IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE JUSTICE (RETD.) C V BHADANG, PRESIDENT &

MS PADMAVATHY S, AM I.T.A. No. 4544/Mum/2025 (Assessment Year: 2014-15)

Yogeshkumar Pravinkumar Shah, Asstt. CIT-19(3), 25, harhar Wala Building, S.V.P. Piramal Chamber, Lalbaug, Road, Opp. Moti Talkies, Vs. Mumbai-400012.

Mumbai-400004.

PAN: AMZPS6493A Appellant) : Respondent Assessee / Appellant by : Shri K. Gopal & Om Kandalkar, AR Revenue / Respondent by : Shri Swapnil Choudhary, CIT-DR Date of Hearing : 16.09.2025 Date of Pronouncement : 22.10.2025 O R D E R Per Padmavathy S, AM:

This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 03.07.2025 for Assessment Years (AY) 2014-15. The assessee raised the following grounds of appeal:

“GROUND 1: Addition of the sale proceeds of the share u/s 68 of the Act.

Learned Assessing Officer committed error of law and of facts in not appreciating that the Appellant had earned tax free long term capital gain u/s.

10(38) by selling his shares held for more than 20 to 28 months on Stock Exchange Platform and has duly paid STT levied by said Stock Exchange. Learned Assessing Officer generally relied upon the statements given by some Vipul Bhatt or Anil Khemkaand nowhere learned AO could prove that assessee was part of the modus operandi or he was in any way connected to Vipul Bhatt or Anil Khemka to any other entity involved in this racket. Even Appellant's request for cross examination of Vipul Bhatt was also grossly rejected thereby depriving appellant of natural justice. Further addition is made u/s. 68 whereas Appellant has duly explained the whole capital gain and therefore the question of unexplained cash credit does not a rise at all. Hence addition of Rs. 68,98,020/- deserves to be deleted.”

2. The assessee is an individual and filed the return of income for AY 2014-15 on 30.09.2024 declaring total income of Rs. 40,15,350/-. The case was reopened by issue of notice under section 148 of the Act for the reason that the assessee has sold share of alleged penny stock M/s Sunrise Asian Ltd. to the tune of Rs. 68,98,020/-. The assessee submitted various details before the Assessing officer (AO) with regard to the sale of shares. The AO after perusing the details held the impugned transaction as non-genuine and accordingly added the entire capital gain as unexplained under section 68 of the Act. The AO also added commission on the sale of alleged penny stock to the tune of Rs. 1,37,960/-. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) confirmed the addition made by the AO by holding that “5. On the other hand, from the assessment order, it is noted that the case was reopened on account of suspicious transactions in penny stock companies— specifically, the sale of shares in Sunrise Asian Ltd. The assessee acquired 14,000 shares of Sunrise Asian Ltd. in September 2011 for Rs.2,80,000 at Rs.20 per share, eventually selling them between August 2013 and March 2014 for a staggering Rs.68,98,020 at an average of Rs.492.72 per share. This represented an increase of over 2456% in value within 22-29 months—an outcome deemed highly improbable under normal market conditions and defying the test of human probability.

5.1. The investigation, led by the Kolkata Directorate and supported by similar inquiries in Mumbai and Ahmedabad, uncovered a widespread modus operandi used to fabricate long-term capital gains (LTCG) and short-term capital losses (STCL). The scheme revolved around routing unaccounted money into beneficiaries' books under the guise of LTCG through structured transactions in penny stock companies. Shares were typically acquired via preferential allotment, off-market transfers, or amalgamations—routes that allowed beneficiaries to receive shares at a low cost before manipulating share prices throug