Income Tax Appellate Tribunal - Mumbai
Dcit(Cc)-8(3) , Mumbai vs Santosh Vimlesh Mehta, Mumbai on 9 January, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "C" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)
ITA No. 3725/MUM/2025
Assessment Year: 2012-13
DCIT(CC)-8(3) Santosh Vimlesh Mehta
Room No. 661 6th Floor, Aaykar 10, Mumbadevi Road,
Bhavan, Maharshi Karve Road, Vs. Mumbadevi, Mumbai-400002
Mumbai-400020 Mumbai
PAN NO. ABHPM 0883 H
Appellant Respondent
Assessee by : Mr. Devendra Jain
Revenue by : Mr. Virabhadra Mahajan, SR-DR
Date of Hearing : 14/10/2025
Date of pronouncement : 09/01/2026
ORDER
PER OM PRAKASH KANT, AM
This appeal by the revenue is directed against order dated 21/03/2025, passed by the learned Commissioner of Income-tax (Appeals)-50, Mumbai [in short the Ld. CIT(A)] for assessment year 2012-13, raising following grounds:
1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CTT(A) erred in not appreciating the fact that the 40 rightly made addition of Rs. 3,98.43.430/- оп account of unexplained money u/s 69A of the Act being investment made in penny stock"ITA No. 3725/Mum/2025 2
Santosh Vimlesh Mehta
2 "Whether on the facts and in the circumstances of the case and in law, the Ld. CITA) erred in deleting the addition made by the AO in relation to the alleged manipulation of share prices of M/s Banas Finance Ltd., despite the statement recorded during the course of investigation proceedings, which indicates the appellant's involvement. The CIT(A) failed to appreciate that statements recorded during the search proceedings are credible and were supported by Circumstantial incriminating evidence suggesting ggesting irregular financial activities
3. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
2. Briefly stated, the facts giving rise to the controversy in the Revenue's appeal are that the assessee, an individual, filed her return of income for the assessment year under consideration on 21.12.2012, declaring a total income of ₹4,64,069/ 4,64,069/-. In the said return, the assessee also disclosed Long Long-Term Term Capital Gain of ₹3,98,43,430/- arising from the sale of shares of M/s Banas Finance Ltd., which was claimed as exempt under section 10(38) of the Income-tax tax Act, 1961 ("the Act").
2.1. Subsequently, the Assessing Officer received information from the Deputy Director of IIncome-tax tax (Investigation), Mumbai, alleging that the assessees that the assessee had obtained a bogus accommodation entry in the guise of Long Long--Term Capital Gain from the sale of shares of M/s Banas Finance Ltd.(BFL) The information was stated to be based, inter-alia,, analysis of stock exchange data, statements of the director of M/s Banas Finance Ltd. and other connected persons, wherein it was alleged that the shares of the said company were used to provide accommodation entries of fictitious capital gains to beneficiaries. The entities ITA No. 3725/Mum/2025 3 Santosh Vimlesh Mehta through which shares were allegedly purchased at inflated prices have been described as "exit providers" in the information.
information 2.2 On the basis of the aforesaid information and upon examination of the assessment records, the A Assessing ssessing Officer recorded reasons to believe that income chargeable to tax had escaped assessment and accordingly issued notice under section 148 of the Act on 28.03.2019. In response, the assessee filed a return of income on 03.06.2019, reiterating the in income come originally declared in the return filed on 21.12.2012. The Assessing Officer thereafter furnished a copy of the reasons recorded for reopening, to which the assessee filed objections. The said objections were disposed of by the Assessing Officer by an order dated 27.11.2019.
2.3 Aggrieved by the disposal of objections, the assessee approached the Hon'ble Bombay High Court by way of a writ petition. The writ petition was disposed of by order dated 22.02.2022, with a direction to the Assessing Officer to pass a fresh order disposing of the objections. In compliance with the said directions, the Assessing Officer passed a speaking order dated 05.04.2022, rejecting the objections of the assessee. Thereafter, notices under sections 143(2) and 142(1) of the A Act were issued, calling upon the assessee to explain the Long Long-Term Capital Gain declared on the sale of shares of M/s Banas Finance Ltd.
ITA No. 3725/Mum/2025 4Santosh Vimlesh Mehta 2.4 In response, the assessee explained the manner of acquisition and sale of the shares. It was submitted that all investment vestment decisions were managed by her late husband. According to the assessee, her husband was approached by M/s Banas Finance Ltd. for preferential allotment of shares, pursuant to which an investment of ₹20,00,000/- was made on her behalf. The said funds s were stated to have been sourced through withdrawal of capital from M/s Mehta Emporium, a partnership firm in which the assessee was a partner, and the payment was made through normal banking channels. It was further submitted that against the investment of ₹20 20 lakh, the assessee was allotted 1,00,000 equity shares of face value ₹10 ₹ each at a premium of ₹10 10 per share. The assessee furnished copies of the relevant bank statements and the preferential allotment letter issued by M/s Banas Finance Ltd. It was also stated that the shares were subsequently dematerialised during the financial year 2010-11.
11. Thereafter, the shares of the company were split in the ratio of 1:10 on 12.09.2011, as a result of which the assessee's shareholding increased from 1,00,000 s shares to 10,00,000 shares.
2.5 In n financial year 2012 2012-13, 13, the assessee sold all the shares in the month of February and March 2013 in following manner:
Date Name of Scrip Amount Quantity Holding Period (Days) 01-02-2012 Banas Finance Ltd 128700.46 127000 396 06-02-2012 Banas Finance Ltd 7057200 23000 401 21-02-2012 Banas Finance Ltd 6940502.01 150000 416 ITA No. 3725/Mum/2025 5 Santosh Vimlesh Mehta 22-02-2012 Banas Finance Ltd 6629674.52 150000 417 24-02-2012 Banas Finance Ltd 6068923.33 150000 419 28-02-2012 Banas Finance Ltd 5817063.1 150000 423 29-02-2012 Banas Finance Ltd 2210735.46 110522 424 01-03-2012 Banas Finance Ltd 3612841.7 64478 425 06-03-2012 Banas Finance Ltd 2219489.16 75000 430 Total 40685129.74 10,00,000 2.6 The assessee assailed the findings of the Assessing Officer and contended that the transactions relating to purchase and sale of shares were genuine and not sham. In support of this contention, the assessee made the following submissions:
(i) The shares were acquired pursuant to a valid share application made to the company, and the consideration for such allotment was paid through an account account-payee cheque.
(ii) The sale of shares was carried out through a recognised stock exchange by a broker duly registered with the Securities and Exchange Board of India (SEBI), and the sale consideration was received through normal banking channels, as evidenced by the assessee's bank statements.
(iii) Security Transaction Tax (STT) was duly charged and paid on the sale transactions, which was clearly reflected in the contract notes issued by the broker.
broker..
(iv) The trading of shares on the stock exchange is a fully automated, system system-driven driven process, leaving no scope for personal interaction, negotiation, or collusion between the he buyer and the seller.ITA No. 3725/Mum/2025 6
Santosh Vimlesh Mehta
(v) No material was brought on record by the Assessing Officer to establish any nexus or connection whatsoever between the assessee and the alleged exit providers.
(vi) Even in the statements of the alleged entry operators relied upon by th thee Department, there was no reference to the assessee, nor any admission that accommodation entries were provided to her.
(vii) The investment in the shares was made by the assessee's late husband in good faith considering to be the right time to invest in the sh shares ares of the company, based on his bona fide assessment of the future prospects of the company, and without any mala fide intention and 2.7 The assessee also sought copies of the material allegedly indicating her involvement in accommodation entry transactions ions and requested an opportunity to cross cross-examine the third parties whose statements were relied upon by the Department, contending that denial of such opportunity violated the principles of natural justice.
2.8 The Assessing Officer, however, was not pe persuaded rsuaded by the explanation furnished by the assessee. He noted that the company in question was originally incorporated as Pioneer Leasing Co. Ltd. on 06.06.1983, and its name was subsequently changed to Banas Finance Ltd. on 28.08.1986.
The company obtain
obtained
ed registration as a Non
Non-Banking
Financial Company (NBFC) from the Reserve Bank of India on 24.01.1999. In the assessment order, particularly in ITA No. 3725/Mum/2025 7 Santosh Vimlesh Mehta paragraphs 5.3 to 5.7, the Assessing Officer described the general modus operandi allegedly adopted for generat generating bogus long-term term capital gains through penny stock companies. He explained how beneficiaries possessing unaccounted money allegedly approached operators managing such scrips, how the share prices were artificially rigged, and how exit providers were used d to enable the beneficiaries to book exempt capital gains through stock exchange transactions. The Assessing Officer also referred to the typical bell bell-shaped shaped pattern observed in the price movement of such penny stocks.
2.9 Applying the said general modus operandi to the facts of the present case, the Assessing Officer analysed the price movement of the shares of Banas Finance Ltd. He noted that the company issued preferential allotment of 99,00,000 equity shares of ₹10 10 each at a premium of ₹10 10 per share on o 30.12.2010, followed by a stock split in the ratio of 1:10. Subsequently, on 26.03.2013, another preferential allotment was made whereby 1,17,60,000 equity shares of face value ₹1 each were issued at a premium of ₹16 16 per share to non-
non promoters. The Asses Assessing sing Officer observed that the share price on the Bombay Stock Exchange rose from ₹9.40 on 27.01.2011 to ₹562 562 on 01.02.2012, thereafter declined to ₹99.50 99.50 on 28.05.2012, again increased to ₹682 682 on 29.10.2013, and finally fell sharply to ₹13.30 on 22.12.2015.
2.10 According to the Assessing Officer, the increase in share price was accompanied by extremely low trading volumes ITA No. 3725/Mum/2025 8 Santosh Vimlesh Mehta during the period of price rise, while a sudden spike in volume was noticed upon expiry of the lock lock-in in period of shares allotted preferntialy,, which, according to him, coincided with the exit taken by beneficiaries claiming exempt long long-term term capital gains.
He further observed that such astronomical rise in share price after preferential allotment was not supported by the financial fundamentals ntals of the company.
2.11 The Assessing Officer further analysed the trade data and concluded that the price movement of the scrip was artificially manipulated with a mala fide intent. The Assessing Officer noted that price of the stock moved from ₹ 9.40 on 27/01/2011 (before preferential allotment) to ₹ 682 (after preferential allotment) on 19/10/2013 and then suddenly fell back to prices of ₹ 13.30 on 22/12/2015. He noted that during the period from 04.02.2011 to 07.09.2011, covering 138 trading days, ys, only 158 trades were executed, with most days recording merely a single trade involving a minimal quantity of shares. The price during this period increased steadily from ₹9.82 to ₹281.30.
281.30. The Assessing Officer observed that on several days the price iincrease ncrease hovered just below the circuit limits prescribed by the stock exchange, thereby enabling maximum appreciation without triggering regulatory intervention. Graphs depicting the number of trades and trading volumes were reproduced in the assessment or order to support this inference.
ITA No. 3725/Mum/2025 9Santosh Vimlesh Mehta 2.12 The Assessing Officer also noted that there were no corporate announcements, improvement in financial performance, or changes in business fundamentals of the company that could justify such a steep rise in share price. He further observed that the movement of the share price bore no correlation with the general market indices, which remained relatively stable during the relevant period as against abnormal movement in the price of shares of BFL. On these premises, the Ass Assessing essing Officer concluded that the price rise was the result of systematic and artificial rigging carried out through controlled and low low-volume trades.
2.13 Further, the Assessing Officer, referred to statements of persons who colloborated in manipulating share hare price of BFL,, including Sh GK Agrwal, promoter and director of Banas Finance limited and few exit providers, viz, sh Chandra Kant Mohite (Thene), sh Prashant Shashikant Sawant , sh Shyam Laxman Pedamkar, Ms. Shweta Shyam Pedamkar, Sh Pardeep Dhanuka etc.. It was revealed that shri Pradeep Dhanuka was the key person in the chain who introduced various bogus exit providers. In the statement recorded, Sh Pradeep Dhanuka as well as various exit providers have admitted that they had nothing to do with th thee concerned companies, wherein they were directors. Sh Pradeep Dhanuka admitted that on the instruction of Sri Giriraj Kishore Agrawal , one of the promoters of Banas finance Ltd, he had indulged in ITA No. 3725/Mum/2025 10 Santosh Vimlesh Mehta manipulating the scrip. The relevant part of assessment o order is reproduced as under:
"5.19 5.19 Further, Statements of few exit providers were recorded. In the sworn statement, the EPs (Exit Providers) have confirmed that their accounts like bank account, DMAT account were misused by certain operators. The EPs are generally individuals of low income group. This is the typical pattern where a group of exit providers are identified by the operator of the scheme and their identity is used by the operator to carry out bogus trades in order to provide bogus accommodation entry to beneficiaries of bogus Long Term Capital Gains. Few of the exit providens have confirmed that Shri Pradeep Dhanuka has misused their credentials by promising them Rs. 2000 to Rs. 3000 per month. Statement of Shri Pradeep Dhanuka was recorded u/s 131 of the IT Act where he has confirmed of the wrong doings and has stated that on the instruction of Shri GK Agarwal he had obtained credentials of various exit providers and has traded in their accounts. Shri G K Agarwal is one of the promoter and direc director of M/s Banas Finance Ltd.
The relevant portion of the statement is reproduced as under.
Statement of Chandra Kant Mohite (Exit Provider of Banas) recorded u/s 131 of IT Act dated 16.10.2017).
Q.6 What is your sources of income and annual income from all your sources of income?
Ans. I am working as watchman in society Shanti Garden, sector 3, Mira Road, Thane. I get Rs. 9000 per month since one and half year. Before that I used to supply tiffen to customer and ea earn rn Rs. 1000 per month.
Q.9 From the trading rading transaction records it is seen that you have made various share transactions from FY 09 09-10 till FY 12-13.
13. Please furnish the source of investment and transaction detai details in brief?
Ans. Sir, I don't have any knowledge on shares and I never invested in shares. In the circumstances of financial problems, I have visited Shri Pradeep Dhanuka year in the year 2009 and pleaded for help. Shri Pradeep Dhanuka called me to his Bhayander office and said that as I was in financial problem, he would provide regu regular income of Rs.5000/-,, for which he asked my PAN Xerox and further Explained he will open bank account and Demat account in my ITA No. 3725/Mum/2025 11 Santosh Vimlesh Mehta name and he requested me to provide my blank cheques with the signature. And whenever he required my signatures hè called me to his office and took my signature wherever required on various forms. After he opened my bank account and demat account he might have traded in shares.
Statement of Prashant Shashikant Sawant (Exit provider of Banas) recorded u/s 131 of 1 T Act dated 16.1 16.10.2017).
0.2017).
Q.10 From the trading transaction records it is seen that you have made various share transactions. Please furnish the source of investment and transaction details in brief?
Ans. Sir, I don't have any knowledge on shares and I never invested a single rupee in shares. I met Shri Pradeep Dhanuka in party office of Maharashtra Nava Nirmana Sena at Mira Bhayandar Office in the year 2009. At that time and he asked about my personal details. I said I was jobless and also said I have been facing financ financial problems. So he suggested me that he will do some business in my name and whatever he was doing was through cheques and RTGS only and I will get some money. So I accepted for his proposal in the year 2010 and gave my PAN card Xerox copy and photo and s signed on various application forms.
Statement of ShyamLaxman Pedamkar (Exit Provider of Banas recorded u/s 131 of 1 T Act dated 16.10.2017.
Q.9 From the trading transaction records it is seen that you have made various share transactions from FY 10 10-11 till FY 13-14.
14. Please furnish the source of investment and transaction details in brief?
Ans. Sir, I don't have any knowledge on shares and I never invested in shares. In the circumstances of financial problems, I have visited Shri Pradeep Dhanuka year in tthe year 2010-2011 2011 who is the Chairman of Lions Club of Bhyandar and pleaded for help in paying school fees of my elder daughter. He has given cheque of around Rs.20,000/-inin the name of my elder daughter to her school, Royal Girls High School, Mira Road Eas Eastt as school fees in the year 2010 or 2011. After six months Shri Pradeep Dhanuka called me to his Bhayander office and said that as I was in financial problem, he would provide regular income of Rs.2,000/ Rs.2,000/- to Rs.3,000/-, Rs.3,000/ for which he asked my PAN Xerox and further explained he will open bank account and Demat account in my name and he requested me to provide my blank cheques with the signature. And whenever required my signatures he called me to his office and took my ITA No. 3725/Mum/2025 12 Santosh Vimlesh Mehta signature wherever required on various forms. After he opened my bank account and demat account he might have traded in the above mentioned shares, In this process I received share trading messages on my mobile. I asked Shri Pradeep Dhanuka about the messages, he explained that whatever he was doing was through cheques only and there was no need to panic.
Statement of Shweta Shyam Pedamkar(Exit Provider of BANAS) recorded u/s 131 of IT Act dated 16.10.2017.
Q.6 What are your sources of income and annual income from all your sources of income?
Ans. Sir I am house wife and donot have any earnings.
Q.7 Have you ever invested in shares/mutual funds? If yes, please give details.
Ans. Sir, I never traded in shares.
Q8 From the trading transaction records it is seen that you have made various shar share e transactions from FY 10-11 10 till FY 13-14.
14. Please furnish the source of investment and transaction deta details in brief?
Ans. Sir, I don't have any knowledge on shares. I don't have any knowledge in bank account transaction. When we were in financial difficulties lties I approached Shri Pradeep, Dhanuka for help with my husband. Shri Pradeep Dhanuka offered to give me monthly income of Rs 2000-Rs Rs 3000 for which I had to provide my PAN card Xerox, and sign various application forms and provide many blank signed cheque to him.
7.15 Further with respect to clarity of matter brief role of operator and sub operator of the scheme are discussed herewith:
"The operator (entry operator) is a person, who manages the overall scheme of the scam. He is in control of numerous p paper/bogus companies which are utilized for routing of cash. The beneficiaries desiring bogus LTCG/STCL approach the operator. The operator is also in control of some penny stock companies whose shares are listed on a recognized stock exchange. Penny Stock is a stock that trades at a relatively low price and market capitalization and very often, there is no real business being carried on by such companies. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-
bid ITA No. 3725/Mum/2025 13 Santosh Vimlesh Mehta ask spreads, small capitalization and limited following and disclosure.
Sometimes, there are a number of intermediaries who work for the operator. These intermediarias introduce the beneficiaries to the operator or in many ca ses these intermediaries become sub cases agents/operator of the operator and deal with the beneficiaries on their own."
Statement of Pradeep Dhanuka (Exit Provider and sub sub-operator of Banas) director of VRP Financial Services Pvt Limited, Rupak Developers Pvt Ltd and Romy Realty Pvt ltd recorded u/s 131 of 1 T Act dated 24.10.2017.
Q.8 Please state the list of companies/firms in which you or your family members are/were directors/partners Ans.
ns. Sir, I and my wife were directors in companies as below.
1 V R P Financial services Pvt. Lid both me and my wife are directors in this company 2 Rupak Developers Put Ltd Ltd- I was director in this company but resigned 3 years ago.
3 ROMY REALTY PRIVATE LIMITED- my wife was director in this company but resigned 3 years ago, Q.9 Please provide details of business activities of the companies as mentioned by you in your reply to question no.8 in which you or your wife are directors.
Ans. Sir, I am unaware of the activities of VRP Financial services Pvt. Ltd, Rupak Developers Put Ltd, ROMY REALTY PRIVATE LIMITED.
Q.10 In your reply to my question no.9 you have mentioned that you do not know the business activities of the companies in which you or your wife are directors. Please confirm the same and tell me how you do not know the activities of the companies when you or your wife hold the position of director in these companies.
Ans. Sir, I and my wife Smt Nidhi Dhanuka are just dummy directors in the companies nies mentioned in my reply to your question no.8 VRP Financial services Put.Ltd, Rupak Developers Put Ltd, ROMY REALTY PRIVATE LIMITED. I was approached by Shri G K Agrawal ITA No. 3725/Mum/2025 14 Santosh Vimlesh Mehta who told me to provide my details like PAN card copy, Address proof, and signed var various ious documents as suggested by Shri G K Agrawal. All the activities of these companies are controlled by Shri GK Agrawal.
Q.13 From the trading transaction records of VRP Financial services Pvt. Ltd, Rupak Developers Pvt Ltd, ROMY REALTY PRIVATE LIMITED iitt is seen that various share transactions are made. Please furnish the source of investment and transaction details in brief?
Ans. Sir I am not aware of any of the activities of the abovementioned companies. All activities are controlled by Shri GK Agrawal Q.14 Please tell me who used to file the return of income of VRP Financial services Pvt. Ltd, Rupak Developers Pvt Ltd, ROMY REALTY PRIVATE LIMITED.
Ans. Sir, Shri GK Agrawal used to file the return of income of all the above mentioned companies.
Q.15 I am showing you the statement recorded on oath u/s 131 of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamkar, Shweta Shyam Pedamkar, Chandrakant Babu Mohite on 16.10.2017 at 2ND FLOOR, 231, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI MUMBAI-400038.
400038. Please confirm the same.
Ans. Yes Sir I confirm that I have seen the statement recorded on oath u/s 131 of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamkar, Shweta Shyam Pedamkar, Chandrakant Babu Mohite on 16.10.2017 at 2ND FLOOR, 231, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI MUMBAI-400038.
Q.16 Please confirm if you agree with the statement recorded on oath u/s 131 of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamkar, Shweta Shyam Pedamkar, Chandrakant Babu Mohite on 15.10.2017 at 2ND FLOOR, 231, SCINDIA HOUSE, BALLARD ESTATE, MUM MUMBAI-400038.
Ans. Sir, I agree that whatever has been recorded in the above mentioned statements is true.
Q.17 Please tell me why you have used the names of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamkar, Shweta Shgam Pedamkar, Chandrakant Babu Mohite by ITA No. 3725/Mum/2025 15 Santosh Vimlesh Mehta creating bank accounts, DEMAT gecount and done share transactions in their name.
Ans. Sir, I was approached by Shri GK Agrawal who told me to arrange few persons whose bank and DEMAT account can be used for share transaction. Shri GK Agrawal promised tto o pay me Rs. 2,500 every month for each such person who provides their details. Out of this Rs. 2,500 I used to retain Rs.500 with me and give Rs. 2000 to each such person.
Q.18 Please provide me list of persons whose details you have collected for conduc conducting share transaction.
Ans. Sir, the following are the list of persons whose details like PAN, Address proof I have collected to conduct share transaction.
SL No Name PAN
1 Yogeeta Kadam AHUPK9485E
2 Tisha Rane AHRPK8922D
3 Chandrakant BabuMohite ΑΝΚΡΜ2741H
4 Sandesh Pawar AXGPP3868C
5 KashiramKadam AHUPK9461E
6 Shyam Pedamkar AGGPP8468
AGGPP8468F
7 Shweta Pedamkar BGZPP3221L
8 Ghanshyam Kachhawa ARYPK8621
ARYPK8621Q
9 Bhawarpuri Goswami AJCPG3474B
10 Sandesh Mhabdi AMZPM1605
AMZPM1605Q
11 Rajesh Dambre AHAPD8240L
12 Reshma Dambre ARNPD4171D
13 Prashant Sawant APMPS4035A
14 Mangesh Dhotre AJPPD8297E
15 MansiDhotre BFZPQ6082A
16 Himmat Bhatt AGAPB6742
AGAPB6742Q
17 Tushar Rane AJCPR9314H
18 Sharwan Kumar Agarwal ΑΝΕΡΑ8313M
Further, once gain statement of Pradeep Dhanuka (Exit provider and sub operator of Banas) has been recorded on oath in conformity with the arrangement of the scheme of providing Bogus LTCO, STCL or Trading loss using the scrip of Banas Finance Ltd.
Statement of Pradeep Dhanuka (Exit Provider and sub Operator of Banas) director of VRP Financial Services Pvt Limited, Rupak Developers Pvt Ltd and Romy Realty Pvt ltd was recorded u/s 131 of the IT Act, 1961 10.01.2019.
ITA No. 3725/Mum/2025 16Santosh Vimlesh Mehta Q.7 Please state the list of companies/firms in which you or your family members are/w are/were ere directors/partners.
Ans. Sir, I and my wife were directors in companies as below.
M/s VRP Financial services Pvt Ltd Ltd-both both me and my wife were directors in this company, M/s Rupak Developers Pvt Ltd Ltd-II was director in this company.
M/s ROMY REALTY PR PRIVATE LIMITED- my wife was director in this company.
Q.8 Please provide details of business activities of the companies, as mentioned by you above, in. which you were director.
Ars Sir, I am unaware of the business activities of M/s VRP Financial services s Pvt ltd and M/s Rupak Developers Put Ltd.
Q.9 Please state how come you were not aware of business activities of the companies in which you were a director.
Ans. Sir, I was just a dummy director in the companies mentioned above. I was approached by Shri G K Agrawal who told me to provide details such as PAN card copy, address proof etc. I used to just sign documents as suggested/instructed by Shri G K Agrawal. All the activities of these companies were controlled by Shri G K Agrawal Q.10 Please provide contact address and phone number of Shri GK Agrawal Ans. Sir, Office address of Shri G K Agrawal is E E-109, 109, Crystal Plaza, New Link Road, Andheri West, Mumbai His mobile number is 9930522633.
Q.11 Please state how do you know Shri G K Agrawal Ans.. Sir, I know Shri G K Agrawal since last many years. I used to work under him at M/s Shreeji Analytical Lab Limited.
Q.12 I am showing you the statement, recorded on oath u/s 131 of Income Tax Act, 1961, of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamk Pedamkar, ar, Shweta Shyam Pedamkar, ChandrakantBabuMohite on 16.10.2017 at 2ND ITA No. 3725/Mum/2025 17 Santosh Vimlesh Mehta FLOOR, 231, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI MUMBAI-
400038. Please comment.
Ans. Sir I agree with whatever has been stated by PRASHANT SHASHIKANT SAWANT, Shyam Laxonan Pedamkar, Shweta S Shyam Pedamkar and Chandrakant Babu Mohite in their statements recorded on oath u/s 131 of Income Tax Act, 1961, on 16.10.2017 at 2ND FLOOR, 231, SCINDIA HOUSE, BALLARD ESTATE, MUMBAF 400038. All share transactions in name of these people were done by me on instructions of Mr GK Agrawal Sometimes, the transactions were done by Mr GK Agrawal also.
Q.13 Please state why you have used the names of PRASHANT SHASHIKANT SAWANT, Shyam Laxman Pedamkar, Shweta Shyam Pedamkar and Chandrakant Babu Mohite to create bank k /demat accounts for the purpose of share transactions.
Ans. Sir, I was approached by Shri G K Agrawal who told me to arrange few persons whose bank and DEMAT account could be used for share transactions. Shri GK Agrawal promised to pay me Rs. 3,000 (in cash) every month for each such person who provided his/her details. Out of this Rs. 3,000 I used to retain Rs. 1,000 with me and give Rs. 2000/ 2000/- to each such person.
Q.14 Please state the name of persons whose details you have collected for conducting sh share are transaction as mentioned above Ans. Sir, following are the name of the persons whose details like PAN, address proof, signature etc. were misused to conduct share transactions:
SL No Name PAN
1 Yogeeta Kadam AHUPK9485E
2 Tisha Rane AHRPK8922D
3 Chandrakant BabuMohite ΑΝΚΡΜ2741H
4 Sandesh Pawar AXGPP3868C
5 KashiramKadam AHUPK9461E
6 Shyam Pedamkar AGGPP8468
AGGPP8468F
7 Shweta Pedamkar BGZPP3221L
8 Ghanshyam Kachhawa ARYPK8621
ARYPK8621Q
9 Bhawarpuri Goswami AJCPG3474B
10 Sandesh Mhabdi AMZPM1605
AMZPM1605Q
11 Rajesh Dambre AHAPD8240L
12 Reshma Dambre ARNPD4171D
13 Prashant Sawant APMPS4035A
ITA No. 3725/Mum/2025 18
Santosh Vimlesh Mehta
14 Mangesh Dhotre AJPPD8297E
15 MansiDhotre BFZPQ6082A
16 Himmat Bhatt AGAPB6742
AGAPB6742Q
17 Tushar Rane AJCPR9314H
18 Sharwan Kumar Agarwal ΑΝΕΡΑ8313M
Q.15 Please state what business activity was done by Shri GK Agrawal by using the bank/demat accounts of various persons as mentioned by you above.
Ans. Sir, Shri G K Agrawal used to instruct me on phone to purchase and sell shares in the name of persons as mentioned above.
Q.16 Please state the name of shares which you purchased/sold, on instruction of Mr GK Agrawal, in the name of various persons as mentioned above.
Ans. Sir I have done share transaction in various scrips in the names of persons as mentioned above. One scr scrip ip which I remember right now is M/s Banas Finance Ltd.
Q.17 Please state why did you follow the instruction of Shri GK Agrawal and did share transactions in names of various persons as mentioned above.
Ans. Sir my financial condition was weak. In such a situation, when Mr G K Agrawal promised to pay me Rs. 3,000 per month per person for opening of bank/demat accounts for share transactions, I accepted his proposal and started working for him.
Q.18 Please state how funds were arranged to indulge in share transactions in name of various persons as mentioned above.
Ans. Sir, Shri G K Agrawal used to arrange funds. He can only answer in this regard.
Tusar Ramchandra Rane (Past director of Banas Finance when accommodation entr entry y given by selling scrip) of Banas Ba Finarice Limited was also recorded where he was no idea that he was director of Banas Finance Limited. The relevant portion of the statement is reproduced below for ready reference:
Q.10 Please name all the Companies/Firms/Concerns in which you are a Director/Partner/Proprietor?
Ans, Sir, I do No know about this, ITA No. 3725/Mum/2025 19 Santosh Vimlesh Mehta Q.11 As per details form MCA it is seen that you were director of M/s Banas Finance Limited. Please comment on the same.
Ans. Sir, I do not know anything about this, I had provided copy of my PAN card, signed some forms and my address proof, signed blank cheque to Shri Pradeep Dhanuka, who might have me Director of this company and also filed my return of Income.
During the search action statement of Girraf Kishor Agrawal and Tanu Agarwal the promoters and directors of the Banas Finance was taken on 10.01.2019. The relevant portion of the statement is reproduced as below:
> Statement of Tanu Agrawal recorded on oath during the search action on 10.01.2019 Q.10 Please provide details of bu business siness activities of the companies an mentioned by you above, in which you are director.
Ans. Sir, above mentioned entities are in the business of dealing in commodities, securities and financial services.
Q.12 From data available with public domain it iis seen that the share price of BFL (Face Value 10) has risen from below Rs. 10 in Feb 2011 to above Rs.550 in January 2012 and then to Rs. 709.5 in December 2013.
In this regard Please explain the reason for astronomical rise in the price of the scrip BFL during the F.Y. 2012-13 2012 to 2013-
14. Please substantiate your reply with documentary evidence which would bring forth the financial health/prospects of the company.ITA No. 3725/Mum/2025 20
Santosh Vimlesh Mehta Ans: Sir, I don't know anything about it.
Q.13 Please state how come you were not aware of astronomical share price fluctuation of company in which you are director.
Ans: Sir, I would like to say that I was made director in BFL and other entities by my husband Shri Girraj Kishor Agrawal and all affairs related to company are looked aft after er by my husband. In this regard he is right person who can answer your queries.
Statement of Girraj Kishor Agrawal recorded on oath during the search action on 10.01.2019 Q.13 From data available with public domain it is seen that the share price of BFL (Face Value 10) has risen from below Rs. 10 in Feb 2011 to above Rs.550 in January 2012 and then to Rs. 709.5 in December 2013. In this regard please explain the reason for astronomical rise in the price of the scrip BFL during the F.Y. 2012 2012-13 to 2013-14.. Please substantiate your reply with documentary evidence which would bring forth the financial health/prospects of the company.
ITA No. 3725/Mum/2025 21Santosh Vimlesh Mehta Ans: Sir, I would not know the specific reason for rise and fall in the price of the Share of BFL Q.14 Please explain why the scrip price of BFL has risen during 2012-13 13 and 2013 2013-14 14 without any matching financial condition/prospects of the company.
Ans. Sir, as stated earlier! don't know the specific reason for rise and fall of share prices of BFL Q.15 On perusal of trade data of BFL it is seen that most of the entities which are purchasing the scrip of BFL (Exit Providers) are persons who do not have any financial credentials. Below is the list of some of such persons along with their income and amount invested in BFL.
S.N. Name PAN Amount Comments
Invested
1 Chandrakant AΝΚΡΜ274Η 19.4 Cr Night
Mohite Watchman
by
Profession
2 Prashant APMPS403A 5.5 Person is of
Sawant Low means
ITA No. 3725/Mum/2025 22
Santosh Vimlesh Mehta
living in
chawl
3 Shaweta BGZPP3221L 3.7.Cr Person odd
Padamakar jobs and
living in 1
RK
4 Shyam AGGPP8468F 4.4 Cr Person does
Padamkar odd jobs and
Lakshman living in 1
RK
5 Tushar Rane AJCPR9314H Taxi driver
and earn
income 1 to
1.5 Lac per
annum
6 Rupak 14.09 Cr the The
Developers entity does
Private not exist at
Limited registered
address
7 Romy Realty 10.3 Cr The entity
Private does not
Limited exist at the
registered
address
8 VRP 13.7Cr The entity
Financial Put does not
Ltd exist at the
registered
address
Now I am showing you the statement recorded on oath u/s 131 on 16/10/2017 of Shri Chandrakant Mohite, Prashant Sawant, Shaweta Padamakar, Shyam Lakshman Padamkar, Tushar Rane Please offer your comments as to how entities without any creditworthiness are able to invest huge finds by way of providing exit to various ben beneficiaries.
Ans. Sir, I confirm that I have been shown the statements of Shri Chandrakant on Mohite, Prashant Sawant, Shaweta Padamakar, Shyam Lakshman Padamkar, Tushar Rane but I have no idea why are they saying this. I just want to say please produce any evidence which shows any wrong doing from my side.
Q.16 Statement on oath u/s 131 of the IT Act on 10.01.2019 of directors of few Exit Providers in the scrip M/s BFL were ITA No. 3725/Mum/2025 23 Santosh Vimlesh Mehta recorded. Shri Pradeep Dhanuka is director of such Bogus Exit Provider companies companies.. Now I am showing you the statement recorded on oath u/s 131 on 10/01/2019 of Bhrt Pradeep Dhanuka, Director of Rupak Developers Private Limited, Romy Realty Private Limited, V R P Financial Pvt Ltd, please go through the same and confirm that you have ununderstood the contents of the same.
Ans: Yes Sir, I have read the contents but I am not concerned with that.
Q.17 In the statement of Shri Pradeep Dhanuka shown to you above in reply to question no: 8 he has mentioned as below.
Q.8 Please provide details of business activities of the companies as mentioned by you above, in which you are director.
Ans. Sir, I am unaware of the activities of VRP Financial services Pvt. Ltd, Rupak Developers Pvt Ltd, ROMY REALTY PRIVATE LIMITED.
Q.9 Please state how come y you ou were not aware of business activities of the companies in which you are director Ans: Sir, I was just a dummy directors in the companies mentioned abovel was approached by Shri GK Agrawal who told me to provide my details such as PAN card copy, Address proof etc. I used to just sign documents as suggested/instructed by Shri G. K. Agrawal. All the activities of these companies were controlled by Shri G.K. Agrawal.
Please offer your comment Ans: Sir, I have no idea why he is saying like this. Please ask him to produce evidences of my involvement Q.19 It is seen that the company BFL has issued preferential shares at several occasions to many allottees. Please provide documentary evidence/details regarding the same.
Ans. Sir, BFL issued preferential shar shares es two times in F.Y 2010-11 2010 & F.Y. 2012-13 13 (as per my memory) but at present I don't have any details with me.
Q.20. Please provide copy of offer of invitation of preferential allotment of shares done on above two occasions.
ITA No. 3725/Mum/2025 24Santosh Vimlesh Mehta Ans. Sir, at present I don't have details with me.
Q. 21. Please provide copy of resolution of shareholder approving offer of Invitation for preferential allotment of shares done on two times.
Ans. Sir, as stated earlier at present I don't have details with me.
Q.22 Please provide copy of offer letter issued to prospective preference allowtess.
Ans. Sir, at present I don't have details with me.
Q. 23 Please provide details of meeting held by directors of the company with the prospective preferential allotees documentary evidence regarding the same.
Ans. Sir, at present I don't have details with me Q.24. Please provide Details of prospects/future project of the company which was presente presentedd to the preferential allottees to convince them to invest in your company.
Ans. Sir, at present ent I don't have details with me.
Q. 25 Please provide the list of persons who attended the meeting.
Ans.. Sir, at present I don't have details with me.
7.13 Hence, it has been noticed that the whole process of preferential allotment was staged event in which the beneficiaries of bogus LTCG plan with the operators and subscribe to the shares of penny stock for availing entry of bogus LTCG. The company Banas Finance has no financials and no future potential and the whole process of preferential allotment iiss a managed event. The director was not able to substantiate and provide any logical explanation to support the astronomical rise in price of scrip. Further the director was not able to provide any documentary evidence to prove that a meeting between direc directors tors of the company and prospective allottees of equity shares was in fact conducted. Also the director was asked to provide details of content of the presentation which was presented to the prospective allottees which convinced them to invest in their company.
pany. To this question as well the director was not able to give a satisfactory explanation. Further, In the instant case Banas Finance ITA No. 3725/Mum/2025 25 Santosh Vimlesh Mehta Limited the Securities and Exchange of India (SEBI) passed an Penalty order dated 27 April 2018 for irregularity in the trading in the shares and violation of the provisions of the Securities and Exchange Board of India Act 1992. The remarks of the A.O. of SEBI during investigation procedures are as under: "M/s. Handful Investrade P. Ltd. (Noticce 1) had acquired more than 5% of share capital; it was required to make disclosure to the company and the BSE under Regulation 7(1) of SAST Regulations 1997 and under Regulation 13(1) of PIT Regulations, 1992 by January 03, 2011. It was observed that Noticee 1 did not make disclosur disclosure to the stock exchange under Regulation 7(1) of SAST Regulations, 1997. It was also observed that Noticee 2. did not disclose to stock exchanges under Regulation 13(6) of PIT Regulation 1992. BFL failed to make the disclosures received from M/s. Handful IInvestrade nvestrade P. Ltd. to stock exchange. Therefore it was alleged that BFL (Notioce 2) violated Regulations 7(3), 8(3) of SAST Regulations, 1997 and Regulation 13(6) of SEBI (PIT) Regulations, 1992.
Noticee 1 & 2 vide letters dated March 26, 2018 submitted th that they made the disclosures to BSE as require under Regulation 7(3), 8(3) of SAST Regulations, 1997 and Regulation 13(6) of PIT Regulations 1992 and the acknowledgement of the same from the BSE was submitted in support of their claim aim that they complied with wi the disclosure requirement. Noticee 1 submitted copy of its letter dated December 30, 2010 addressed to BSE, which had the acknowledgement seal of BSE dated December 30, 2010. Noticee 2 submitted copy of its letter dated January 2, 2011 addressed to BSEBSE,, which had the acknowledgement seal of BSE dated December 30, 2010. I note that letter dated January 2, 2011 was signed by Giraj Kishore Agrawal, promoter director of BFL. I pursed the documents submitted by the Noticee 2 and note that there is apparent contradiction ontradiction on the face of record. I note that copy of the letter dated January 2, 2011, addressed to BSE regarding disclosure was acknowledged by BSE on December 31, 2010. It is not possible to acknowledge the future dated document on prior date. This cl clearly early establishes that Noticee 2 had fabricated the document as an afterthought to create documentary evidence to demonstrate that they made submission within the prescribed timelines. Given that both the disclosures relate to same event and considering the apparent fabrication of documents, I have taken serious view of the manipulative intent of Noticees' to cover the wrong deeds and deliberately mislead me. Therefore, I do not give any credence to the evidences submitted by Noticees' and consider the evidence on record (confirmation by BSE) that no ITA No. 3725/Mum/2025 26 Santosh Vimlesh Mehta disclosures were made by Noticees as required and thus conclude Noticee 1 and 2 failed to make any disclosure to BSE I note that Noticee 1 was included in the promoter category of BFL pursuant to acquisition of 14, 50,000 shares through preferential allotment at the rate of Rs 20 each including premium of Rs 10 each. This information is material for investors and therefore should be promptly to investors. Further, Noticee did not seem to have any interest to follow up with BSE to ensure such material information was available in public domain. There are various modes of communication through which it could inform BSE. I note from the letter head ad of Noticees that they had fax number and email id. The responsibility of Noticees will not rest with mere submission of documents at BSE. Being listed company, it is also its responsibility to ensure prompt disclosure and cannot Adjudication Order in the th matter of Banas Finance Limited Page 15 of 43 wash of its responsibility by merely submissions documents at BSE. I also take note trading of Noticee 2 was suspended due to non non--compliance of listing agreement.
In view of above, I conclude that Noticee 1 & 2 failed to disclose under SAST Regulations 1997 and PIT Regulations 1992 respectively. Therefore I conclude that the allegation against M/s. Handful Investrade P. Ltd for violation of Regulation 7(1) of SAST Regulations, 1997 and against Noticee 2 for violation of Regulations 7(3), 8(3) of SAST Regulations, 1997 and Regulation 13(6) of PIT Regulations, 1992 stand established."
5.20. As no satisfying logical explanation has been given by either the exit providers or the directors to justify that the trans transactions were genuine without malicious intent and the same has been established in the order of the SEBI dated 27.04.2018, it is established that the scrip M/s Banas Finance Limited has been used to provide bogus Long Term Capital Gains to various beneficiaries."
2.14 The Assessing Officer also took note of the findings of the Securities and Exchange Board of India (SEBI) in relation to the trading in the shares of M/s Banas Finance Ltd. and supplied said report to the assessee. It was observed that SEBI, after conduct conducting ing investigation in some cases involving ITA No. 3725/Mum/2025 27 Santosh Vimlesh Mehta investors in the said scrip, found the allegations of price manipulation to be substantiated.
2.15 Having regard to the material gathered by the Investigation Wing, the statements of the alleged exit providers, the e trading pattern observed on the stock exchange, and the findings recorded in the SEBI investigation, the Assessing Officer concluded that, when examined on the touchstone of human probabilities, the transactions undertaken by the assessee in respect of s sale ale of shares of M/s Banas Finance Ltd. did not represent genuine market transactions. According to the Assessing Officer, the transactions were structured and orchestrated with the object of availing tax-exempt exempt long long-term term capital gains through accommodation n entries.
2.16 Accordingly, by the assessment order dated 22.04.2022 passed under section 147 read with section 143(3) of the Income-tax tax Act, 1961, the Assessing Officer rejected the assessee's claim of long long-term term capital gain amounting to ₹3,98,43,430/- and nd treated the said amount as undisclosed income of the assessee.
3. Aggrieved by the assessment order, the assessee preferred an appeal before the ld "CIT(A)",, challenging both the validity of the reassessment proceedings as well as the addition made on merits. Before the learned CIT(A), the assessee reiterated the submissions advanced before the Assessing Officer and asserted that the transactions relating to purchase and sale of ITA No. 3725/Mum/2025 28 Santosh Vimlesh Mehta shares of M/s Banas Finance Ltd. were genuine and carried out in the normal course of business.
3.1 It was contended that the statutory conditions prescribed for claiming exemption under section 10(38) of the Act had been duly satisfie satisfied, d, namely, that the shares were held for a period exceeding one year, that they were listed and sold through a recognised stock exchange, and that security transaction tax (STT) was duly paid on such sale transactions.
3.2 The assessee further relied upon various judicial precedents and submitted that the genuineness of the long long-
term capital gain stood established by documentary and circumstantial evidence, including transactions routed through banking channels, trading on a recognised stock exchange, contemporaneous emporaneous documentation, absence of any unaccounted cash transactions, and the failure of the Assessing Officer to afford an opportunity of cross cross-examination of third parties whose statements were relied upon. It was also emphasised that no material evid evidence ence had been brought on record to demonstrate manipulation of the scrip by the assessee.
3.3 The assessee further submitted that in the case of M/s Banas Finance Ltd., the Assessing Officer had made additions under section 68 of the Act in respect of amou amounts received through preferential allotment; however, the Tribunal, in ITA No. 1096/Mum/2016, had deleted the said additions, thereby ITA No. 3725/Mum/2025 29 Santosh Vimlesh Mehta holding the preferential allotment transactions to be genuine. It was contended that once the investment itself had been judicially udicially accepted as genuine, the consequential sale thereof could not be treated as bogus.
3.4 It was also pointed out that the investigation conducted by SEBI covered the period from November 2010 to September 2011, whereas the assessee's sale transacti transactions took place in February and March 2012, which was outside the period of investigation. The assessee further submitted that her sales occurred after the share prices had already declined substantially from their peak, and therefore, the timing and pattern n of sale did not conform to the alleged modus operandi of price manipulators, who ordinarily exit at peak prices to maximise gains.
3.5 The assessee further submitted that the SEBI adjudication order, which penalised certain entities for alleged price manipulation ipulation in the scrip of Banas Finance Ltd., did not name or implicate the assessee in any manner. It was contended that the Assessing Officer had erroneously extended the findings of the SEBI order to the assessee without any factual foundation. It was a also lso highlighted that the continued listing of the company on a regulated exchange such as the Bombay Stock Exchange, and the absence of any regulatory action against the company itself for price rigging, supported the legitimacy of its operations and the ttransparency ransparency of trading in its shares.
ITA No. 3725/Mum/2025 30
Santosh Vimlesh Mehta
3.6 It was also reiterated that despite specific requests, no
opportunity of cross
cross-examination
examination of the persons whose
statements were relied upon by the Assessing Officer was granted, in violation of the principles of n natural atural justice.
3.7 After considering the submissions of the assessee and the material placed on record, the learned CIT(A) accepted the assessee's contentions. The learned CIT(A) held that the rise in the share price of the company was supported by its ffinancial fundamentals. In this regard, the learned CIT(A) noted that the company's turnover had increased from ₹ ₹2 lakhs in 2010-11 to ₹7 Assessment Year 2010 7 crores in Assessment Years 2011-12 12 and 2012 2012-13, 13, reflecting substantial revenue growth, which could reas reasonably onably enhance investor confidence and influence market price. It was observed that share price movements are driven by multiple factors, including investor sentiment, and that the growth in revenue and future prospects of the company could not be disregar disregarded. The learned CIT(A) also took note of the fact that the company continued to remain listed on the Bombay Stock Exchange and had even acquired another listed entity, thereby lending credence to its commercial legitimacy. The relevant finding fi of the Ld. CIT(A) is reproduced as under:
"11.
11. Now, coming to the observations of the Ld.AO that the price of the shares is not supported by the fundamentals of the company. The appellant has submitted the financials of this company and has contended that when this ccompanyompany started its operation in A.Y 2010 2010-11, 11, the turnover was only Rs. 2 lakhs which has increased to Rs. 7 crores in the AY 2011 2011-12 and ITA No. 3725/Mum/2025 31 Santosh Vimlesh Mehta 2012-13
13 showing revenue growth at 350 times. This growth in revenue has increased investor confidence which led to the rise in the price of these shares. The price rise on the stock exchange depends on multiple factors and mostly it is driven by the investors' sentiment. In this case, the substantial rise in revenue along with future prospects of the company has contributedd to the rise in price of this alleged share. Regarding the authenticity of Banas Finance, the appellant has submitted that this company is still listed on BSE and is regularly traded. Further, recently it has acquired another listed company, Proaim Enterprises rises Ltd. From the details submitted by the appellant, I find that there is substantial force in the appellant's contention and hence the same cannot be brushed aside."
3.8 The learned CIT(A) further placed reliance on the order of the Tribunal dated 02.01.2019 in the case of M/s Banas Finance Ltd. in ITA No. 1096/Mum/2016 for Assessment Year 2011-12, 12, wherein the preferential allotment made by the company was held to be genuine.
3.9 The learned CIT(A) also concurred with the assessee's submission that her name did not figure in the SEBI order dated 27.04.2018, nor was there any reference to her therein. It was further observed that the period considered by SEBI for investigation did not coincide with the period during which the assessee had sold the sha shares.
3.10 Further, the Ld. CIT(A) refer refered to the statement of the assessee which was rec recorded orded under section 131 of the Act A on 11/01/2019 as part of a survey conducted under section 133A of the Act ct on 10/01/2019 on M/s Mehta Sawant Raj Hanwant Raj and observed ved that in said statement the assessee stated that investment was made by her late husband Sh Shri Vimlesh Kumar Mehta. It was noted that there was no admission or ITA No. 3725/Mum/2025 32 Santosh Vimlesh Mehta material in the said statement to suggest that the transactions were non-genuine, genuine, and therefo therefore, re, no adverse inference could be drawn against the assessee.
3.11 Relying upon various judicial precedents and upon an overall appreciation of facts and evidence, the learned CIT(A) concluded that the transactions of purchase and sale of shares of M/s Banas Finance Ltd. could not be characterised as bogus accommodation entry transactions, and accordingly deleted the addition made by the Assessing Officer.
4. We have carefully considered the rival submissions and perused the material available on record. It is an undisputed position that before the learned CIT(A), the assessee had challenged the assessment both on the validity of the reassessment as well as on merits. However, the learned CIT(A) has not rendered any finding on the validity of the reassessment.
ment. Before us, the Revenue has confined its challenge only to the deletion of the addition on merits. The assessee has neither filed a cross cross-appeal appeal nor a cross-objection cross nor invoked Rule 27 of the Income Income-tax tax (Appellate Tribunal) Rules, 1963. Consequently Consequently,, the validity of the reassessment is not an issue arising for our consideration. The sole question before us is whether the learned CIT(A) was justified in deleting the addition made on merits.
4.1 Upon an overall appreciation of facts and evidence, we are re unable to concur with the findings of the learned CIT(A).
ITA No. 3725/Mum/2025 33Santosh Vimlesh Mehta The assessee has primarily relied upon documentary evidences such like share application dated 11/12/2010 to the M/s Banas Finance Ltd for allotment of preferential share, payment for investment in preferential allotment by way of banking channel, copy of preferential allotment letter dated 01/01/2011 issued by the company, Copy of De De--mat account, copy of broker's note issued by the RBK Share Broking Ltd , Copy of Bank statement in which sale am amount ount was received etc., to establish the genuineness of the transactions. The Ld. CIT(A) also concurred with assessee and observed that the assessee had furnished all the documentary evidences to substantiate the transactions and the Assessing Officer has not pointed out any discrepancy in the document furnished by the assessee. However we do not agree with the above finding of the Ld. CIT(A). Tho Those se documents merely constitute a paper trail generated in the ordinary course of such transactions and, by themselves, mselves, do not conclusively establish the genuineness of the claim. It is well settled that transactions routed through banking channels or supported by statutory documentation are not sacrosanct and must still withstand the test of surrounding circumstan circumstances ces and human probabilities. The Hon'ble Supreme Court in the case of M/s. Kachwala Gems, Jaipur vs Joint Commissioner of Income Tax, Jaipur is 288 ITR 10 (SC) has held that making payment through banking channel is itself is not a sacrosanct to establish the genuineness of the transaction. Similarly copy ITA No. 3725/Mum/2025 34 Santosh Vimlesh Mehta of the De-mat mat account or copy of the broker's note do not establish that transaction was genuine as a same are issued as part of paper trail of transactions. Accordingly Accordingly,, we reject the contention of the a assessee that above mentioned documents substantiate the genuineness of the transaction.
4.2 The next contention of the assessee that there is no mention of the assessee in SEBI investigation and period of the such investigation is not same to the period of sale of shares by the assessee.
4.3 Before us ld department representative has filed a cop copy of adjudication order issued by the SEBI, which has been held by the Ld. CIT(A) as not related to the assessee. In this 43 pages order, the SEBI has mentioned that based on the internal alert investigation was carried out in the irregularities in the trading ding in the shares of Bannas finance Ltd on following entities:
1. Handful Investrade P Ltd (PAN: AAACH2018Q)
2. Banas Finance Ltd(PAN: AAACB2236J)
3. Ms. Sarita Chandak (PAN:ACEPL0255A)
4. Rajat Share Broking Pvt. Ltd(PAN: AAACR2695B)
5. Gurudev Inve Investment stment HUF (Prop Jayesh Narendra Kesharia) (PAN:AAEHJ1610D)
6. Rahul Kumar Agarwal (PAN:AFNPA4015R)
7. Bhanwarlal Bahulal Suthar (PAN: ANVPS7451B)
8. Hetal Nilesh Gor (PAN: ALDPG9625M) ITA No. 3725/Mum/2025 35 Santosh Vimlesh Mehta 9 Anmol Finance Company (Rajesh Tukaram Dambre) (PAN:AHAPD8240L) 4.4 The report, further notes that company M/s Banas Finance Ltd allotted 99 lakhs equity shares at a price of ₹ 20 per share on preferential basis to 49 entities. The assessee is also one of the person who was allotted shares on preference basis at the rate of Rs.20 per share. For ready reference, the relevant observation of the SEBI adjudicator is reproduced as under:
"16.
16. Before proceeding with the charges against Noticees, it iis relevant to note that during the period November 03, 2010 to September 09, 2011 (IP) the price of the scrip increased from Rs. 9.37 to high of Rs. 292.60 (hitting circuit filter limit on all trading days) registering an increase of Rs.283.23. (i.e. 3,022.73%).
.73%). During the same period, BSE Sensex declined from 20,465.74 to 16,866.97 registering a decrease of 3,598.77 points (i.e. 17.58%). I also note that there was no trading prior to November 3, 2010. The first trading day was on November 3, 2010 for 50 shshares ares at a price of Rs 9.37. The next trading day was on February 4, 2011 i.e. after a gap of 3 months. Thereafter, the price of the scrip touched upper circuit limit on 85 consecutive trading days till June 13, 2011 with only one trade for 50 shares on eaceach h day. There were 5 trades on June 14, 2011 and scrip touched upper circuit limit for next 56 consecutive trading days till September 7, 2011 with only single trades for shares ranging from 1 share to 50 shares. Thus, it is evident that the scrip is highly illiquid scrip. The price of the scrip from February 4, 2011 was Rs 9.83 and increased to Rs 281. 3 on September 7, 2011. Thus, I note that there were trading on June 14, 2011, September 8 and 9, 2011 where in 17 trades, 7 trades and 25 trades for 1050 sh shares, ares, 754 shares, 1506 shares respectively."
4.5 The report observed that shares of Bannas finance Ltd were manipulated by M/s Anmol Finance through connivance of sh Pradeep Dhanuka and sh Giriral Agrwal. The relevant ITA No. 3725/Mum/2025 36 Santosh Vimlesh Mehta observations in the report are reproduced uced for ready reference as under:
"70.
70. It is noted during the investigation period that, only 20 sellers sold entire traded quantity of 9,595 shares, during the investigation period. Noticee No. No.-9, 9, M/s Anmol Finance Company (herein after referred as 'Anmo 'Anmol Finance') was the top seller with sale quantity of 6,490 shares.
71. As mentioned earlier, during the investigation period, 144 trades contributed to positive LTP of Rs. 287.08. Of these 144 positive LTP trades, 140 trades contributed to NHP of Rs. 283.23 and all of them were first trades. Out of 140 NHP trades, for 118 trades (i.e.84.28% of NHP trades), Anmol Finance was counterparty (seller) to the trades. Of the 118 NHP trades (on 118 days) where Anmol Finance was the seller, on 116 days, Anmol wass the only entity placing sell orders in small quantity (i.e. at minimum lot of 50 shares) which was much lower than the quantity for which buyers were available and during these 116 trading days, there were no trades other than these 116 trades.
By virtue of these sell orders placed by Anmol, the price of the scrip could go by Rs. 186.78. From the above, it is apparent that the supply of shares (delivery) in the scrip was artificial and majorly controlled by Anmol.
72. From the above, it is clear that Anm Anmolol Finance sold shares in the market in small quantities, with an intention for registering price on the stock exchange. Even though there is no evidence to suggest that buyers and sellers are connected, but the pattern suggests that it was artificially su supply pply of shares for the purpose of registering higher price on the stock exchange on daily basis.
Connection between promoters and M/s Anmol Finance
73. Anmol Finance Company is a sole proprietary firm and Shri. Rajesh Tukaram Dambre is the sole proprieto proprietor.
r. Anmol Finance was holding 11,500 shares in demat at the beginning of the Investigation period. It is observed that Anmol Finance had purchased 11,500 shares (which constitutes 3.83% of paid up capital of the company) through off market from the promoter namely Alefiya Shabbir Khorakiwala on August 17, 2010.
74. It is noted that Anmol was trading through JRG Securities P. Ltd (JRG) and SPS Share Brokers P. Ltd during the Investigation period. JRG vide its submissions dated January 12, 2015 stated that entity tity namely Shri. Pradeep Dhanuka was placing orders on ITA No. 3725/Mum/2025 37 Santosh Vimlesh Mehta behalf of Anmol Finance and they had provided transcripts of recordings of order placement in the trading account of Anmol Finance to suggest that Shri. Pradeep Dhanuka was placing orders for Anmol Fi Finance Company.
75. It is noted that Shri. Pradeep Dhanuka and Shri. Girraj Agrawal (Director, Compliance Officer & CFO of Banas Finance) were common directors during the period under investigation, in two companies namely Axon Infotech Ltd. (listed compan company at BSE), Five X Finance & Investment Ltd. (listed company at BSE), therefore both are connected to each other.
76. It is noted that Anmol sold shares in small quantities although buy orders in large quantities at higher rates/upper circuit filter rates despite holding larger number of shares as explained above. It is clear that Mr. Pradeep Dhanuka using the account of Anmol had intentionally sold mi minimum imum lot of 50 shares despite of pending buy orders for large quantities to prop up the price (ie. NHP of Rs 186.78 (65.95% of total NHP) and 84.28% of instances of NHP trades).
77. From the above, it is apparent that Anmol was consistently marking the price in the market by selling shares in small quantities and manipulated Had M/s Anmol finance has not sold shares the scrip price. upper circuit filter price, the price consistently in smaller quantities at of the scrip would not have moved up substantially from Rs. 9.37 to Rs. 281.20. Such artificial scrip price, mainly benefits the promoters and large shareholders.
olders. Since the orders were placed by Shri. Pradeep Dhanuka and he was connected to the Director, Compliance Officer & CFO of the company, they connived each other and artificially raised the scrip price through controlled supply.
78. 1 note from the de demat mat account statement of Amol that it had received 11,300 shares on February 15, 2011 from Rajesh Tukaram Dambre and was already holding 200 shares before the transfer. From the pattern of trading by Noticee read in conjunction with the off market transfer and controlled sale consistently for 118 trading days with same pattern established beyond doubt the manipulative intent to increase the price. Further, due to close connection with promoter of BFL coupled only 240 shareholders, it is possible to control the supply of shares as shares were closely held by few shareholders. The fact that despite exponential increase in share price, none of the existing shareholders of the company did not find it attractive to sell the shares and make gains clearly hints at complete control the ITA No. 3725/Mum/2025 38 Santosh Vimlesh Mehta company had over the shareholders. Such an inference is apparent due to the direct involvement of promoter in controlled supply of shares and devising a deceptive scheme with full knowledge of the list of shareholders available and acc accessible to them. Further, many of the investors were also holding shares in physical form which further facilitated company to increase its price effortless without active involvement or connivance with any buyers. The positive corporate news in public dom domain ain will create sufficient buying pressure from gullible investors who would crave for shares to participate in the price rally. The details of the total sell transactions are as follows ..............................
4.6 The report finally concluded that price of the shares of company were manipulated manipulated.. The relevant finding is reproduced as under:
"79. In view of above, I conclude that the price manipulation was planned and executed by Anmol (promoter's related entities) through h complete control over the supply of shares which smoothly facilitated sustenance of consecutively hit upper circuit limit for 116 trading sessions. Thus, I conclude that the allegations against Noticee no. no.-9, 9, Anmol Finance Company for manipulating the sc scrip rip price and contributed to LTP & NHP through controlled sale orders (in minimum market lot) at upper circuit price, for registering trades on 116 trading days at BSE in violation of Regulation 3 (a), (b), (c), (d), 4 (1), 4 (2) (b) & (e) of PFUTP read wi with th section 12A (a), (b) and (c) of SEBI Act, 1992 stand established.
established."
4.7 The investigation conducted by SEBI has conclusively demonstrated that the price rise in the shares of M/s Banas Finance Ltd. during the relevant period was not a result of genuine market forces but was the outcome of systematic and deliberate price manipulation orchestrated by entities connected with the promoters of the company. Although the assessee is not specifically named in the SEBI adjudication order, the report categorically holds that the prevailing market price during the investigation period was artificial and ITA No. 3725/Mum/2025 39 Santosh Vimlesh Mehta manipulated. The assessee, having acquired shares by way of preferential allotment from the promoter himself, was required to satisfactorily explain the commercial rrationale ationale for such investment and the extraordinary appreciation in share value. The assessee has failed to discharge this onus.
4.8 The company recorded net profit of Rs. 0.30 lakhs, Rs. 8.1 lakhs and Rs. 2 lakhs for financial year ended on March, 2010, March, arch, 2011 and March , 2012. The assessee explained that price rise in share of Bannas Finance ltd was due to increase in profit of the company. This explanation of assessee is not acceptable particularly for the reason that price rise in the shares of Bannas nnas Finanacial Ltd is attributable to the manipulation of the prices. In the subsequent period of financial year ending March 2012 also the decrease in the profit as compared to profit in financial year ending March 2011 and therefore price rise in shares during the financial year 2011-12 12 is also not attributable to the financials of the company. The explanation advanced by the assessee that the price rise was supported by the financial performance of the company is not borne out from the record. The finan financial results of the company do not justify the phenomenal increase in share price, either during the investigation period or thereafter. In such a situation the explanation of the assessee that price rise was attributable to the financial of the company is rejected.
ITA No. 3725/Mum/2025 40Santosh Vimlesh Mehta 4.9 Further, we note that the Securities and Exchange Board of India (SEBI) has specifically recorded findings regarding the role of the promoter of M/s Banas Finance Ltd., Shri Giriraj Agrawal, in the manipulation of the share prices of the said company. It is an admitted position that the assessee acquired the shares through preferential allotment directly from the said promoter in a private arrangement. In these circumstances, the burden squarely lay upon the assessee to satisfactorily esta establish the genuineness of the preferential allotment by producing the said promoter or by otherwise substantiating the commercial bona fides of the transaction. The assessee has failed to discharge this onus.
4.10 This failure, when viewed in conjunction wi
with the
statements of Shri Giriraj Agrawal, Shri Pradeep Dhanuka, and other identified exit providers, leads to a reasonable inference that the assessee acquired the shares under a pre pre-arranged understanding with the expectation of earning tax tax--exempt long-
term erm capital gains at artificially manipulated prices.
4.11 The reliance placed by the assessee on the decision of the Tribunal in the case of M/s Banas Finance Ltd. (supra), wherein the addition made under section 68 of the Act was deleted, is misconceived.. In the said decision, the Tribunal examined the receipt in the hands of the company and held that the amount could not be treated as unexplained cash credit of the company, as it represented funds received from the assessee. However, the ITA No. 3725/Mum/2025 41 Santosh Vimlesh Mehta Tribunal did not adjudicate upon the issue whether the payment made by the assessee was part of an arrangement designed to generate bogus long--term term capital gains. Further, the statements of the promoters and other connected persons, which form the foundation of the presen presentt addition, were neither in issue nor examined in the said proceedings.
4.12 Accordingly, the said decision does not advance the assessee's case and cannot be construed as a judicial endorsement of the genuineness of the impugned transactions in the hands of the assessee.
4.13 The plea that the transactions were executed on a recognised stock exchange through an anonymous, screen screen-based system also does not advance the assessee's case, as regulatory authorities themselves have found that such platforms can be and were misused for manipulation.
4.14 The learned counsel for the assessee placed reliance on the decision of the co-ordinate ordinate Bench of the Tribunal in the case of Nakchhatra Vimlesh Kumar Mehta in ITA Nos. 3726 and 3777/Mum/2025. However, we are of th thee considered view that the said decision does not advance the assessee's case, as each case must necessarily turn on its own facts and attendant circumstances.
4.15 .The decision of the Hon'ble Calcutta High Court in PCIT vs Swati Bajaj (2022) 139 taxmann.
taxmann.com com 352 constitutes a leading ITA No. 3725/Mum/2025 42 Santosh Vimlesh Mehta authority on the tax treatment of alleged Long Term Capital Gains (LTCG) arising from transactions in penny stocks and on the scope of enquiry under section 68 of the Income Income-tax Act, 1961. The judgment firmly reiterates that form orm cannot prevail over substance and that tax authorities are entitled entitled--and indeed duty-bound--to to pierce the apparent legality of documents where surrounding circumstances indicate a colourable device.
4.16 At the heart of the ruling is the principle that mere documentary compliance is not conclusive conclusive. The Hon'ble High Court held that production of contract notes, demat statements, bank entries, STT payment details, and proof of transactions through recognised stock exchanges does not automatically establish genuineness. Such documents only show the apparent nature of transactions. Where shares of obscure or financially weak companies exhibit astronomical price rise within a short span, uncorrelated with market trends or company fundamentals, the assessee must offer a credible, commercially rational explanation.. In the absence of such explanation, the statutory burden under section 68 remains undischarged.
4.17 The Hon'ble High Court reaffirmed the continuing vitality of the doctrines laid down in CIT v. Durga Prasad More and Sumati Dayal v. CIT,, holding tthat human conduct, normal business behaviour, and preponderance of probabilities are decisive tools in tax adjudication. Direct evidence of collusion or price manipulation is rarely available in such cases. Therefore, tax ITA No. 3725/Mum/2025 43 Santosh Vimlesh Mehta authorities and courts are entitle entitledd to draw reasonable inferences from circumstantial evidence, including trading patterns, volume behaviour, timing of price rise and fall, lack of economic justification, and the assessee's financial profile.
4.18 A significant aspect of the judgment is it itss approval of the "working backwards" investigation methodology adopted by the Department. The Hon'ble High Court rejected the contention that investigation must begin with the assessee. It held that, given the scale and organised nature of accommodation e entry ntry operations, the Department was justified in first identifying penny stock companies, entry operators, brokers, and the modus operandi, and thereafter examining individual beneficiaries. Such an approach was described as pragmatic, proportionate, and consistent onsistent with the objective of uncovering large large-scale tax evasion.
4.19 On procedural fairness, the Hon'ble High Court clarified that non-furnishing furnishing of the investigation report or denial of cross cross-
examination does not ipso facto vitiate the assessment. The decisive test is prejudice prejudice. Where the assessee is not specifically named in third-party party statements and additions are not based solely on such statements but on independent analysis of facts and circumstances, the absence of cross cross-examination examination is, at best, a curable irregularity. Natural justice, the Court emphasised, is flexible and cannot be stretched to paralyse legitimate tax ITA No. 3725/Mum/2025 44 Santosh Vimlesh Mehta enquiries, especially in matters involving public revenue and systemic abuse.
4.20 Finally, the judgment of Hon'ble High Court cla clarifies that claims of being a "small investor," reliance on broker advice, or absence of SEBI action do not dilute the assessee's statutory burden. Investment decisions in high high-risk risk penny stocks demand explanation grounded in commercial logic. Where such llogic is absent and gains appear fantastical, the inference of a sham transaction is legally sustainable.
4.21 The disallowance made by the Assessing Officer in present case is not founded merely on statements of third parties but is based on a cumulative c consideration onsideration of the investigation findings, abnormal price movements, illiquid trading patterns, financial fundamentals of the company and the failure of the assessee to offer a credible explanation consistent with ordinary human conduct. Applying the well well-settled settled doctrine of human probabilities and preponderance of probabilities, we are of prime- facie view that the transactions in question do not represent genuine investment activity.
4.22 In the present case, the assessee has failed to satisfactorily explain the role of the promoter of the company in the process of price manipulation, as well as the commercial justification for acquiring the shares through preferential allotment by way of a private arrangement. No credible explanation has been offered as to how the assessee identified the scrip as a potential investment ITA No. 3725/Mum/2025 45 Santosh Vimlesh Mehta opportunity in the absence of any cogent financial fundamentals of the company. Unlike certain technology technology-driven driven or start-up start enterprises, where elevated valuations may be supported by identifiable growth drivers or future prospects, no such justification has been demonstrated in the case of M/s Banas Finance Ltd.
4.23 In the facts and circumstances of the case, prayer of the assessee ssessee and in the interest of justice, we feel it appropriate to restore the mater back to the file of the AO for providing one more opportunity to the assessee to produce the promoter(s) of the BFL including Shri Giriraj Agrawal or Shri Pradeep Dhanuka, Dhanuka through whom the assessee purchased share under preferential allotment route, for justification of iits ts claim of genuineness of the purchase transaction.
ransaction. The ld AO is at liberty to carry out enquiry form the exit providers in the case of assessee but in cas case of any observation adverse to the assessee, then assessee shall be provided due opportunity to rebut those observations. The Assessing officer shall decide the issue in dispute in accordance with.
5. In view of the aforesaid discussion, we set aside the finding of the Ld. CIT(A) on the issue in dispute and restore the matter back to the file of the ld Assessing officer. The grounds ground of the Revenue's appeal are accordingly allowed for statistical purpose.
purpose ITA No. 3725/Mum/2025 46 Santosh Vimlesh Mehta
6. In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced nounced in the open Court on 09/01/2026.
/01/2026.
Sd/- Sd/
Sd/-
(ANIKESH BANERJEE
BANERJEE) (OM
OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 09/01/2026
Disha Raut, Stenographer
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai