ASHOK AMARNATH AGRAWAL,VADODARA V. THE DY.CIT, CIRCLE-2(1)(1), VADODARA

ITA 1077/AHD/2025

AI Insights

The case involves two appeals by Ashok Amarnath Agrawal against the orders of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, concerning the Assessment Years 2017-18 and 2018-19. The primary issue in both appeals was the treatment of capital gains from the sale of shares of Kushal Limited, alleged to be an accommodation entry provider. The Assessing Officer had reopened the assessments based on information suggesting that the assessee had earned fictitious long-term capital gains (LTCG) from these shares. The Tribunal's decision highlighted the lack of independent inquiry by the Assessing Officer and the reliance on external information without proper examination of the assessee's income tax returns, which led to the reversal of the additions made under Section 68 for AY 2018-19 and the remand of the penalty issue for AY 2017-18 to be considered alongside the pending quantum appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780285 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 15-05-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: PARIMALSINH B. PARMAR
• Keywords: Unexplained cash credit; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Bogus
• Section: 147; 148; 132; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA Nos.1077 & 1078/Ahd/2025 (Assessment Year: 2017-18 & 2018-19) Ashok Amarnath Agrawal, 30, Spun Ville, Lane No. 4, Arunoday Society, Nr. Arunoday Circle, Alkapuri, Vadodara, Gujarat-390007 [PAN : ABZPA2682C] Vs. Deputy Commissioner of Income-tax, Circle 2(1)(1), Baroda (Appellant) .. (Respondent) Appellant by : Shri Parimalsinh B. Parmar, AR Respondent by: Shri B.P. Srivastava, Sr DR Date of Hearing 06.08.2025 Date of Pronouncement 10.10.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:- These two appeals have been filed by the assessee against the respective orders of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as \"CIT(A)\" for short), both dated 25.03.2025, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as \"the Act\" for short], arising from the order passed by the Assessing Officer u/s 147 r.w.s. 144B of the Act for AY 2018-19, and u/s 271AAC(1) of the Act for AY 2017-18. We shall first take up ITA No. 1078/Ahd/2025 for AY 2018-19. ITA No. 1078/Ahd/2025 : AY 2018-19 2. The assessee has raised the following grounds in its appeal:- “1. The Ld. CIT(A) has erred, both in law and on facts, in confirming the addition of Rs.23,81,100/- u/s 68 of the Act in respect of proceeds of sale of shares. Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 2– 2. The Ld. CIT(A) has erred, both in law and on facts, in not appreciating that the addition under Section 68 of the Act has been made merely on the basis of information received by Assessing Officer without carrying out any independent inquiry. 3. Both, Assessing Officer and CIT(A), have erred in passing the impugned orders, without properly appreciating facts of the case, submissions of the assessee and documentary evidences available on record in the correct perspective. Such an act is in gross violation of principles of natural justice and hence, the impugned order deserve to be quashed.” 3. The assessee has also raised following additional grounds :- “On the facts and circumstances of the case, the learned Assessing Officer was not justified in reopening the assessment u/s 147 of the Act.” 4. The brief facts of the case are as follows: The assessee has filed his return of income for the year under consideration on 14.09.2018 declaring total income of Rs.8,66,070/- and has claimed Long Term Capital Gains of Rs.7,57,955/- under the head ‘Exempt Income u/s 10(38) of the Act’ as profit on sale of shares. Based on information flagged under Risk Management Strategy by the CBDT, the Assessing Officer reopened the case on the allegation that the assessee had earned fictitious LTCG of Rs.10,94,043/- from Kushal Limited, an alleged accommodation entry provider. The Assessing Officer disallowed the claim and treated the entire sale proceeds of Rs.23,81,100/- as unexplained cash credits under section 68 of the Act. 5. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who, after considering the submissions of the assessee, upheld the action of the Assessing Officer. 6. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal. Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 3– 7. Before us, the Ld. AR submitted that, • the reopening is factually incorrect as the AO reopened assessment alleging LTCG of Rs.10,94,043/- in Kushal Ltd., whereas the assessee actually incurred Short Term Capital Loss (STCL) of Rs.17,37,089/- in that scrip. • the LTCG earned by assessee relates to other shares; hence, reopening is based on wrong jurisdictional facts and is bad in law. • the Assessing Officer relied solely on external information without independent application of mind or inquiry. • the reopening was for alleged bogus LTCG, but no such addition was made; only STCL disallowed. • the purchase/sale on recognized exchange, STT paid, banking channels used, supported by complete documentary evidence and are genuine. • In absence of any cogent material, independent inquiry, or fault in documents, disallowance of genuine STCL is not sustainable. 8. The Ld. DR, on the other hand, relied upon the orders of the authorities below. 9. We have heard the rival contentions and perused the material available on record. The reasons recorded for reopening are as under:- “Information documents available with this office in the case the assessee: As per information available on records, a search action u/s 132 of the IT Act, 1961 was conducted on 05.02.2019 in the case of Kushal group. During the course of search action, data back-up of various devices i.e., computer, pendrive, server, mobile phones etc. has been taken and seized/impounded. On investigation of the data back-up, various excel sheets, word files, photos from mobile and computer etc, have been recovered which contains the systematic evidences of cash transactions entered by Kushal group providing Long Term Capital Gain/Loss or Short Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 4– Term Capital Gain /Loss. On detailed verification of the information, it is noticed that during F.Y 2017-18 the assessee is beneficiary an amount of Rs.10,94,043/- on account of fictitious capital gain through accommodation entry provided by Kushal Limited. On further analysis of the same, it is found that there is systematic record of receipt of the various transactions, The data is recorded company/entity/person wise. These data contain systematic record of cash and Cheque transactions along with details of the purchaser and completion of transaction. In some cases, the whole amount has been received in cash and then part cash has been returned to the tune of cheque payment received. On further perusal details/information (Para 8 of appraisal report of Kushal Group of Ahmedabad) received in respect of Kushal Limited, various other significant findings/observations point wise discussed as under:- • It is seen that price of Kushal script rigged at unusual high price without supportive financials and fundamental of the company. • Members misused BSE platform and received pay-out in the script Kushal Limited • The shareholding pattern of Kushal Limited was found rigged. • The Chief Finance Officer of Company and main Director of the company categorically accept that the shares of company were rigged to provide entries of bogus capital gains. On perusal of return of income of the assessee for the year under consideration, it is seen that the assessee has shown LTCG of Rs.7,57,955/- under the head Exempt Income. As discussed in above paras, during search action in Kushal group, it was found that Kushal Limited script was used to provide accommodation entries in the form of capital gain. Some other points observed from the information received are discussed as under: • The security market regulatory authority SEBI has passed adjudication against the Kushal Limited vide order No.RA/JP/250- 254/2017 dated 22.12.2017 and also identified some persons involved in synchronized share trading pattern in Kushal Limited. • Any rise and fall in any script has to be backed by reason(s), either fundamental or technical, however, in the case of Kushal Limited, the cyclic rise & fall pattern of script/ high price volatility of script was without such reasons. Prices were artificially moved in a desired/required direction on time to time basis in order to benefit various identities. Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 5– • The Chief Finance Officer of Company and main Director of the company categorically accept that the shares of company were rigged to provide entries of bogus capital gains. In view of the above discussion and on perusal of finding of appraisal report, it is clearly established that Kushal Limited is an accommodation entry provider. Therefore, the investment of assessee in shares of Kushal Limited and capital gain earned thereon are fictitious transactions, only accommodation entries. On perusal of information received, during FY 2017-18, the assessee is beneficiary an amount of Rs. 10,94,043/- on account of fictitious capital gain through accommodation entry provided by Kushal Limited. Further, any other transactions, if any, made with this entity or through it, will be considered as nothing but only an accommodation entry. Relevant documents are attached herewith In view of the above discussion, the income amounting to Rs. 10,94,043/- chargeable to tax for the AY 2018-19 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.” 10. The records reveal that the assessee had Long Term Capital Gains of Rs. 5,59,550/- which have been reflected in the income-tax return. The entire details of the Long-Term Capital Gains are examined and the assessee has not earned any profits which have been claimed exempt in the scrip alleged by the Revenue. The assessee had short term capital loss of Rs.17,31,332/- which is also reflected in the income-tax return. The Revenue alleged that the assessee is a beneficiary of Rs.1094043 on account of capital gain which is totally contrary to the facts on record, which goes to prove that the Assessing Officer has not examined the income-tax return which is a primary document to be examined before issuing notice u/s 148 of the Act. Hence, the notice issued by the Assessing Officer suffers from latches and devoid of due diligence. Hence, the assessment is liable to be treated as void ab initio. The appeal of the assessee is accordingly allowed. Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 6– ITA No. 1077/Ahd/2025 : AY 2017-18 11. The sole grievance raised by the assessee in its appeal reads as under:- “The Ld. CIT(A) has erred, both in law and on facts, in confirming the penalty of Rs.8,82,935/- levied under Section 271AAC of the Act.” 12. In this case, the assessee had filed original return of income for the year under consideration on 04.08.2017, declaring total income at Rs.1,53,49,170/-, which includes STCG of Rs.1,47,15,585/- and income from other sources of Rs.8,90,342/-. The assessment was subsequently completed u/s 147 r.w.s. 144B of the act vide order dated 26.05.2023 by making the STCG of Rs.1,47,15,585/- claimed by the assessee from sale of the stock of M/s. Kushal Tradeline Ltd to be taxed as unexplained money u/s 69A at the rates prescribed u/s 115BBE of the Act. Following this, the Assessing Officer imposed a penalty under section 271AAC at 10% of the tax payable under section 115BBE(1)(i), amounting to Rs.8,82,935/-. 13. The Ld. CIT(A) confirmed the penalty imposed by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal. 14. Before us, the Ld. AR submitted that penalty proceedings u/s 270A of the Act were initiated while framing assessment and the penalty was finally levied u/s 271AAC of the Act; therefore, the basis and foundation for imposition of penalty has been altered by the Assessing Officer. The Ld. AR, relying on plethora of decisions of the Tribunal, pleaded that the impugned penalty deserves to be deleted. Alternatively, the Ld. AR submitted that the quantum appeal, which has been belatedly filed before the Ld. CIT(A), is still pending for adjudication before the Ld. CIT(A). The Ld. AR, therefore, urged that the Printed from counselvise.com ITA Nos. 1077 & 1078/Ahd/2025 Ashok Amarnath Agrawal Vs. DCIT Asst. Year : 2017-18 & 2018-19 - 7– penalty in question may also be sent back to Ld. CIT(A) for considering the same along with quantum appeal. 15. Since the quantum proceedings are pending before the Ld. CIT(A), the penalty in question is also sent back to Ld. CIT(A) to consider along with quantum appeal. Accordingly, this appeal of the assessee is allowed for statistical purposes. 16. In the result, appeal of the assessee in ITA No. 1078/Ahd/2025 for AY 2018-19 is allowed, while the appeal bearing ITAT No.1077/Ahd/2025 for AY 2017-18 is allowed for statistical purposes. The order is pronounced in the open Court on 10.10.2025 Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 10.10.2025 *btk आदेश की \u0007ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0007 / The Appellant 2. \b थ\u0007 / The Respondent. 3. संबंिधत आयकर आयु\u0015 / Concerned CIT 4. आयकर आयु\u0015(अपील) / The CIT(A)- 5. िवभागीय \bितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "