IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “B” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER Assessment Year : 2013-14 Income Tax Officer-24(1)(1), Bhumika Rajesh Vatnani, Piramal Chambers, 2601/02, Royal Empire, Lalbaugh, Parel, vs. Shashtri Nagar, Mumbai Andheri West, Mumbai PAN :ADMPV7590F (Appellant) (Respondent)

Assessee by : Shri Bhupendra Shah Revenue by : Shri Leyaqat Ali Aafaqui Date of Hearing : 05-03-2025 Date of Pronouncement : 10-03-2025

O R D E R

PER B.R. BASKARAN, A.M :

The Revenue has filed this appeal challenging the order dated

07-08-2024 passed by the Ld CIT(A), NFAC, Delhi and it relates to the Assessment Year (AY.) 2013-14. The Revenue is aggrieved by the decision of the Ld CIT(A) in deleting the addition of long term capital gains claimed by the assessee as unexplained income of the assessee.

2. The facts relating to the above said issue are discussed in brief. The assessee had claimed exemption of long term capital gain of Rs.3,10,22,612/- arising on sale of shares u/s. 10(38) of the Act. The assessee had earned above said long term capital gain on sale of shares of M/s Wagend Infra Venture Ltd (earlier known as M/s Agarwal Holdings Ltd). The AO received information from the Investigation wing of Kolkatta that certain brokers are involved in manipulating the prices of small companies (called “penny stock”) in order to generate bogus capital gains/losses. It was also informed that the above said company is also one of the penny stocks. The assessee had sold 2,42,819 shares for a consideration of Rs.3,28,06,325/- and declared Long term capital gain of Rs.3,10,22,612/-, which was claimed to be exempt u/s 10(38) of the Act. Based on the information so given by the Investigation wing, the AO took the view that the long term capital gains declared by the assessee is not genuine one.

3. The assessee had purchased 1,50,000 shares of above said company for a consideration of Rs.18.00 lakhs in preferential allotment on 07-01-2011. During the financial year relevant to AY 2012-13, the assessee sold 20,401 shares. The remaining shares that were available with the assessee was 1,29,599 shares. During the year under consideration, the assessee initially sold 1,01,294 shares. When the assessee held the remaining quantity of shares of 28,305, it was split in the ratio of 1:5. Accordingly, the assessee got 1,41,525 shares, which were also sold during the year under consideration. Thus, the assessee sold 1,01,294 shares before split and 1,41,525 shares after split. Accordingly, the total number of shares sold by the assessee during the year under consideration was 2,42,819, from which he declared capital gains of Rs.3,10,22,612/-. Since the shares of above said company was identified as penny stock, the assessing officer extensively relied upon the report given by the investigation wing to support his view that the long term capital gains declared by the assessee was not genuine. He observed that the financial results of the company do not justify steep rise in the prices shares of above said company. He also noticed that the above said company was declaring very low income and the prices of shares were not commensurate with the income of the company. The AO also referred to the price movement charts prepared by the Investigation wing, wherein it was observed that the price movements in the form of ups and downs has happened in batches, which was considered as manipulation of price movements. The AO also referred to certain statements taken by the Investigation wing during the course of search, wherein they had admitted that they were operating the shares of above said company.

4. The Ld CIT(A), however, deleted the addition by placing reliance on the decision rendered by Hon’ble Gujarat High Court in the case of CIT vs. Genuine Finance P Ltd (2023)(152 taxmann.com 330)(Guj) and also the decision rendered by Mumbai bench of Tribunal in the case of Ramprasad Agarwal vs. IT