records and documents of the appellant. The AO had in his possession evidence prima facie indicating transactions and income of substantial value, including LTCG on shares, which formed a valid basis to invoke the extended limitation under Section 149(1)(b).It is well settled that the requirement under Section 149(1)(b) - that income be represented in the form of an asset exceeding Rs 50 lakhs - is satisfied if the AO has material indicating substantial escaped income, and the statute does not require absolute proof at the stage of issuing the notice.The AO's reliance on the search material and investigation reports was sufficient to meet this threshold, and it cannot be said that the AO acted without jurisdiction. The "asset" has been defined under Explanation to section 149 of the Act and includes 'shares and securities' too.
In the present case, the record reflects that substantial transactions relating to the appellant were documented and the AO formed a bona fide belief that income had escaped assessment. The fact that the income relates to LTCG already declared in the return does not render the notice invalid, as the AO is entitled to examine the correctness of claims of exemption or treatment of income under law. The extended limitation period 19 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) under Section 149(1)(b) was, therefore, validly invoked, and the notice was issued within the permissible framework of the law.
Accordingly, the appellant's contention regarding limitation is without merit. The notice issued u/s 148/149 is valid, and the AO has rightly assumed jurisdiction to initiate reassessment proceedings."
6.2. The Ld. Counsel for the assessee submitted that the relevant Assessment Year 2015-16 is being beyond 6 years from the end of assessment year, i.e., beyond Assessment Year 2021-22 which could not be reopened in March 2024 and the Department had invoked the extended 10-year limitation under the amended Section 149(1)(b) of the Act (post Finance Act, 2021). The AR contended that the extended 10 years limitation is conditional which can only be applied by the AO, if the AO is in possession of evidence that income "represented in the form of an asset" exceeding Rs. 50 lakhs has escaped assessment. The appellant's case emphatically did not meet this condition - the search did not discover any undisclosed asset or investment of the appellant pertaining to Assessment Year 2015-16.
6.2.1 The AR submitted that as per the amended law as on 01.04.2021, Section 149(1)(a) provides a basic reopening window of 3 years (or 6 years in certain older cases) from the end of the relevant assessment year. However, in the present case, for Assessment Year 2015-16, even the 6-year window expired on 31.03.2022. The only possible hook was Section 149(1)(b) which extends the time limitation up to 10 years provided the AO has in hand evidence of escaped income in the form of an 20 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) asset amounting to Rs. 50 lakh or more. This provision was introduced to balance revenue interests with taxpayer rights - permitting reach-back up to 10 years only in exceptional cases where substantial undisclosed assets are found during the search. Parliament's intent is clear that absent of such asset evidence, past assessments beyond 3 years cannot be opened.
6.2.2 In the present case, no assets were unearthed in Search as, the search did not uncover any hidden asset of the appellant for Assessment year 2015-16. The department did not find any unreported bank account, benami property, secret jewelry or cash, to represent stored value of alleged undisclosed income or asset. The Ld. AR contended that the shareholding investment in question (shares of Svaraj Trading and Swadeshi Industries) was already fully disclosed as these shares had been bought in the earlier years which were duly disclosed as investments in earlier returns of the income and sold on the stock exchange with sale proceeds coming through banking channels. These shares or their sale proceeds cannot be considered "unreported assets" discovered by the Department as they were already on record as per the regular returns of income filed by the assessee. The AR argued that the AO has not pointed any asset that escaped assessment and the AO at best could have disputed the character of disclosed income (saying LTCG was bogus). The law, however, demands an objective asset discovery. In the case of Union of India v. Rajeev Bansal (2024) 469 ITR 46 (SC), the Hon'ble Apex Court while 21 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) dismissing the Union's SLP, affirmed the view of Delhi High Court that Rs. 50 lakh+ asset threshold is an "inviolable jurisdictional requirement" for extended limitation. If no such asset is found, a notice beyond the normal period is invalid. 6.2.3 The appellant contended that the Department's case, even if taken at its highest, is one of re-characterization of already-disclosed transactions, not a "discovery" of income representing an "asset" within the strict meaning of section 149(1)(b). The Parliament intent permits reopening up to ten years only where the AO has in his possession books of account or other documents or evidence which reveal (i) escapement of income, (ii) that such escaped income is represented in the form of an asset /expenditure /entry, and (iii) that it is Rs. 50 lakh or more. The word "reveal" is decisive: it requires evidence that shows escapement, not a later suspicion-driven narrative that re-labels disclosed share transactions as "penny stock accommodation entries". Here, the shareholdings and their sale trail were already part of the disclosed return/banking/demat universe. 6.2.4 Thus, there was nothing new was unearthed in search qua Assessment Year 2015-16 that "reveals" previously hidden assets. On this statutory language, matters where the relevant entry is already reflected in books and does not itself reveal escapement would liable to be quashed as time-barred under section 149(1)(b). It is seen that the CIT(A) and AO appear to have conflated the fact that the amount of income under dispute (around Rs. 32.93 crore) exceeds Rs. 50 lakh, 22 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) with the statutory requirement of an asset representing that income. It's not enough that the AO alleges a big escapement; the law specifically requires it to be tied to an asset that escaped assessment. In this case, the income in question was already disclosed and tax-exempt. There was no new asset unearthed that was not assessed. The Explanation to Section 149 lists what constitutes "asset" - it includes immovable property, shareholdings, loans & deposits, etc., that were not disclosed. Here, the shares were disclosed; the sale proceeds were received in bank and duly recorded. So, neither the shares nor the cash can be called undisclosed assets. The Department's own actions confirm this fact that no asset was seized or identified during search relating to these transactions.
6.2.5 The appellant further submits that the Department cannot dilute section 149(1)(b)'s "reveal" standard by collapsing it into section 148's lower-threshold notion of "information that suggests escapement". Even where the statute deems "information" to exist in search-related contexts, the time-limit gateway remains section 149, and the AO must have in possession evidence which reveals escapement represented as asset/ entry/ expenditure. The distinction is doctrinally important because Parliament intentionally reduced the ordinary reopening period to three years and reserved the extended window for a narrow category of serious cases backed by evidentiary revelation. The Hon'ble Delhi High Court in Ratnagiri Gas &Power (P) Ltd. v. ACIT [2025] 174 taxmann.com 331 (Delhi), explicitly breaks 23 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) down section 149(1)(b) into conjunctive requirements and quashes a notice where the reasons did not show evidence that escapement is represented as an asset. Therefore, even assuming the search/investigation narrative provides "information" or "suspicion", unless the record demonstrates what evidence revealed a previously hidden asset/entry representing escapement for Assessment Year 2015-16, the notice remains barred.
The Ld. AR concluded that the reassessment notice was issued beyond the permissible time limit, making the entire proceeding void. The appellant prays that the notice under section 148 dated 19.03.2024 may be held as invalid and time- barred, thereby quashing the reassessment.
6.3 The Ld. DR on the other hand supported the impugned order but he failed to controvert/rebut the contention of the appellant or distinguish the judgment relied by the appellant. He did not file any contrary judgment except reiterated the observation and finding of the CIT(A) in a brief note.
6.4 It is noted that the CIT(A)'s reasoning on limitation has been legally unsound as he attempted to stretch the statute's language beyond permissible limits. The statute explicitly requires "income chargeable to tax, represented in the form of an asset" (value of over Rs. 50 lakh) which is not a trivial add-on; rather it is a jurisdictional filter. The Ld. CIT(A), however, equated "substantial escaped income" 24 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) with meeting the condition, disregarding the form-of-asset clause. This is a legal error in interpretation of statute.
6.4.1 The Higher Courts have emphasized that when the law sets a precedent condition like the Rs. 50 lakh asset criteria, it must be strictly met. In the case of UOI v. Rajeev Bansal (supra), the Supreme Court upheld the quashing of notices where the escaped income was not represented by an undisclosed asset, even if the amount was high. The CIT(A)'s attempt to dilute this by saying "statute does not require absolute proof" misses the point. In the present case, there was no proof at all of any asset - not even a prima facie indication. The AO had suspicions about income, not evidence of an asset. In our view, the suspicion of income is not equivalent to evidence of an undisclosed asset.
6.4.2 The CIT(A) stated that "asset" in Explanation to section 149 includes shares and securities, implying that the shares sold by the appellant could be considered the asset representing escaped income. This is a gross misapplication of the Explanation. Yes, shares and securities are listed as assets - but only if not disclosed. For example, if someone was found holding unreported shares worth Rs. 50 lakh acquired out of unaccounted money that could trigger extended time. In the present case, the shares were fully disclosed holdings duly reflected in earlier years' returns and therefore they were not clandestine assets. In fact, they were listed securities transacted on the stock exchange transparently. Meaning thereby 25 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) that there was no concealment of the investment in those shares. Thus, treating these shares or their sale proceeds as an "undisclosed asset" is incorrect assumption in the eyes of law. Such an observation of the Ld. CIT(A)'s would absurdly mean that any time the AO believes some income was understated, the underlying source or investment automatically becomes an 'asset' to invoke 10- year limitation. This would certainly nullify the legal interpretation of the wording of the law.
6.4.3 It is seen that the CIT(A) has repeatedly mentioned "tangible information from search and investigation" and "records and documents of the appellant" to justify the AO's belief. However, he failed to identify a single specific asset or document that was unreported. The "records and documents" of the appellant presumably refer to the appellant's own books and return details, which were already available on record of the department. The investigation report was generic and not an asset of the appellant. The search didn't find hidden cash, shares, or property. Therefore, even at a prima facie level, the condition was not met. The CIT(A)'s logic that "substantial transactions" can substitute for "undisclosed asset"
has no basis or support of the law. Magnitude of income alone is insufficient because the form (asset) and nature (undisclosed) are crucial. The CIT(A) is effectively attempted to rewrite Section 149(1)(b) to drop the asset condition, which is beyond his or any other authorities power.
26ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 6.4.4 The ITAT Pune Bench in M/s. Kay Power and Paper Limited Versus ITO 2025 (6) TMI 1520 - ITAT PUNE is instructive on the exact misstep made in the impugned reasoning, where the alleged income is already reflected in the assessee's accounts and credited in the P&L, the "entry" does not "reveal" escapement; it reveals disclosure. The Tribunal held that for section 149(1)(b), the AO must possess evidence revealing that income represented as an asset/entry has escaped assessment; an entry that is admittedly already recorded cannot simultaneously be the "revealing" evidence of escapement. Applied here, the demat/bank/contract- note trail is not a discovery of hidden income; it is the very material by which the assessee disclosed the transaction. The Department's later view that the scrip is a "penny stock" is, at best, an inference layered on disclosure--not an evidentiary "revelation" of escapement. This distinction is central because Parliament used the stricter verb "reveal" in section 149(1)(b), and the CIT(A)'s approach effectively rewrites it to "suspect/assume".
6.4.5 In the present case the Long term capital gains (LTCG) amounting to Rs.32.94 crore from sale of shares of M/s Svaraj Trading and Agencies Ltd. (STAL) and M/s Swadeshi Industries and Leasing Ltd. (SILL) is part of Income and expenditure and disclosed in computation of Income and in the Income Tax Return and it was claimed as exempt income whereas Asset is a part of Balance sheet. Thus, it is 27 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) evident that transactions relates to income and not forming part of assets even in the Balance sheet of the assessee for the Assessment Year under consideration. 6.4.6 It is not disputed that the CIT(A) has admitted the fact that the income relates to LTCG already declared in the return of income while observing that it does not render the notice invalid". It was part of the original assessment even if under exemption. Several courts including the Supreme Court in CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC) have held that re-opening is not for reviewing already- assessed items in the absence of new information. The extended limitation was certainly not meant for incomes that were on record. The phrase "escaped assessment" implies the income was missed in original proceedings. Here, it wasn't missed - it was consciously treated as exempt. So even conceptually, this was beyond the scope of what the extended time provision targeted. The CIT(A)'s view essentially allows the Department to circumvent the normal limitation to re- examine a past claim of exemption, which is not permitted under Section 149(1)(b). 6.4.7 The Hon'ble Bombay High Court in case of Sapna Vinod Jain v. ITO [2023] (unreported citation, oral judgment available) quashed a notice for AY 2013-14 where the AO tried to invoke extended time without evidence of an undisclosed asset, noting that information about a past transaction (already disclosed) is not the same as an undisclosed asset. The CIT(A) ignored to consider such precedents. 28 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 6.4.8 On similar facts, the Hon'ble Rajasthan High Court (jurisdictional) in case of PCIT v. Shri Gopal Patni (D.B. Appeal No. 107/2023, order dated 02.05.2023) refused to condone reassessment beyond 6 years where the Department could not show a specific asset uncovered during search, despite alleging large accommodation entries.
6.4.9 Similarly, in another case of Mukesh Kumar Bhawarlal Jain V/S National Faceless Assessment Center [2025] 210 Taxlok.Com (IT) 358 (ITAT-Mumbai), while deciding the issue of a notice issued by the AO under Section 148 on 28.07.2022 for Assessment Year 2015-16 following the Ashish Agarwal judgment (2022 SCC Online SC 543), it is observed that the assessee challenged it as time-barred under the first proviso to Section 149(1)(b), citing Rajeev Bansal. The ITAT accepted the contention, ruling that the six-year limitation from the end of the assessment year (i.e., 31.03.2022) had expired. The reassessment completed under Section 147 was thus held invalid, and the addition of Rs 2,02,90,700/- was deleted. The Tribunal held that as per Rajeev Bansal, for Assessment Years prior to Assessment Years 2021-22, the six-year limit under the old Section 149(1)(b) governs issuance of notices. Thus AO's notice issued on 28.07.2022 was beyond the permissible period for Assessment Year 2015-16. The reassessment order was quashed and the appeal allowed.
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(Assessment Year - 2015-16) 6.4.10 Considering the Judicial precedents on parity of facts, we hold that CIT(A)'s decision in approving time limitation of 10 years is contrary to law as the Section 148 notice dated 19.03.2024 was issued without satisfying the mandatory pre- condition of an undisclosed asset > Rs. 50 lakh, and that notice u/s 148 was issued beyond the permissible period of time for the Assessment Year under consideration. Accordingly, we hold that the notice issued under section 148 of the Act was time-barred and consequently all the proceedings are rendered null and void. Thus, the ground 2 of the assessee is allowed.
7. In ground No. 3rd, the appellant challenged that the learned CIT(A) erred in upholding the reopening despite mandatory lapses. In particular, the Assessing Officer did not provide the assessee a copy of the Principal CIT's sanction obtained under Section 151, and the sanction itself appears to have been given mechanically, without due application of mind, vitiating the validity of the notice and issue of violation of section 153D.
7.1 The CIT(A) dismissed this ground, by stating that non-supply of the sanction did not vitiate the proceeding since sanction was obtained and no lack of approval was evidenced by relying on a Bombay High Court case to say non-communication isn't fatal. The relevant part of CIT(A)'s order reads as under:
"The appellant has requested AO to provide copy of approval received from higher authority, which was not provided during the course of assessment proceedings. The process of receiving approval for reopening of case u/s 148 of the Act is an internal 30 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) communication of the department, which could not be shared with the assessee. In this regard, reliance is placed on the decision of Hon'ble Delhi High Court in case of Bharat Nidhi Ltd. v/s CIT (ITA No. 139/1996), wherein it was held that mere non communication of the sanction order does not vitiate the reassessment, provided the approval was actually granted and recorded as per law. Further, in Yuvraj v. Union of India (315 ITR 84) it was held that the approval under Section 151 is an internal administrative requirement, and not furnishing it to the assessee is not fatal to the validity of the notice, unless it is shown to be mechanically granted or absent altogether.
In the present case, there is nothing on record to indicate that the sanction was either not obtained or mechanically granted. The appellant's argument is largely speculative and based on presumption that non-furnishing implies non-application of mind. Such presumption cannot override the existence of a duly sanctioned proposal recorded in the assessment file.
The reassessment proceedings in the present case are not shown to have been initiated without proper jurisdiction or in breach of statutory safeguards under Section 151. The procedural requirement of obtaining sanction has been fulfilled and there is no violation of principles of natural justice or prejudice caused to the appellant."
7.2 The Ld. AR argued that the reassessment is independently void due to non- compliance with the provisions of Section 151 a procedural safeguard. The appellant's right to receive a copy of the sanction and that a considered sanction was violated. This Board instruction-backed right and the case law establishing the need for a non-mechanical approval, make it clear that the process here was irregular. The appellant urges the Tribunal to declare the Section 148 notice invalid on this count as well. He also argued that the ld. Addl. CIT also granted approval to the draft assessment order without receipt of draft assessment order from AO which is evident from digital signature of AO. The ld. ADD CIT apparently just gave approval on 30.03.2025 (APB Page 615) which was sent for approval on 31.03.2025 by AO as evident from date of his digital signature (APB Page 617). 31 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 7.3 The Ld. DR supported the impugned order.
7.4 It is noted that the CIT(A) selectively use the part of the judgement of Yuvraj v. UOI (Bom. HC). In Yuvraj, the Bombay High Court observed that while the sanction itself is an internal act, the fact of sanction and its validity can still be questioned if there's reason to believe that it was not done properly. Crucially, Yuvraj predates the CBDT Instruction which now mandates giving sanction copy mandatory which is ignored by the Ld. CIT (A).
7.4.1 From the record, it is evident that reasons recorded were generic, that DGIT (Inv) Rajasthan Jaipur gave approval on the same day 19.03.2024 in the haste to issue notice before limitation expired, and that AO refused to share the approval text. These collectively give rise to a strong inference of a perfunctory sanction. The appellant might not have the direct evidence (because the Dept withheld it), but circumstantial evidence and Department's non-compliance with Instruction 1/2022 shift the onus onto the Department to prove sanction was proper. The CIT(A) improperly kept the onus on the appellant to prove a negative (i.e. prove that DGIT's) mind wasn't applied), whereas once the appellant raised a serious doubt and the AO breached a procedural directive, the burden should shift to the Revenue to dispel that doubt by producing the sanction note. They did not do so even before CIT(A) - which strengthens the appellant's case. In absence of approval 32 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) of DGIT, issuance of notice u/s 148 is void and consequential assessment order is also void ab-initio. In this regard Hon'ble Supreme Court on 13.09.2024 has dismissed the departmental SLP No. 33611/ 2024 filed in case of ITO v/s TIA Enterprises P. Ltd. against Delhi High Court judgment dated 26.09.2023 in WP 13903/2018 wherein the petitioner raising a specific objection that the PCIT had not applied its mind while granting approval for the commencement of reassessment proceedings. The Delhi High Court held that "In this case, the sense we get is that the second condition requiring AO to obtain prior approval of the specified authority was not fulfilled, as otherwise, there was no good reason not to furnish the same to the petitioner along with the document which contained the AO's reasons for holding the belief that income otherwise chargeable to tax had escaped assessment. 15. Thus, for the foregoing reasons, we are of the view that neither the impugned notice dated 30.03.2018 issued under Section 148 of the Act nor the impugned order dated 06.12.2018 can be sustained." 7.4.2 It is admitted facts on record that the ld. Addl. CIT has granted approval to the draft assessment order without receipt of draft assessment order from AO which is evident from digital signature of AO. The ld. ADD CIT apparently just gave approval on 30.03.2025 (APB Page 615) which was sent for approval on 31.03.2025 by AO as evident from date of his digital signature (APB Page 617). Besides it, the assessment order contained 191 pages to take into consideration appellant 33 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) detailed submissions (i) in relation to query No. 7 in the Notice dated 17.06.2024 in relation to LTCG and reply thereof submitted 11.11.2024 containing 140 pages supported by various 46 Annexure (containing 683 Pages PB Page 825), (ii) SCN dated 07.03.2025 containing 63 pages and reply thereof dated 24.03.2025 containing 74 pages and (iii) SCN dated 26.03.2025 and reply thereof containing 70 pages and replies submitted supported by Annexure (containing 365 Pages PB Page 1047), in compliance of Notices/ SCN which is practically not possible to go through in such short period (CIT(A) Order page 150 PB page 165 para 19.4). 7.4.3 Thus, it is evident that the ld. AO passed assessment order on 30.03.2025 without approval from Add CIT, as the ld. AO himself had sent letter for approval on 31.03.2025 at 12.02 AM (APB Page 616-617). Meaning thereby that the assessment order is passed without requisite approval of the draft assessment order from competent authority.
7.4.4 The Hon'ble ITAT Jodhpur bench in ITA 903/JODH/ 2024 allowed assessee's appeal vide order dated 26.06.2025 on mechanical approval by placing reliance on the judgment of Hon'ble Supreme Court wherein the Revenue's SLP against Orissa High Court ruling was dismissed in the case of Serajuddin & Co. involving Rs. 800 crore addition in post-search assessment. The Hon'ble Orissa High Court had 34 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) upheld ITAT order where it was held that Section 153D approval was a mandatory requirement in post-search assessments which cannot be given mechanically. 7.4.5 Considering the facts and judicial precedents, we hold that violation of provision of section 151 and 153D of the Act rendered the reassessment order void ab initio and liable to be quashed.
8. In ground no. 4 the appellant challenged that the learned CIT(A) was not justified in rejecting the appellants questioning the validity of notice issued u/s 143(2) of the Act.
8.1 The Ld. CIT (A) has rejected this ground by observing that the appellant did not raise the issue before the AO, and participated in proceedings, and hence by virtue of Section 292BB, cannot object now. Relevant part reads as under:
"The contention of the appellant has been perused and it has been observed that the appellant has nowhere raised this issue before the Assessing Officer during the assessment proceedings and has actively participated in the assessment proceedings. As per provisions of sec 292BB of the Act, the said contention of the appellant cannot be said to be valid anymore under the law.
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Section 292BB Where an assessee has appeared in any proceeding and cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was ---------
Therefore the ground of appeal filed by the appellant is rejected. 35 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 8.2 It is noted that the appellant has filed return in response to Section 148 on 13.04.2024. The AO issued a notice u/s 143(2) notice on 15.06.2024. However, by that date, the appellant had already on 19.04.2024 and 20.06.2024 sought reasons for reopening and lodged detailed objections against the validity of the reopening on jurisdiction, and limitation, etc.. According to the Supreme Court's dictum in GKN Driveshafts (India) Ltd. v. ITO 259 ITR 19 (SC), the AO must first furnish reasons, allow objections, and dispose of those objections by a speaking order before proceeding further with the assessment. In other words, the reassessment proceedings should have been kept in abeyance until the objection process concluded. Here, the AO jumped the gun by issuing the scrutiny notice u/s 143(2) which marks commencement of detailed assessment even before he had addressed the objections. This act of the AO has not only violated the sequence mandated by the Supreme Court, but it also shows the AO had scant regard for the objections - effectively treating the reassessment as a foregone conclusion. Such prematurity in issuing 143(2) is a procedural illegality that as per courts have held as to vitiate the assessment. The Delhi High Court in Sony India Ltd. v. CIT (2006) 288 ITR 52 (Del) observed that if the GKN procedure is not followed i.e., objections not decided separately, the continuation of assessment proceedings including 36 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) issuance of notice under 143(2) is invalid because the AO has not applied his mind independently to the objections.
8.2.1 There exists a binding guideline (issued by the CBDT/Finance Ministry, F.No.225/66/2023/ITA-II dated 24.05.2023) to the Income Tax department which specifically deals with "compulsory selection of returns for Complete Scrutiny during FY 2023-24 - procedure for search cases." This guideline mandates that in cases emanating from search even though processed under section 147 of the Act, the AO must seek administrative approval of the PCCIT/PDGIT before issuing any scrutiny notice under 143(2). The logic is to ensure oversight, given that search matters are sensitive. In the appellant's case, the Section 148 notice itself was part of a search-related reopening. Yet, the Section 143(2) notice dated 15.06.2024 did not mention any approval having been taken, nor was any evidence of such approval provided during assessment or appellate proceedings. The AR contended that even on the appellant specifically pointing out this lapse, the Department has never produced an approval letter or even asserted that approval was indeed obtained. Thus, the AO has violated provisions u/s 151 of the Act by not taking the mandatory approval as required under law. Meaning thereby that such a notice issued u/s the 143(2) is unauthorized and invalid ab initio. Failure to adhere to departmental directives requiring prior approval cannot be swept aside, as they are intended to provide taxpayer safeguards and administrative checks. The Hon'ble 37 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) Rajasthan High Court in CIT v. Mewar Cooperative Dairy 271 ITR 347 (Raj) held that breach of departmental instructions, if beneficial to assessee and intended to ensure fair procedure, can render the action irregular. Here, ignoring the need for approval undermined the legitimacy of the scrutiny notice. 8.3 The Ld. DR did not controvert the factual contention of the appellant. 8.4 That the Section 292BB can cure only technical/ procedural issues of service or timing if not raised earlier but It cannot cure a scenario where the notice itself suffers from an inherent legal defect as being issued without jurisdiction or mandatory approval, or in contravention of law and settled preposition by the Supreme Court. The Supreme Court in Laxman Das Khandelwal (supra) made it clear that 292BB does not apply to a complete absence of notice - which by extension means it won't apply to a notice that is null from inception. In the present case, the objection is not about service, but about the notice being issued ultra virus instructions and prior to disposal of objections. If the CIT(A)'s view are accepted, it would mean that AO could ignore all procedural law, and an assessee's compliance to avoid ex parte action would automatically whitewash those lapses - that is not the law.
8.4.1 The Hon'ble Delhi High Court in Tupperware India Pvt. Ltd. v. DCIT [2016] 236 Taxman 494 (Del) observed that issuing a notice u/s 143(2) while objections are 38 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) undecided indicates the AO's intent to proceed irrespective of objections, which defeats the purpose of SC's direction in the case of GKN Driveshafts. Accordingly, we hold that the CIT(A)'s decision in rejection of appeal ignoring mandatory error rendered the notice issued u/s143(2) and subsequent proceedings invalid as section 292BB would not shield the Department in the present scenario.
9. In ground no. 5 the appellant challenged that the learned CIT(A) was not justified in addressing the appellant objection that non-disposal of the assessee's objections to reopening with a separate speaking order (as mandated by the Supreme Court in GKN Driveshafts) invalidates the entire reassessment.
9.1 The Ld. CIT(A)'s vide Para 8.2.2 rejected the ground by observing as under:
"The AO has provided a copy of reasons recorded for reopening of case u/s 148 of the Act vide letter dated 13.06.2024. The assessee has filed objections to the reason recorded vide letter dated 19.06.2024.
8.2.3: --------------------------As the case of the appellant is covered during search and seizure action on Miraj Group, therefore, there are no mandatory requirements for disposing of the objections raised by the appellant against the reopening u/s 148 of the Act, as he is deemed to have information for reopening of the case."
9.2 The Ld. AR argued that the AO's failure to dispose of the appellant's detailed objections to the Section 148 notice by way of a separate speaking and a reasoned order before proceeding further is a fatal flaw. The Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO 259 ITR 19 (SC) laid down an unequivocal 39 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) procedure for reassessments by holding that when an assessee objects to the notice/ reasons, the AO "is bound to dispose of the same by passing a speaking order, before proceeding with the assessment." In the present case, the appellant filed comprehensive objections on legal and factual grounds on 20.06.2024 (Assessment order page 3-5 and APB Page 604-605). The AO, however, did not pass any order disposing those objections. In fact, aside from a cursory reference in the final reassessment order, the objections were essentially ignored. The assessment was completed on 30.03.2025, nine months later, without ever formally addressing the objections point-by-point. This runs afoul of the mandated procedure and, as various High Courts have held, such a breach of procedure renders the reassessment order unsustainable. The Ld. DR relied on the impugned order, but he did not controvert the contention of the appellant.
9.3 Admittedly, the appellant filed comprehensive objections on legal and factual grounds on 20.06.2024 as per Assessment order page 3-5 (APB Page 604-
605). However, the AO did not pass any order to dispose of those objections. The CIT(A)'s reasoning detracts from the core argument that the AO's failure to pass a speaking order on objections invalidates the reassessment. The mandate of GKN Driveshafts (SC) is the law of the land since 2003 wherein the Supreme Court essentially gone into Section 147 procedures an additional step to protect taxpayer rights and observed that after the assessee files objections to the reasons 40 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) recorded, the AO must consider those objections impartially and pass a separate speaking order accepting or rebutting each objection. Only after communicating such an order to the assessee, the AO can resume the reassessment. This ensures that the taxpayer's jurisdictional and legal challenges are adjudicated at the threshold, and if found valid, the reassessment can be dropped without wasting further effort or subjecting the taxpayer to unnecessary scrutiny on merits. In the present case, the AO has plainly violated this procedure laid down by the Apex Court. No separate order on objections was ever passed, let alone before proceeding with assessment. This defiance of the Supreme Court's directive by the AO is itself rendered the proceeding void and illegal and consequentially to quash the reassessment. The Hon'ble Delhi High Court in PCIT v. Tupperware India (P) Ltd. (2016) 236 Taxman 494 (Del) affirmed that non-compliance with GKN Driveshafts renders the reassessment void, noting that the Supreme Court's prescription is "sacrosanct" and not a mere formality. In the case of Smt. Kamlesh Goel v. UOI [2016] 380 ITR 259 (Delhi), the court quashed reassessment since objections were disposed of in the final order instead of a prior separate order. The Rajasthan High Court in CIT v. Deepak Kumar Agarwal (2018) 94 taxmann.com 269 (Raj) held that where the AO did not pass a separate speaking order on objections, the reassessment was invalid.
41ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 9.3.1 We therefore hold that the AO was bound to dispose of the objection of the assessee by passing a speaking order, before proceeding with the assessment. Such a failure on the part of the AO in violation of the principle of law laid down by Hon'ble Apex Court rendered the assessment proceedings illegal and void and the consequential reassessment order is liable to be quashed. 9.3.2 Accordingly, we accept the grievance of the assessee as genuine on this legal issue and this ground 5 is allowed.
10. The issue raised in the grounds no. 6 to 10 are related to violation of natural justice, no opportunity to cross examination of third party, characterizations of the investment in shares as "penny stocks", disregard to martial evidence in violation to section 142(3), and that confirming the addition of LTCG Rs. 31,60,76,674 as unexplained cash credit under Section 68.
10.1 The Ld. AR submitted that the learned CIT(A) overlooked the principles of natural justice. The assessment was driven by third-party statements and a departmental investigation report alleging a "penny stock" scam, yet no opportunity to cross-examine the witnesses or rebut the adverse material was afforded to the assessee, fatally undermining the addition. The AR argued that the learned CIT(A) wrongly affirmed the addition which was based on mere suspicion and generalized allegations that the Assessing Officer's characterizations of the 42 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) shares as "penny stocks" and references to scams in other cases were speculative which was not supported by any direct evidence linking to the assessee's alleged undisclosed income if any. The AR argue that CIT(A) failed to consider that the Assessing Officer disregarded crucial evidence and explanations furnished by the assessee such as Legitimate documentary evidence including Demat statements, contract notes, and banking records evidencing the share transactions which were being summarily ignored, rendering the assessment perverse and in violation of Section 142(3). The AR contended that the CIT(A) erred in law and on facts in confirming the addition of LTCG Rs. 31,60,76,674 as unexplained cash credit under Section 68 because this amount represents the assessee's genuine Long-Term Capital Gains from listed shares which are documented share transactions fulfilling all legal conditions for exemption under Section 10(38) of the Act. The AR argued that the CIT(A) erred in law and on fact in upholding that the addition under Section 68 even though the assessee had discharged the onus. The identity and creditworthiness of all parties, SEBI-registered stockbrokers, etc. and the genuineness of the transactions were established through official records. The department has failed to bring on record any cogent evidence to establish that the assessee's own unaccounted funds, either circulated back or invested in the shares of the registered companies.
43ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 10.1.1 The AO made additions by relying extensively on (a) statements of third parties (like alleged entry operators, brokers, etc.) gathered by the Investigation Wing in other cases, and (b) a generic "penny stock scam" report circulated within the Department. These were extraneous materials adverse to the appellant's claim. Crucially, the appellant was never given copies of these statements/reports during the assessment, nor any chance to cross-examine the persons who made the statements. The appellant specifically requested such opportunity when it became evident that the AO was using that material as per the show-cause notice. Despite that, no cross-examination was allowed to the assessee is a plain violation of natural justice. It is a cardinal rule of law and fair play that such statements cannot be used against the appellant without the appellant being given an opportunity to question those individuals (cross-exam) and to rebut such claims.
10.1.2 In the present case, the AO proceeded to make the addition on allegations that were never proved through admissible evidence. This is textbook violation of natural justice and Section 142(3). Section 142(3) specifically enjoins that all material gathered by the AO must be made available to the assessee and the assessee must be given an opportunity to respond to it. The Hon'ble Rajasthan High Court in CIT vs. Ashim Kumar (2009) 308 ITR 190 (Raj.) held that where 44 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) statements of stock brokers were used to disallow an LTCG claim, the failure to allow cross-examination of those brokers vitiated the assessment. 10.1.3 The Hon'ble Supreme Court in Andaman Timber Industries v. CCE (2015) 281 CTR 241 (SC) held that denial of cross-examination when the adjudication relies on third-party statements "is a serious flaw which makes the order null" for violation of natural justice. Similarly, in income-tax, CIT v. Khotari G. Chand (HUF) (2008) 308 ITR 411 (Bom) held that assessment based solely on third- party statements without opportunity to cross-examine cannot be sustained. Further the Hon'ble Rajasthan High Court in Heirs of Sobhagmal Lodha vs. CIT 326 ITR 243 (Raj.) held that when material is not supplied, the addition cannot be sustained as the assessee was denied opportunity to counter it. The Rajasthan High Court in CIT v. Pooja Agarwal [2017] 88 taxmann.com 288 (Raj), a case involving LTCG on penny stocks, sustained the Tribunal's deletion of addition on the grounds that the Department failed to provide any witness for cross-exam or any specific evidence linking the assessee to alleged scam as mere reliance on third-party statements was insufficient. Similarly, the Delhi High Court in Pr. CIT v. Smt. Sunita Dhadda [2018] 93 taxmann.com 212 (Delhi) (penny stock case) found that the AO's failure to grant cross-exam of the broker who allegedly provided accommodation was fatal; the Supreme Court dismissed the SLP (affirming the assessee's win). 45 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 10.1.4 It is well-established that any material collected behind the back of the assessee cannot be used against him unless it is put to his knowledge and he is given an opportunity to rebut it. The Rajasthan High Court in Heirs of Sobhagmal Lodha v. CIT (326 ITR 243) pointedly held that where evidence is not supplied to the assessee, any addition based on it cannot be sustained, since the assessee was denied the chance to rebut it. Similarly, the Delhi High Court in CIT v. Dharampal Premchand Ltd. (317 ITR 353) emphasized that all materials used by the AO must be disclosed to the assessee; failing which, the resultant findings are invalid. In the present case, the AO's conduct by use of material in the back of the assessee without taking his rebuttal has violated these principles.
11. That the Revenue authorities made the addition of LTCG to income of assessee not on the strength of evidence, but on a pre-conceived theory that any large capital gain from certain low-priced stocks must be bogus. This violates a foundational principle of tax jurisprudence as each assessment must be based on facts and evidence specific to that assessee, not on assumptions or guilt by association. The appellant assessee reported LTCG from sale of shares of Svaraj Trading & Agencies Ltd. (STAL) as well as Swadeshi Industries & Leasing Ltd. (SILL). In support of these transactions, the appellant had submitted voluminous evidence during assessment, including contract notes and broker bills for purchase and sale from SEBI-registered stock brokers, with trade time stamps and stock exchange 46 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) transaction IDs, Demat account statements showing the credit and debit of the shares in question, bank statements reflecting payments for share purchases and receipt of sale proceeds where all payments were made through account-payee cheques/RTGS, routed via banking channels, and even the financial statements of the companies whose shares were traded (establishing that they were recognized companies listed on the exchange at the time). Admittedly, the AO did not find a single fault in any of these documents. There is no finding that the contracts were forged, no allegation that the brokers were fictitious, no discrepancy in the bank trail, and no evidence that the assessee's own money circulated to fabricate the gains. In short, the presumptive hallmarks of a sham transaction are absent in the present case. In a bogus LTCG scheme, one might expect to find cash transfers or unaccounted money funnelled in; but the department uncovered nothing of that sort in the assessee's case despite an intensive search operation carried out on the appellant group. Once the assessee produced, prima facie credible evidence of genuine transactions, the legal burden shifted to the department to rebut it with substantive proof of falsity in view of the judgement of Apex Court in the case of CIT v. Orissa Corp. Pvt. Ltd., 159 ITR 78 (SC) delivered in the context of Section 68. 11.1 The department and CIT(A) have heavily relied on one Calcutta High Court ruling in case of Pr. CIT v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta HC) - which indeed took a hard stance on penny stock transactions, generally upholding 47 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) additions in certain cases of that genre. However, it is important to note that Swati Bajaj (Cal HC) was rendered in the context of a specific script fact pattern. However, there are contrary views of other High Courts, including the jurisdictional Rajasthan High Court. The Hon'ble Rajasthan High Court in case of CIT v. Pooja Agarwal [2018] 99 taxmann.com 451 (Raj.) upheld the ITAT's order in deletion of additions on alleged bogus share gains. In that case, much like the present case, the assessee had documented all share transactions and the department had no concrete evidence of facilitation of a sham; the High Court agreed that merely branding the shares as penny stocks and the gains as arranged was insufficient to overturn the assessee's evidence. Likewise, the Delhi High Court in PCIT v. Krishna Devi (supra) and PCIT v. Neeraj Chopra (another 2021 decision) have ruled in favor of taxpayers where the departmental case rested only on suspicion and generic findings. The point being that the law on this issue is not unilateral - wherever the department had only suspicion and no direct proof, courts have tended to side with the taxpayer. The Calcutta HC in Swati Bajaj no doubt ruled in the Revenue's favor, but notably, that decision itself came after examining a detailed matrix of facts and badges of fraud in those cases (including findings that many of those assessees had funded the purchase in cash, etc.). In the present case, those badges are absent. In our view, it would be a travesty of justice to apply the conclusion of Swati Bajaj blindly to every case of LTCG on small stocks. Each assessee has the right to have 48 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) his case decided on its own merits. Here, on merits, the evidence leans heavily in the assessee's favor and the Revenue has not brought on record any corroborative evident to meet the burden of proof required under Section 68 of the act. 11.1.1 It is noted that the AO failed to point out any specific inconsistency or sham element in the appellant's documentation, he simply disregarded the evidence by invoking a general hypothesis that certain companies' shares (like STAL) were known to be used by others for generating bogus LTCG, hence the appellant's gain must also be bogus. This approach has been condemned by courts. The Kolkata ITAT in Navneet Agarwal v. ITO [2018] 97 taxmann.com 347 (Kol. Trib.)- dealing with a batch of so-called penny-stock cases - observed that just because a scrip's price moved dramatically does not ipso facto make every transaction in that script sham; if the assessee has provided full evidence of actual transactions, the onus is on the Revenue to show contrived manipulation involving the assessee. The tribunal categorically held that "suspicion, howsoever strong, cannot take the place of evidence." The Jaipur ITAT echoed this in Pramod Kumar Lodha vs. ITO (ITA No. 1230/JP/2017, Order dated 16.07.2018), where the assessee's claim of LTCG on a penny stock was allowed. The ITAT found that the AO's conclusion of bogus LTCG in that case was "based on suspicion without any material evidence to controvert or disprove the evidence produced by the assessee." It further noted that unless the department unearthed some link such as the assessee's own cash being routed or 49 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) some actual manipulation attributable to the assessee, the mere fact that the share price rose steeply was not enough to treat the gains as unexplained income. The facts of the present case are that the department has not discovered any unaccounted money trail or any nexus between the appellant and alleged operators. The entire addition is resting on the one-legged stool of suspicion. 11.1.2 In essence, the assessee contends that the share transactions were bona fide investment dealings that met all requirements for tax exemption under Section 10(38) of the Income Tax Act. The CIT(A) upheld the addition without concrete evidence of any wrongdoing, relying only on suspicion arising from the high share prices and generalized allegations about "penny stocks". The assessee's transactions fully satisfied all conditions for exemption under Section 10(38). The shares of Svaraj Trading & Agencies Ltd. (STAL) and Swadeshi Industries & Leasing Ltd. (SILL) were held as long-term investments and sold through recognized stock exchanges, with Securities Transaction Tax (STT) duly paid. The law, as it stood for Assessment Year 2015-16, provides that such long-term listed share gains exempted are not to be included in total income. The assessee's claim was squarely within the four corners of the statute. By denying the exemption and treating the gains as unexplained, the authorities have effectively read into the law an exception that does not exist unless the transactions are proven to be sham. Here, 50 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) no such proof of sham exists and formal compliance with Section 10(38) cannot be overridden by mere suspicion.
11.1.3 In our view, the appellant has complied with all requirements of law to claim the LTCG exemption based on dematerialization of shares, holding period, STT paid, etc., and nothing tangible has been brought on record by the department to impeach those transactions. Therefore, we hold that the order of the Ld. CIT (A) is infirm and perverse to the facts on record and we, accordingly, approve the rightful exemption claimed by the appellant under Section 10(38) of the act and as such the addition made on this account is liable to be deleted.
12. The next issue is related to confirmation of the addition of LTCG Rs.31,60,76,674/ as unexplained cash credit under Section 68. 12.1 The Ld. CIT(A) confirmed the addition by observing as follows:
"...the various case laws quoted above clarifies that both these companies shares were misutilized for generating bogus LTCG u/s 10(38) of the Act. These scripts were controlled and managed by the common directors of the group and with the help of Kolkata-based entry operators, huge LTCG was booked which was totally against the rules on which the share market functions.51
ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) Hence, relying upon the above case laws mentioned as well as the whole modus operandi adopted by the appellant, the action of the AO in disallowing bogus LTCG claimed as unexplained credit by the appellant u/s 10(38) amounting to Rs. 14,88,08,888/- and Rs. 18,05,68,726/- is upheld. However, the appellant has raised an issue which has merit that the AO has effectively treated the entire sale proceeds as unexplained income and not just the profit element, ignoring that there was a cost of acquisition that gave rise to the sale proceeds. The AO is directed to allow the cost of acquisition amounting to Rs. 1,33,00,940/- ... while calculating the disallowance of bogus LTCG. The ground of appeal is partly allowed."
12.1 We find that the amount represents the assessee's genuine Long-Term Capital Gains from listed shares vis-a-vis documented share transactions that fulfilled all legal conditions for exemption under Section 10(38). The Section 68 provides for an addition only when any sum credited in the books of account is found unexplained where the assessee cannot satisfactorily explain the nature and source of that credit. In the present case, the nature and source of the credit, the shares sale proceeds were clearly explained with evidence on record as the credits in the bank account were sale consideration from offloading shares on the exchange platform. The nature of the credit was shares sale receipts, and the source was the stock market buyers who purchased those shares through the 52 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) exchange mechanism. The assessee furnished extensive documentation evidences such as contract notes from SEBI-registered brokers, Demat account statements showing transfer of shares, and bank statements reflecting the receipt of sale proceeds. These documents demonstrate that the money was realized from genuine trading in listed securities. In other words, the credit in question had a fully traceable origin - it was not some anonymous deposit or unexplained cash infusion, but the proceed of sales in a regulated market. 12.1.1. From the above, it evidenced that the assessee discharged the initial onus of burden of proof under the law. It is well-settled principle of law that when an assessee furnishes credible evidence explaining a credit, the burden shifts to the revenue to rebut that evidence. In this case, every leg of the transaction was supported by verifiable records which explained by the appellant as follows:
a. Identity of parties: The shares were sold on the exchange through recognized brokers, and the counter-parties to the trades were actual market participants (unknown to the assessee personally, but the trades were settled via the stock exchange clearing corporation). The involvement of regulated intermediaries (SEBI Registered/ approved brokers and the stock exchange) establishes the identity of the source of funds in the sense required by Section 68.
b. Genuineness of transaction: The transactions took place in an open market at prevailing market prices. The Demat account entries confirm that the shares moved from the assessee's account to the buyers. Contract notes and exchange trade logs corroborate that the trades were executed transparently. Payment was received through 53 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) banking channels (NEFT/RTGS from the exchange/brokers), leaving an audit trail. Thus, nothing about the transactions was "cash" or off- record - they bear the hallmark of genuineness.
c. Creditworthiness of source: While the concept of "creditworthiness"
typically applies to lenders or investors, in the context of exchange trades it translates to the financial capacity of the buyers who paid the sale price. Here, the payments were honored through the exchange's settlement system, implying the buyers had the necessary funds (and indeed, the assessee has no relationship with those buyers to suspect otherwise). There is no instance of any cheque bouncing or payment default. The stock exchange's guarantee mechanism further underwrites the receipt - ensuring that if a buyer didn't pay, the exchange would step in. In short, the money that flowed to the assessee was bona fide consideration from unrelated purchasers, and not some accommodation entry from the assessee's own coffers. 12.1.2 The AO, CIT(A) and the Ld. DR failed to produce any evidence that contradicts or disproves the assessee's documentation. There is no material evidence on record directly or indirectly linking the assessee's share transactions to any bogus arrangement or pattern to any shame company or Penny stock company. In support, the AR filed written note as under:
a. The Assessing Officer relied on third-party statements and an investigation report alleging that certain penny stock scripts (including STAL and SILL) were used in accommodation entry schemes. Significantly, none of those statements or reports names the assessee or identifies his specific transactions as fake. They are generic in nature. Moreover, the assessee was never given an opportunity during assessment to question or refute those allegations in a meaningful way. Thus, from an evidentiary standpoint, those untested allegations cannot nullify the concrete proof that the assessee presented.54 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) b. The Department did not uncover any cash trail or payment by the assessee that funded these gains. The theory of bogus LTCG typically posits that an assessee introduces unaccounted cash which, through operators, comes back as sale proceeds. Here, there is no evidence of the assessee having given any unaccounted money to anybody. No cash deposits, no hawala transactions, no "peak credit" outside books have been even alleged in relation to these share deals. Absent such a finding, it is purely speculative to conclude that the assessee's own undisclosed income is embedded in the LTCG.
c. The Assessing Officer did not conduct basic inquiries that would be expected if the claim were truly suspicious. For instance, no summons were issued to the brokers for examination, no attempt was made to track the ultimate buyers of the shares through exchange data or to examine officials of the companies (STAL/SILL). All evidence that was available - the paper trail of transactions - actually supported the assessee. The Department had nothing more than a conjecture that "these shares rose astronomically, so it must be a sham." But suspicion, however strong, cannot take the place of proof. The law requires tangible evidence of bogusness, which is missing here.
12.1.3 It is noted that there is no finding of the authorities below regarding the Assessee's Involvement in Price Manipulation and that the entire premise of treating the LTCG as bogus is the dramatic rise in the share prices of STAL and SILL.
It is alleged that these were "penny stocks" whose prices were artificially rigged. Even if, for the sake of argument, one accepts that such manipulation occurred in the market, there is not a shred of evidence that the assessee had any role in it. The assessee is not connected to the promoter groups or so-called operators of these companies. It is noted that the assessee is an investor who purchased shares before the price increase and then sold after holding for more than a year. There is 55 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) nothing illicit about benefiting from a market rise if one did not illicitly cause it. Stock markets do see sharp fluctuations, especially in smaller scripts - some investors gain and some lose. To tax someone's legitimate gain just because the stock was volatile is not supported by law, unless the revenue demonstrates that the gain was pre-arranged through collusion. Here, no such link has been demonstrated. The CIT(A)'s order itself acknowledges that the shares were thinly traded and controlled by certain operators - but the appellant is not among those operators, nor it is alleged that he had any relationship with them. In fact, the search action on the assessee's premises in 2023 did not yield any evidence of contacts or arrangements with such operators.
12.2 We find that there was no Specific Evidence brought on record Against Assessee. The CIT(A)'s conclusion rests on an assumed "modus operandi" of penny stock scams, rather than concrete evidence pertaining to the assessee where he speaks of common directors, entry operators and price rigging in general terms, but nowhere identifies any act or link of this particular assessee to that modus operandi. The entire observation is that some operators and promoters allegedly did. Even if STAL and SILL's prices were artificially manipulated by certain persons, the AO ought to have brought on record the required factual cogent evidence whether the assessee participated in such scheme or derived undisclosed income. There is no finding whatsoever that the assessee interacted with those "common 56 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) directors" or paid any sum to any "entry operator." In fact, the assessee's uncontroverted submission was that he has no relationship with those entities. Thus, the CIT(A) improperly imputed the existence of a scam to the assessee without evidence. Essentially guilt by association is not permissible under law. In our view, each taxpayer's case must be decided on specific evidence, not on the Department's narrative of what generally happens in penny stock cases. 12.2.1 The Ld. CIT (A) has misplaced heavy Reliance on Calcutta High Court in case of PCIT v. Swati Bajaj Calcutta HC, 2022S which is distinguishable to the given facts of the present case. In Swati Bajaj, the tax department had gathered substantial circumstantial evidence of a large-scale racket, and multiple assessees were found to have identical, implausible trading patterns suggesting a design. The court drew inferences on collective evidence of manipulation. In the present case, no such cogent pattern or link has been shown specific to the assessee. The assessee's transactions, though yielding high profits, were bona fide trades and no irregularities (such as synchronized trading or circular transactions) were demonstrated. In the present case, the Revenue's rests purely on suspicion from price rise, without the support of any specific investigative finding against the assessee. Moreover, the Calcutta HC decision, though respected, is not binding on this Tribunal, especially given contrary Jurisdictional High Court judgements and other Courts Judgements on similar facts. Supreme Court - Dismissal of SLP(SLP(C) 57 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) has no precedential value as firstly it was on different context and secondly the Supreme Court's dismissal of the SLP was not a speaking judgment on merits as it simply let the High Court's findings stand, because those findings were fact-specific. An SLP dismissal does not lay down any law, and it cannot be taken as a blanket approval that all penny-stock gains are bogus. Each case shall be decided on its facts. In the present case, the facts are at odds with the case underlying the SLP. The High Court's decision (which the SLP pertained to) involved clear badges of fraud in those assessee's transactions. In contrast, the appellant case lacks any concrete badges of fraud as company shares, though small, were purchased and sold in the open market portal by the assessee without any direct evidence of manipulation by the Department. Therefore, the mere existence of an SC/SLP dismissal in another case would not support the addition in the present case. Typically, in those cases there were clear red flags like confessions from brokers/operators, or the assessee being part of a syndicate, etc. In the present case, none of the hallmarks of a sham transaction are present - no confessions, no direct evidence of any arrangement, and all transactions are through demat, regular banking channels and STT paid. The CIT(A) cannot cherry-pick only the rulings that favour the Department's theory while ignoring binding or relevant precedents that protect investors. The Ld. CIT (A) has brushed aside several authoritative judgments placed before him by the assessee from Bombay, Delhi, 58 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) Gujarat, Rajasthan HCs and Tribunal decisions where it was held that mere price rise or third-party taint cannot make a genuine investor's capital gain into unexplained income. The CIT(A) failed to offer a valid and substantive reasoning to distinguish the favourable precedents by stating that "facts are different." It is noted that the facts of the assessee's case align closely with the cases where the Jurisdictional High Court granted relief holding genuine purchase and sale through exchange, no direct evidence of collusion.
12.2.2 Admittedly, the CIT(A) has accepted that the assessee did invest his real accounted money to purchase the shares as he has allowed Rs. 1.33 towards crore cost of acquisition. This admission undercuts the theory that the assessee's gain was non-genuine. If the assessee were laundering his own unaccounted money, as alleged, one would expect the initial purchase itself to be funded by cash or undisclosed sources as a typical accommodation transaction is circular where cash is given to an entry operator who provides cheques for share purchase, etc. However, the purchase was made with own disclosed funds by the assessee's, itself indicates a bona fide investment where the assessee put real money at risk by buying those shares. Thereafter, those shares were sold openly, and the sale proceeds came from unknown market buyers. The Department has not shown that any of the sale proceeds originated by cycling as there is no evidence of the assessee cycling his money out and back in. In our view, when it is accepted by the 59 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) department that the assessee used his taxed money to buy shares as admitted by the CIT(A) then there is no question of any extra cash changing hands, and the resultant gain cannot magically transform into untaxed income as it is being a market-derived profit.
12.2.3 It is noted that the AO and ld. CIT(A) did not point out a single defect in the documents submitted by the assessee. The revenue authorities have not stated that the contract notes were bogus, or the Demat statements were fabricated, or that the money trail was inconsistent. In fact, the Revenue never questioned the veracity of these documents. Meaning thereby that the primary evidence of the transactions stands unquestioned. It is settled principle of law that unimpeached evidence cannot be disregarded unless rebutted. The CIT(A)'s order effectively disregards the assessee's evidence not by rebutting it, but by simply ignoring it, which is illegal. The CIT(A) also failed to address that all transactions were routed through statutory bodies (Registered various brokers, SEBI and Stock Exchange). In our view, it is unrealistic to suggest that an individual taxpayer could orchestrate all those institutional processes without any trace. If the Department truly believed the trades were rigged, they could have obtained trade logs, identified counterparties etc., to disprove the claim of the assessee. 60 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 12.2.4 Further the ld. CIT(A) has also confirmed the finding of the AO in mischaracterization of a genuine capital gain as unexplained income. The AR argued that the AO wrongly invoked Section 68 when the facts show this was income from transfer of a capital asset, duly documented and disclosed which has been accepted by CIT(A) by allowing deduction of cost of investments and that Section 68's purpose is to tax unaccounted money introduced in books under the guise of credit entries (like sham loans or fake share capital). It was never intended to tax recorded sale proceeds of investment which have an explainable source (the asset itself). Here, the credits in bank account were fully explained by corresponding sale of shares -which is recorded in books and disclosed in ITR too. The Hon'ble Bombay HC in CIT vs. Bharat Engineering & Construction Co. 83 ITR 187 (Bom.) observed Section 68 shouldn't be pressed in circumstances where evidence sufficiently explains a credit. In support, Appellant rely on several citations filed on record. The relevant case laws are reproduced as follows.
(i) SLP dismissed/rejected in [2025] 175 taxmann.com 236 (SC)] {2025} 175 taxmann.com 235 (Gujarat HC) : PCIT v. Neelu Mahansaria.
7. Considering the aforesaid observations and findings recorded by the Tribunal, we notice that the transaction of the assessee was doubted by the authority on the basis of the report of the Investigating Wing, Kolkata. It is pertinent to note at this stage that in furtherance to the aforesaid report, SEBI has undertaken a detailed inquiry against M/s.Mishka Finance & Trading Ltd. and in the said inquiry, vide order dated 5.10.2017, the SEBI has not found any adversarial material of any violation 61 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) of statute. Over and above, admittedly, the assessee has also furnished complete evidence including contract note of shares, demat details, details of bonus shares and those evidences have not been doubted by the authorities.
8. At this stage also, it is required to be noted that the entire transaction was done by the assessee through the platform of BSE by paying necessary security transaction tax and the transaction was undertaken by the share brokers, no such allegation was made against the said broker for indulging in any price manipulation.
9. In view of the aforesaid, in our considered opinion, the questions of law framed by the appellant - revenue cannot be termed as substantial questions of law and thereby, the same deserve no interference. Accordingly, the present Tax Appeal is dismissed.
(ii) PCIT v. Renu Aggarwal (Smt) (2023) 456 ITR 249 /294 Taxman 521 (SC) (03.07.2023) Dept SLP dismissed, PCIT v. Renu Aggaral (Smt) (2023) 153 taxmann.com 578 (All. HC) (06.07.2022), ITAT Lucknow ITA/204/LKW/2020 AY 2014- 15 (17.01.2022) S. 68: The Assessing Officer disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accommodation of LTCG. Tribunal deleted the addition. On appeal High Court affirmed the order of the Tribunal on the ground that there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report. SLP of revenue is dismissed. (AY. 2014-15).
(iii) Hon'ble Rajasthan High Court [2023] 152 taxmann.com 249 Principal Commissioner of Income-tax v. Gaurav Bagaria
5. On perusal of findings arrived at by the learned ITAT, reproduce as under:--
"The same facts were considered in the above cited cases regarding purchase of shares of M/s. Careful Projects Advisory Ltd which was subsequently merged with M/s. Kailash Auto Finance Ltd. and after analyzing the relevant documentary evidence which includes purchase bill, payment consideration through bank, dematerialization of shares, allotment of the shares amalgamated new entity in lieu of earlier company, the Tribunal has held that in the absence of any contrary evidence it cannot be held that the assessee has introduced his own unaccounted money by way of 62 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) bogus Long Term Capital Gain. The Tribunal has also followed the decision of Hon'ble Jurisdictional High Court in case of CIT v. Smt. Pooja Agarwal (supra) wherein the Hon'ble High Court has also upheld the finding of the ld. CIT (A) and this Tribunal when the assessee produced all the relevant details and evidence in support of the transaction of purchase and sale of shares. Accordingly, in view of the facts and circumstances as discussed above, when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. The assessee has also produced the financial statements of M/s. Kailash Auto Finance Ltd. to show that the company has earned a handsome profit. Further, the alleged SEBI order was also subsequently revoked.
Therefore, all these facts established the genuineness of the transaction. Hence we do not find any error or illegality in the order of the ld. CIT (A) in deleting the addition made by the AO under section 68 of the IT Act by treating the Long Term Capital Gain on sale of shares as unexplained cash credit. The addition of Rs. 1,51,869/- being the deemed commission for taking the accommodation entry, is consequential to the main issue. Hence, the same is also not sustainable."
6. We are of the view that the present appeal does not involve any substantial question of law. Learned ITAT has specifically held that the assessee has produced all the relevant documentary evidence to establish genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee and therefore treating the transaction of purchase and sale as sham is not justified. Further, learned ITAT has also relied upon the decision of the jurisdictional High Court in CIT v. Smt. Pooja Agarwal, [2018] 99 taxmann.com 451 (Raj.) wherein learned ITAT has relied upon the judgment of Division Bench involving the same facts wherein the Division Bench has dismissed the appeal filed by the Revenue.
7. In the light of above facts, this Court is of the view that the order of learned ITAT requires no interference and therefore, the appeal is dismissed.
(iv) Hon'ble Rajasthan High Court in CIT vs. Smt. Pooja Agarwal 214 Taxman (2018) 121 (Raj.). It has upheld ITAT decision in deleting penny stock LTCG addition because the assessee had filed all evidence of genuine transaction and AO had not brought any 63 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) material to disprove it - calling the addition based on suspicion and ignoring evidence as unjustified.
(v) On similar facts, the Hon'ble ITAT Jodhpur - (Trib.) [2024] 165 taxmann.com 173 in case of Income-tax Officer v. Hemant Gokhru while granting relief has observed as under:
10. In the present case, the appellant entered into the transactions of purchase and sales duly supported by the documents which have not disproved by the authorities below. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) that namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI nor the trading of these scrips were suspended. In the present case, the appellant has entered into the transactions of purchase and sales of shares, duly supported by the documents which have not been rebutted either by the AO or by the LD. DR and therefore, in our considered view, since the conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) and hence, the issues raised in the instant appeal by department regarding the bogus claim of Long Term Capital Gain would be liable to be rejected.
11. Without prejudice to the above, the assessee deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries (supra) that "not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected".
12. In view of the factual matrix and judicial precedent, we find no infirmity or perversity in the order of the ld. CIT(A) and according, the order of the ld. CIT(A) in deleting the addition on 64 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) account of disallowance of claim of exemption on long term capital gains on sale of shares u/s 68 and commission payment u/s 69C of the Act is held to be justified, and as such, the same is upheld.
(VI) Hon'ble ITAT Mumbai (Bench-E) in case of ACIT v/s Kashyap Mahesh Vora in ITA No. 4322/MUM/2024 on 10.07.2025 in relation to Bogus capital gains from penny stocks, wherein addition is deleted by ld. CIT(A) It is held:
" ---------------------------- Upon careful consideration, we observe that no independent enquiry or verification has been conducted by the ld. AO during the assessment proceedings. The addition has been made solely on the basis of the report of the DGIT (Investigation), Mumbai without corroborative evidences specific to the assessee. In view of above, we do not find any infirmity in the order passed by the d. CIT(A). Accordingly, the grounds raised by the revenue are dismissed, and the impugned appellant order is hereby upheld."
(vii) Hon'ble ITAT Mumbai (Bench-H) in case of Udhyan Grover in ITA No. 2880/MUM/2023 on 07.02.2024 in relation to Bogus capital gains from penny stocks, the held:
"18. 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 scrip 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. 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 Ground No.1 raised by the assessee is allowed."
(viii) THE ITAT MUMBAI BENCH 'D' [2025] 172 taxmann.com 657 Tejash Ramesh Shah, HUF v. Income-
tax Officer
7. After hearing the rival submissions and carefully considering the documents available on record, we note that the assessee earned LTCG related to the scrip MPL through transactions 65 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) conducted on the BSE. No adverse findings or comments have been issued by SEBI regarding this scrip, and the Ld. DR was unable to submit any such directions or allegations by SEBI related to the scrip in question. The Ld. AO did not reject any of these primary pieces of evidence during assessment proceeding. In this context, the Hon'ble Bombay High Court in CIT v. Shyam R. Pawar [2015] 54 taxmann.com 108/229 Taxman 256 (Bombay) held that when details of share transactions are substantiated by DEMAT account statements and contract notes, and the Assessing Officer fails to prove such transactions as bogus, the capital gains cannot be treated as unaccounted income under Section 68 of the Act.
(ix) THE ITAT MUMBAI BENCH 'C' [2025] 173 taxmann.com 500 (Mumbai - Trib.) Pritin Nilesh Jain Daga v. ITO
40. After having considered the entire facts and circumstances of the present case and also the legal prepositions as discussed by us above, we are of the considered view that since the assessee has discharged his initial onus by placing on record all the relevant documentary evidences to prove the transactions in the script in question. --------------------------------------------------However the revenue failed to rebut the said documentary evidences and to bring on record any evidence to prove that assessee was actively involved in manipulating the script in question, therefore adhering to the principles of judicial consistency and judicial discipline and also taking into consideration the totality of facts and circumstances as discussed in detail in the above paras, we direct the AO to delete the additions made u/s 68 of the Act. Consequently the grounds raised by the assessee are allowed.
(x) ITAT Delhi "A"- Trib. [2024] 168 taxmann.com 219:
Archit Gupta v. ACIT
8. 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 are 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 66 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) 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.
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.-------------------
. 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. ----
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 behaviour 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 67 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) 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.
(xi) THE ITAT DELHI BENCH 'F' [2025] 170 taxmann.com 430 (Delhi - Trib.) Reena Kumari v. Income-tax Officer
13. After taking into consideration the orders of the ld. tax authorities below, we are of the considered view that the ld. AO has primarily gone on the broad parameters of analyzing transactions of bogus LTCG claims. The conclusions were more outcome of the Investigation Wing report and the SEBI orders then anything specific discovered by any independent investigation or enquiry of the AO, except for recording statements of assessee u/s 131 of the Act and of one Shri Sumit Kumar, the director of AMS Power Tronics Ltd.. The assessee has been faulted by questioning the reasons for investments which is not an appropriate manner to discharge the burden on the AO for establishing that the assessee has taken recourse to invest only for generating an exempt LTCG. The statement of Shri Sumit Kumar, the director of AMS Power Tronics Ltd. from whom the assessee has bought the shares was relied heavily without the assessee being given an opportunity to cross- examine. Pertinent to mention is that even the CIT(A) failed to give the assessee the opportunity in spite of the assessing officer referring the matter in that context to the CIT(A). Nonprovision of statement and absence of opportunity for cross-examination is sufficient to draw an adverse inference and setting aside the conclusions drawn out of the statement of Shri Sumit Kumar. The AO has discredited the explanation of the assessee being general in nature. However, the findings and reasoning of the AO are patently very general. No doubt, the test of preponderance of probability would be applicable, but, that would be on the basis of some evidence indicating that some colorable device was used for 68 ITA No. 940/Jodh/2025 (Assessment Year - 2015-16) introduction of unaccounted money through the LTCG Claim. The financials of the two scrips or the movement in the prices are indeed relevant, but, cannot alone be relied for considering the investment to be motivated for preparing false LTCG claim.
-----------------------. We are of the considered view that when an assessee deposes on oath giving explanation of the reasons and circumstances for investment, the same cannot be brushed aside on the basis of general principles of the modus operandi of bogus LTCG claims.
15. In the light of the aforesaid, we are inclined to accept the grounds of appeal of the assessee holding that ld. tax authorities below have fallen in error in considering the LTCG claim of the assessee from the two disputed scrips as bogus claim. The appeal of the assessee is allowed with consequences to follow.
(xii) Jignesh Ramjibhai Patel v/s ITO (2025) 210 Taxlok.com (IT) 430 ITAT AHD on 03.06.2025 Para 7 "------The Assessing officer has not at all pointed out as to how the assesse was involve in the manipulation of the price difference at the time of purchase as well as time of sale of the said script. The contention of the ld. AR appears to be correct that it is a mere incidental benefit gained by the assesse due to rise in price of said script.-----------Thus, the appeal of the assesse-----------------------------is allowed "
12.2.5 The Hon'ble ITAT Ahmedabad (Supra) has allowed the assessee's appeal by deleting the addition of Rs.2,23,95,400/- made under section 68. The AO had treated the LTCG from shares of Comfort Fincap Ltd. as bogus, citing SEBI reports and alleged accommodation entries. However, tribunal found that shares were held for over a year, STT was paid, supported by demat records and banking documents and no link with entry providers or manipulation was proved, held LTCG was valid. Addition under section 68 was deleted. 69 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 12.2.6 The decision in case of M.K. Rajeshwari vs. ITO; ITAT Bangalore, 2018 relied by the CIT (A) is distinguishable on fact as in that case there was evidence that the assessee had connections with the operators/broker to conclusively proven to be providing bogus bills whereas in the present case, there is no such evidence of any collusion or any 'accommodation entry' provider involved in the assessee's transactions. Another case of Satish Kishore vs. ITO of ITAT Delhi, 2019 is also distinguishable as in that case the assessee's transactions were part of a known accommodation operation whereas in this case, the assessee has not been linked to any such operation by evidence. 12.2.6 Considering the factual matrix of the case and judicial precedents of higher judicial forums and coordinate bench on parity of fact, we hold that the impugned order is perverse to the fact on record. Therefore, the addition confirmed u/s 68 by the CIT(A) are unwarranted and the addition so sustained by the CIT(A) amounting to Rs. 31,60,76,674/- u/s 68 is deleted.
13. In the next issue the appellant challenged that CIT(A) has gravely erred in law and on facts in sustaining the Rs. 9,02,850/- addition under Section 69C as alleged commission expense for arranging bogus LTCG and taxing Rs. 18.05 Cr as income and also Rs. 0.09 Cr as expenditure on that very amount, the AO effectively double-taxed the same money, leading to an "income" exceeding receipt.70
ITA No. 940/Jodh/2025
(Assessment Year - 2015-16) 13.1 Since the assessee gets relief on legal issue and merits as the entire addition made by the AO and confirmed by the Ld. CIT (A) by disallowance of the exemption u/s 10(38) and that on account of unexplained credits u/s 68 of the Act and hence get consequentially the addition made on account of alleged commission expense for arranging the said bogus LTCG would also be deleted. Accordingly, the addition on account of alleged commission expense of Rs. 9,02,850/- under Section 69C is deleted. Further charging tax rates u/s 115BBE and other grounds are rendered academic.
14. Without prejudice to that the assessee gets relief on legal issue and merits of the case, it is worthy mention here that the similar claims of exemption on identical facts to those in question except variation in amount of LTCG on same script, had been accepted as genuine by the AO, in the immediately succeeding assessment year 2016-17 without either questioning under sections 68 of the Act, or exemption claim u/s 10(38) in the absence of any fresh adverse material. In our view, such an inconsistent decision given by AO in the succeeding assessment year on the same issue on identical fact, would also held in gross violation of the principle of rule of consistency and for this reason also the addition confirmed by the CIT (A) is untenable in law in view of the principle laid down by the Apex Court in the case of Radhasoami Satsang. 71 ITA No. 940/Jodh/2025
(Assessment Year - 2015-16)
15. In the backdrop of the aforesaid discussion, the appeal of the assessee is allowed.
Order pronounced in the open court on 30/04/2026.
Sd/- Sd/-
(SUDHIR PAREEK) (DR. MITHA LAL MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30/04/2026.
Nimisha Sr. PS
True Copy
Copies to :
(1) The appellant.
(2) The respondent.
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
BY ORDER,