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2026 Supreme(Online)(ITAT) 4434
INCOME TAX APPELLATE TRIBUNAL (NAGPUR BENCH)
Pawan Singh, Judicial Member, Khettra Mohan Roy, Accountant Member
Rajesh Sarda – Appellant
Versus
ACIT, Central Circle – 2(2), Nagpur – Respondent
ITA No. 44/NAG/2022 (AY : 2015-16)
For the Appellants/Petitioners:K.P. Dewani, Advocate
For the Respondents: Pankaj Kumar, CIT–DR
Documented share transactions with contract notes, demat, bank proofs, STT payment and sales on stock exchange cannot be disbelieved as bogus merely on general investigation reports or uncorroborated statements without cross-examination opportunity.
Headnote:(A) Income Tax Act, 1961 - Sections 10(38), 68, 69C, 132, 153A, 254(1) - Long term capital gain on sale of shares - Assessee claimed exemption u/s 10(38) on gains from penny stocks - AO treated gains as unexplained credit u/s 68 and added alleged commission as unexplained expenditure u/s 69C based on investigation wing report and statements recorded behind back - CIT(A) confirmed relying on search statement - Tribunal held transactions genuine as assessee furnished documentary evidence (contract notes, demat statements, bank statements, STT payment) not disputed by authorities; investments accepted in earlier year; sales through recognised exchange; no incriminating material found in search; statements not provided for cross-examination violating natural justice; following coordinate bench and High Court precedents on similar scrips, deleted additions. (Paras 5, 10-17)
(B) Evidence and Procedure - Principles of natural justice - Statements recorded behind back without opportunity of cross-examination or supply of copies cannot form basis for addition - General investigation reports without specific nexus to assessee's transactions insufficient to discredit documented share transactions. (Paras 5, 10)
(C) Precedents - Jurisdictional High Court decisions prevail over non-jurisdictional - Where assessee proves acquisition, holding and sale through banking channels and stock exchange with STT, mere suspicion of price manipulation without evidence against assessee or broker does not justify treating gains as bogus. (Paras 14-15)
Facts of the case:
Assessee, engaged in trading, declared income claiming long term capital gain on sale of shares as exempt u/s 10(38). Search conducted; AO added sale value as unexplained credit u/s 68 and commission u/s 69C relying on investigation wing info on penny stocks. CIT(A) confirmed. Assessee appealed to Tribunal with evidences.
Findings of Court:
Additions of Rs.18,84,83,706/- u/s 68 and Rs.56,54,511/- u/s 69C deleted; long term capital gain allowed as exempt u/s 10(38).
Issues: Whether documented share transactions could be treated bogus merely on investigation reports and uncorroborated statements; whether natural justice violated by non-supply of adverse material; entitlement to exemption u/s 10(38).
Ratio Decidendi: Assessee discharged onus with unchallenged evidences of genuine transactions through recognised channels; authorities failed to bring cogent contrary evidence or nexus; reliance on general reports and backdoor statements impermissible; consistent with Tribunal and High Court rulings upholding similar claims.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. assessee challenges additions under sections 68 and 69c (Para 1 , 2) |
| 2. background of search, assessment, and penny stock allegations (Para 3 , 4) |
| 3. assessee proves genuine ltcg with documents and precedents (Para 5 , 6) |
| 4. revenue defends additions based on search statements (Para 7 , 8 , 9) |
| 5. tribunal accepts ltcg genuineness following jurisdictional precedents (Para 10 , 11 , 12 , 13 , 14) |
| 6. additions deleted; appeal allowed (Para 15 , 16 , 17 , 18) |
Order under section 254(1) of Income Tax Act
PER PAWAN SINGH JUDICIAL MEMBER:
1. This appeal by assessee is directed against the order of ld. CIT(A) – 3, Nagpur dated 11.02.2022 for Assessment Year (A.Y.) 2015–16. The the assessee has raised following grounds of appeal:
“1. That on the facts and circumstances of the case, the Appellate Order passed by CIT (A)-3, Nagpur is bad in law and therefore deserves to be quashed and set aside.
2. That on the facts and circumstances of the case, the Ld. CIT (A) - 0 3. Nagpur erred in passing ex-parte order without affording enough opportunity of being heard to the Appellant
3. That on the facts and circumstances of the case, Ld. Pr. CIT has erred in relying solely on the findings of Assessing Officer for adjudicating the Appellate Order.
4. That on facts and circumstances of the case, Ld. CIT (A)-3, Nagpur erred in confirming addition of Rs. 18,84,83,706/- and Rs. 56,54,511/– under section 68 and 69C of the 1. T. Act, 1961 respectively. The addition is arbitrary, unjustified and deserves to be deleted.”
2. Further, the assessee filed following modified / revised ground of appeal along with the application to accept the revised / modified ground which are as under:
“1. The learned A.O. erred in making addition at Rs. 18,84,83,706/-being sale value of shares as income from unexplained sources u/s 68 of the Act. The addition made is unjustified and arbitrary.
2) The learned A.O. erred in making addition on account of unexplained expenditure u/s 69C of the I.T. Act at Rs.56,54,511/- in the absence of any evidence on record merely on basis of surmise and conjecture. The addition made is unjustified and arbitrary.
3) The learned A.O. and Hon'ble CIT(A) ought to have held that all the conditions as stipulated u/s 10(38) are complied with and hence surplus on sale of shares is exempt and not eligible to tax.
4) The addition made by learned A.O. and upheld by Hon'ble CIT(A) at Rs.18,84,83,706/- and Rs.56,54,511/- is unjustified, unsustainable and perverse.
5) The learned A.O. and Hon'ble CIT(A) ought to have accepted the claim of exemption u/s 10(38) and accepted the income declared in return considering facts and evidence on record and without dislodging the same.
6) That on the facts and in the circumstances of the case, the learned A.O. has erred in not providing the copy of statements recorded behind back of the assessee and copy of material used for the purpose of holding the sale of share as bogus. Non providing of statements/material used in assessment is violation of principles of natural justice and consequent additions made are unjustified and unsustainable. Hon'ble CIT(A) ought to have deleted the addition made as the procedure is in complete violation with settled propositions of law.
7) The assessee denies liability to pay interest under section 234A, 234B and 234C of I.T. Act 1961. Without prejudice, levy of interest under section 234A, 2334B and 234C of I.T. Act 1961 is unjustified, unwarranted and excessive.
8) Any other ground shall be prayed at the time of hearing.”
3. Brief facts of the case are that assessee is proprietor of Lakshya Enterprises engaged in the trading of Iron and Steel, filed his return of income for A.Y. 2015– 16 on 30.09.2015 declaring income of `. 27,59,930/–. Thereafter, a search action under section 132 was carried out on 26.11.2015 on Ramsons Group, Nagpur. The assessee is one of the persons covered under the said search. Pursuant to search action, notice under section 153A dated 21.03.2017 was served upon
