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Judgment
PER MANISH AGARWAL, AM :
The present appeal is filed by Revenue against the order dated 15.02.2024 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2012-13/10118926 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 30.03.2022 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2013-14.
Brief facts of the case are that the assessee is an individual and filed his return of income on 30.09.2013, declaring total income of INR 18,82,510/- and claimed exempt income of INR 25,62,463/- u/s 10(38) of the Act. The AO based on the information received from Investigation Wing that the capital gain declared by the assessee from the sale of scrips i.e. CCL International Ltd. (“CCIL”) which is one of the companies of penny stock, re-opened the case of the assessee and notice u/s 148 of the Act was issued on 30.03.2021. The assessee filed return of income, declaring same income as was declared in the return of income filed u/s 139(1) of the Act. Thereafter, AO has referred the report of Investigation Wing, Kolkata and held that that the sale of share of CCIL is the accommodation entry and treated the same as unexplained credit of the assessee and made the addition u/s 68 of the Act of INR 25,62,463/-. Besides this, AO has made the addition towards commission @ 3 % alleged as paid out of unexplained sources for obtaining the accommodation entry of bogus LTCG and made the addition of INR 76,873/- u/s 69C of the Act.
Against the said order, the assessee filed appeal before Ld. CIT(A) wherein Ld. CIT(A) has allowed the appeal of the assessee and deleted the addition made by following the judgments of the various Hon’ble High Courts wherein trading in the shares of CCIL was held as genuine.
Against the order of Ld. CIT(A), the Revenue is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Before us, Ld. Sr. DR for the Revenue vehemently supported the orders of the AO and submits that Ld. CIT(A) has failed to appreciate the fact that there were clear evidences found as a result of search in the case of some entry operators and thereafter Investigation Wing has carried out in depth verification of facts and it was unearth that the company CCL International Ltd. is one of the penny stock company which was utilized by many entry operator for providing accommodation entries of bogus LTCG to various beneficiaries. Ld. SR Dr submits that the AO based on the information received from the Investigation wing reopened the case of the assessee and examining the claim of the assessee of exempt income u/s 10(3) of eh Act of LTCG form the sale of shares of CCIL has held the same bogus accommodation entry. Ld. Sr. DR submits that ld. CIT(A) has failed to appreciate this fact and deleted the additions made. He thus, requested that the addition made by the AO be restored.
On the other hand, Ld.AR vehemently supported the order of Ld. CIT(A) and submits that the assessee has filed all the evidences with respect to the purchase and sale of the shares of CCIL. He further submits that Co-ordinate Bench of the Tribunal in various cases has held that the trading in the shares of CCIL as genuine transaction. Ld. AR submits that Ld. CIT(A) appreciated these facts and deleted the additions and thus, requested for the confirmation of the same.
Heard the contentions of both the parties at length and perused the material available on record. Ld. CIT(A) has deleted the additions by making following observations:-
5. Decision:
5.1“In this case, the submissions filed by the appellant, grounds of appeal, statement of facts have been perused along with the assessment order. It is noted that the appellant had filed his return on 30.09.2023 disclosing income of Rs. 18,82,510/- and further claimed exempt income of Rs. 25,62,463/- for the relevant assessment year, which was processed u/s 143(1) of the Act. As per the assessment order, there was information received by the AO that the appellant has transacted in the script of CCL International Ltd. and claimed LTCGs u/s 10(38) of the Act and that based on various investigations of the Department/ NSE, this script is one of the identified penny stock by the Investigation Wing. Therefore, as the appellant had declared exempt income from LTCG on account of transactions in this script and was a beneficiary of accommodation entries, notice u/s 148 of the Act was issued to the appellant on 30.03.2021 and subsequent to ITR filed in response by the appellant, notice u/s 143(2) was also issued and served on the appellant. The AO has discussed the modus operandi adopted by the accommodation entry providers for non-genuine LTCG in the assessment order in detail. In Para-8 of the assessment order, the AO has stated that M/s. CCL International Ltd. is also one such company which has been identified as a listed penny stock on BSE which has been used for generating bogus LTCG. The AO has discussed the SEBI order dated 29.06.2015 in the case of 04 such companies and the order of the SEBI has also been discussed in Para 9 of the assessment order. While M/s. CCL International Ltd. is not one of 04 these companies, in Para 9.4 of the assessment order, the AO has noticed that from the SEBI's order connections / relations can be established on the basis of factors including common address, common directors / share holders etc. The transactions in penny stock scripts were conducted in a pre-meditated manner to manipulate the price and volume of the such script so as to provide profitable exit to beneficiaries. In Para-10, the AO has held that the appellant had therefore booked bogus LTCG in stock of M/s. CCL International Ltd. The AO has stated that the appellant could not submit concrete reply for the reasons of purchase of this share and had not done any financial analysis of this company and also could not remember the person who recommended such purchase. The AO noted that appellant had purchased 10,000 shares of M/s. CCL International Ltd. through preferential allotment at Rs. 6 per share on 09.04.2009 and the AO has stated that this shows direct evidence that purchase of shares by the appellant was a pre-determined move in order to reap LTCG and claim exempt income. The AO relied upon various case laws to hold that the transactions in share was non-genuine and therefore held the sale amount of Rs. 25,95,868/- as liable to tax u/s 68 of the Act r.w.s 115BBE. Further, commission paid for providing such arranged capital gains was estimated at 3% and accordingly, an addition of Rs. 76,873/- was made u/s 69C as an unexplained expenditure by the AO. In Para-19 of the assessment order, the AO has stated that the appellant has relied upon the decision of Hon'ble ITAT Lucknow and ITAT Delhi as per which M/s. CCL international Ltd. is not a penny stock. However, since the Department has further filed appeal before Hon'ble High Court against these decisions of ITAT, the reliance on these case laws was not found tenable by the AO.
The Grounds of appeal and submission filed by the appellant has been perused. In ground no. 2 to 8, the appellant has disputed the initiation of proceedings on technical and legal grounds. In ground no. 1 and 9 to 11, the additions have been disputed on merit of the case. It is noted that it has been claimed that reasons recorded by the AO were received through e-mail by the Income Tax Department on 08.10.2021 without any approval of PCIT u/s 151 of the I.T. Act. The appellant has raised objections on 23.10.2021which were disposed vide letter dated 03.01.2022 without considering the various objections of the appellant. The appellant has claimed that reasons recorded are vague / wrong since there is a difference in the quantum mentioned by the AO pertaining to sales proceeds of M/s. CCL International Ltd. The appellant has relied upon various decisions of Judicial Authorities to claim that the reasons to believe are wrong/vague / reveal non-application of mind by the AO and has further discussed various decisions regarding validity of re-opening of proceedings. The same have been perused. It is noted that due process as per law was followed in disposing off the objections filed by the appellant against the reasons to believe by the AO. Clearly the appellant has transacted in shares of M/s. CCL International Ltd. during the relevant F.Y. and claimed exempted income on such transactions and the AO was in possession of information that the impugned script was identified as a penny stock for providing accommodation entries. Therefore, there was sufficient information available with the AO forming reasons to believe that income has escaped assessment. Even though there may be minor difference in actual figures of sale proceeds as pointed out by the appellant, the said minor differences do not make the reasons wrong/vague and it cannot be stated that there is non-application of mind by the AO in this regard. For the purpose of initiation of proceedings u/s 148 of the Act, there should be sufficient basis for initiation of proceedings and the quantum of income escaping assessment should exceed the prescribed limit. In this regard, the decision of Hon'ble Supreme Court in the Case of M/s. Raymond Woolen Mills Ltd. (1999) 236ITR34 (SC) is relevant where it has been clearly stated that while considering whether commencement of reassessment proceedings was valid, it is only to be seen that whether there was some prima-facie material or information on the basis of which the Department could re-open the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. Further in this regard, it is relevant to refer to the decision of Hon'ble Delhi High Court in the case of Bawa Abhai Singh 2531TR83 and the decision of Hon'ble Supreme Court in the case of CIT Vs. A. Raman and Company 671TR11. It is further noted that the facts of the instant case are quite different from that of the decisions cited by the appellant. It is noted that the reasons recorded are exhaustive and sufficient to initiate proceedings u/s 148 of the Act. Further, the objections filed by the appellant have been duly disposed by the AO and therefore the process laid down by the decision of Hon'ble Supreme Court in the case of GKN Driveshaft have been duly complied by the AO. As regards, the merit of the additions, the said issue is being dealt while dealing with other grounds. Accordingly, grounds no. 2 to 8 are being dismissed.
5.3On merits of the case as per grounds no. 1, 9 to 11 of appeal, the appellant has submitted detailed submission to point out that these shares were transacted through registered brokers and has submitted copy of contract notes etc. in this regard. The list of monthly lows and high rates of shares of M/s. CCL International Ltd. from January -2012 to December-2021 have also been submitted and relied upon. The appellant has relied upon various case laws to claim that the impugned transactions are genuine and further the identity, source of funds and genuineness of transactions stands established as these transactions have been transacted through settlement scheme approve by SEBI and sold through SEBI registered stock broker. The appellant has pointed out that the price of these shares has crossed Rs. 600/-per share at one point of time whereas the appellant has not sold the shares at such peak value but at an average price of less than Rs. 150/- per share. The appellant has claimed that no action has been taken against this script M/s. CCL International Ltd. by SEBI and that it is not name in the list of 331 shell companies uploaded by SEBI on Internet. The appellant has claimed that genuineness of this company M/s. CCL International Ltd. has been accepted by the Department in assessments of various cases in current year, subsequent / previous year in the cases of various assessees and the appellant has filed copies of such order of the AO/NFAC in this regard on the same issue. Further, the appellant has also relied upon order of NFAC dated 21.12.2023 on the same issue where M/s. CCL International Ltd. has not been held as a penny stock. The above claims of the appellant is found prima-facie correct based on perusal of these assessment / appellate order filed by the appellant. Further, the appellant has claimed that on the same facts and same script M/s. CCL International Ltd., Hon'ble ITAT Delhi and Hon'ble ITAT Lucknow has allowed the appeal in the favor of the appellant in those cases and therefore the matter is squarely covered by such Jurisdictional Bench Orders. The cases relied upon the appellant are Mohanlal Agarwal HUF Vs. ITO, Achal Gupta and others - ITA No. 501 to 505/.LKW/2019 dated 16.12.2020 (ITAT Lucknow), Reeshu Goyal Vs. ITO – ITA No. 1691/DEL/2019 dated 07.10.2019 (ITAT Delhi) etc. It is noted on perusal of these decisions that after analyzing the financials of this script, Hon'ble ITAT had held that it cannot be held as a paper entity from the bare perusal of the financials. No specific enquiry into the broker of the appellant etc., had been carried out in these cases. Hon'ble ITAT held that documents in these cases demonstrated that shares were purchased through brokers, payment received through banking channels and transactions were carried through demat account etc. Thus, the claim of the appellant that the facts of its case are similar to these cases where decisions have been rendered by Hon'ble ITAT holding the transactions in M/s. CCL International Ltd, as genuine and deleting the disallowance of LTCG and commission addition is found correct. It is noted that the AO in Para-19 of the assessment order has not denied that facts of these decisions are different from that of the appellant, but has not relied upon these decisions since further appeal was filed by the Department.
5.4Based on the various orders of the AO /NFAC referred above as well as relying upon Jurisdictional Hon'ble ITAT Orders referred above, it is therefore held that the impugned transactions cannot be treated as bogus / non-genuine /accommodation entries in a general manner without specific enquiry or evidence in this regard. Accordingly, the addition u/s 68 r.w.s 115BBE of the Act of Rs. 25,62,463/- and additions u/s 69C of Rs. 76,873/- made by the AO are directed to be deleted. As a result, ground no. 1, 9 to 11 are allowed.”
It is observed that during the course of assessment proceedings, the assessee has filed the following documents:-
Copy of bills regarding purchase of shares
Copy of bank statement though which purchase consideration was paid
Copy of DEMAT account statement of the assessee
Copy of sales bills through which the payments of shares were sold
Copy of bank statements where the amounts were created in the bank accounts of the assessee
All these details were submitted before the lower authorities. It is further observed that in the case of the assessee himself in immediately subsequent Assessment year, the sale of shares of CCIL was held as bogus which addition was deleted by the Co-ordinate Bench of the Tribunal in ITA No.3319/Del/2025 vide order dated 19.09.2025 by making following observations:-
5.“I have heard the rival contentions and gone through the facts of the case. I find that Ld. CIT(A) has discussed the issue in dispute elaborately by observing as under:-
“5.3On merits of the case as per grounds no.1, 9 to 11 of appeal, the appellant has submitted detailed submission to point out that these shares were transacted through registered brokers and has submitted copy of contract notes etc. in this regard along with the list of monthly loss and high rates of shares of M/s. CCL International Ltd. from January, 2012 to December, 2021. The appellant has also relied upon various case laws to claim that the impugned transactions were genuine and further the identity, source of funds and genuineness of transactions stands established as these transactions have been transacted through settlement scheme approve by SEBI and sold through SEBI registered stock broker. The appellant has pointed out that the price of these shares has crossed Rs. 600/- per share at one point of time whereas the appellant has nor sold the shares at such peak value but at an average price of less than Res, 150/- per share. The appellant has claimed that no action has been taken against this script-M/s. CCL International Lid by SEBI and that it is not name in the list of 331 shell companies uploaded by SEBI on Internet. The appellant has claimed that genuineness of this company M/s. CCL International Ltd. has been accepted by the Department in assessments o various cases in current year, subsequent / previous year in the cases of various assessees and the appellant has filed copies of such orders where M/s. CCL International Ltd. has not been held as penny stock, in order to substantiate her arguments. The above claims of the appellant is found prima-facie correct based on perusal of these assessment / appellate order filed by the appellant. Further, the appellant has claimed that the same script M/s. CCL International Ltd., Hon'ble ITAT Delhi and Hon'ble ITAT Lucknow has allowed the appeal in the favor of those appellant in their cases and therefore the matter is squarely covered by such Jurisdictional Bench Orders like in cases such as Mohanlal Agarwal HUF Vs. ITO, Achal Gupta and others - ITA No. 501 to 505 / LKW /2019 dated 16.12.2020 (ITAT Lucknow), Reeshu Goyal Vs. ITO-ITANo.1691/DEL/2019 dated 07.10.2019(ITAT-Delhi) etc. It is noted on perusal of these decisions that after analyzing the financials of this script, Hon'ble ITAT had held that it cannot be held as a paper entity from the bare perusal of the financials. No specific enquiry into the broker of the appellant etc., had been carried out in these cases. Hon'ble ITAT held that documents in these cases demonstrated that shares were purchased through brokers, payment received through banking channels and transactions were carried through demat account etc. Thus, the claim of the appellant - that the facts of its case are similar to these cases where decisions have been rendered by Hon'ble ITAT holding the transactions in M/s. CCL International Ltd. as genuine and deleting the disallowance of LTCG and commission addition - is found correct. It is noted that the AO in Para-19 of the assessment order has not denied that facts of these decisions are different from that of the appellant, but has not relied upon these decisions since further appeal was filed by the Department.
5.6Based on the various orders of the AO INFAC referred above as well as relying upon Jurisdictional Hon'ble ITAT Orders referred above, it is therefore held that the impugned transactions cannot be treated as bogus / non-genuine / accommodation entries in a general manner, without specific enquiry or evidence in this regard. Accordingly, the addition u/s 68 r.w.s 115BBE of the Act of Rs.25,62,463/- and additions u/s 69C of Rs. 76,873/-made by the AO are directed to be deleted. As a result, ground no. 1, 9 to 11 are allowed."
Accordingly, following the decision of the predecessor on the identical issue and also following the recent decisions quoted above, the grounds of appeal No.1, 9 to 11 regarding additions made u/s.68 r.w.s. 115BBE of the Act of Rs. 14,06,272/- and u/s.69C of the Act of Rs.42,188/- are allowed and the AO is directed to delete the additions made.”
It is further observed that in the case of the Rohan Agarwal in ITA No.562/Del/2024 vide order dated 25.06.2025 the Co-ordinate Bench of Delhi Tribunal has confirmed the order of Ld. CIT(A) deleting the addition made on account of sale of shares of CCIL. Similarly in the case of Anchal Gupta & Others in ITA No.501/Luck/2019 and others vide order dated 16.12.2020, the Co-ordinate Bench has held the capital gain from the sale of shares of CCIL as genuine. Further in ITA No.1691/Del/2019 in the case of Reeshu Goel vs ITO vide order dated 07.10.2019, the Co-ordinate Bench of the Tribunal has deleted the additions made on account of sale of shares of CCIL. The relevant observations of Co-ordinate Bench in para 16 to 19 are as under:-
16.“We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as material referred to before us. As stated above, the assessee has applied for 50,000 shares of M/s. AAR Infrastructure Ltd. for face value of Rs.10 and paid consideration of Rs.5 lacs vide cheque no.169799 dated 13.01.2011. The said purchase has been recorded in the accounts of the earlier year and is also reflected from the copy of bank statement place at paper book at pages 25. The purchases made in the earlier years have been accepted as only net LTCG has been taxed by the Assessing Officer. The assessee was allotted shares of M/s. AAR Infrastructure Ltd. and immediately thereafter, the assessee had dematerialised the shares on 26.02.2011 which is evident from the copy of Demat account enclosed at pages 27 to 28 of the paper book. Later, M/s. AAR Infrastructure got amalgamated with M/s. CCL International Ltd. and according to amalgamation scheme, the assessee received 1,25,000 shares of M/s. CCL International Ltd. in the proportion of 250 equity shares Rs.2 per share and Rs.100 equity share of Rs.10 per share. The shares which were allotted on 17.02.2011 have been sold after period of more than 18 to 20 months, i.e., on 29.08.2012 to 10.10.2012. The said shares have been sold through stock broker M/s. Indianivesh Securities Pvt. Ltd.
17.Before us the ld. counsel has in his brief note has stated that following documents and statements were filed before the authorities below:
(a)All the transactions were supported by proper Contracts Notes and delivery of shares was made through De-mat Account with stock broker, M/s Indianivesh Securities Pvt. Ltd. (who is the member of BSE and registered with SEBI). The shares were sold in the open market. The appellant has fulfilled all the condition u/s 10(38) of the Income Tax Act, 1961. The appellant has already filed National Security Depository Limited generated Demat Account and the broker statement relating to the sale of share in our paper book, also relevant demat statement highlighting the shares purchased has already been submitted before the Ld. AO.
b)The appellant has earned long term capital gain through genuine purchase and sale of shares of the listed companies in normal course. There was no default on the part of the appellant. Moreover, the appellant has earned the income strictly following the norms and guidelines of SEBI. If M/s CCL International has been identified as BSE Listed penny stock, the appellant is not even remotely connected with these companies. She was not at all in a position to influence the purchase and sale prices of their shares. Hardship cannot be brought on the appellant, if default is made by the company which is listed in the BSE.
c)In support of the genuineness of the transaction the appellant produced the following at the time of assessment proceeding:
a)Copy of allotment letter issued by M/s AAR Infrastructures Limited. (Page 25)
b)Copy of bank statement reflecting the payment made for the purchase of 50000 equity shares. (Page 26)
c)Copy of Demat Account of the appellant. (Page 27)
d)Copy of statement of broker reflecting the credit of 50000 equity share through preferential allotment. (Page 28)
e)Copy of order of Delhi High Court, dated 08.10.2011 in the matter of amalgamation of M/s AAR Infrastructure Limited into M/s CCL International Limited. (Page 29-44)
f)Copy of Contacts notes reflecting the sale proceeds. (Page 45-50)
g)Copy of Transaction statement reflecting the increase in the number of shares. (Page 51)
h)Copy of Bank Statement of the appellant reflecting the amount received on sale of shares. (Page 54).
18.The entire premise of the Assessing Officer for treating the entire transaction to be a bogus Long Term Capital Gain and making addition u/s. 68 is that, firstly, M/s. CCL International Ltd. did not have much financial worth to justify such a price rise; secondly, the SEBI had suspended the trade of the share for a brief period; thirdly, he has pointed out the history of price rise between 06.02.2010 to 25.11.2014 and then has drawn adverse inference that price of these shares were manipulated and rigged in the stock exchange which was solely to provide accommodation entries to the various parties; and lastly, he has also referred to certain inquiry report of Investigation Wing Kolkata during the course of which certain brokers have admitted that they had provided accommodation entries in the scrip of M/s. CCL International. But nowhere in the entire assessment order, there is any reference to any material or evidence that assessee or assessee’s broker have been found to be indulged in any kind of accommodation entry in this scrip. No inquiry whatsoever has been made from the broker of the assessee. Further, during the period in which assessee had purchased the shares and had sold them whether the SEBI had suspended the trading has not been mentioned, in fact, Assessing Officer himself mentions that there was brief suspension in the year 2010, whereas the assessee has purchased shares in the year 2011 and sold them in the year 2012. Coming to the financials, as culled out from the records, the revenue from the operation of M/s. CCL International Ltd. from March, 2010 to March, 2012 was between Rs. 55.25 crore to Rs. 79 crore. Thus, it cannot be held that it was mere a paper entity. From a bare perusal of the history of listing and trading of shares and the quote of Bombay Stock Exchange as quoted in the assessment order, it clearly reflects that as on 06.02.2010, the closing price was Rs. 50 and there was a steady increase and within the period of 4 years the price had reached up to Rs.609 on 25.11.2014. Nowhere, it has been pointed out that the rise was beyond the cap laid down by the SEBI, because the price of the scrip cannot rise beyond the cap prescribed by the SEBI. If the shares have been purchased and sold from the stock exchange on a quoted price with proper contract number, trade time and after paying STT, then it is very difficult to assume that the sale proceeds received from sale of such shares is bogus, especially when purchase of shares are not in dispute. This inter alia means assessee was in possession of shares which were also dematerialised. To prove that such a transaction was in the nature of bogus or colourable transaction, there has to be some inquiry or material to nail the assessee that she was some kind of a beneficiary in some accommodation entry operation. No defect has been pointed out in the documents submitted by the assessee nor has the broker of the assessee been inquired upon. Simply relying upon the general modus operandi and statement of some brokers recorded by the Kolkata Investigation Wing does not mean that all the transactions undertaken of the scrip M/s. CCL International Ltd. through the country by millions of subscribers are bogus. Thus, in absence of any material or evidence against the assessee, we do not find any reason as to I.T.A. No.1691/DEL/2019 22 why the claim of Long Term Capital Gain from sale of such share should be denied. Consequently, the addition on account of commission is also deleted. Accordingly, we delete the addition made by the Assessing Officer.
19.In the result, the appeal of the assessee is allowed.”
It is further observed that Ld. CIT(A) has followed the aforesaid judgements and further observed that CCIL was not held a penny stock company by SEBI and also appreciated the fact that the assessee has filed all the relevant details in respect of the purchase and sale of shares and holding the same in DEMAT account. It is further observed that Ld. CIT(A) has held the CCLIL as not a penny stock company and such observations had not confronted by the Revenue before us by filing any cogent material before us.
Further the Hon’ble Jurisdictional High Court in the case of PCIT vs Nupur Garg in ITA No.64/2025 vide order dated 03.11.2025 had held that CCIL is not a penny stock company.
Similar view as expressed by the Hon’ble Delhi High Court in the case of PCIT vs Rishu Goel in ITA No.173/2021.
In view of the aforesaid discussion and by respectfully following the orders of the Hon’ble Jurisdictional High Court, we observe that scrip of CCIL is not a penny stock company therefore, we find no error in the order of Ld. CIT(A) in deleting the addition by observing that LTCG earned by the assessee from the sale of CCIL is a genuine transaction. Therefore, all Grounds of appeal raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.