CHIMANBHAI CHHAGANBHAI POKAL, HUF,AHMEDABAD V. THE INCOME TAX OFFICER, WARD-3(3)(1), AHMEDABAD

ITA 1525/AHD/2024

AI Insights

The case involves Chimanbhai Chhaganbhai Pokal-HUF, who appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the additions made by the Assessing Officer under sections 10(38) and 68 of the Income Tax Act, 1961. The additions pertained to the disallowance of LTCG exemption and unexplained cash credits, respectively. The Tribunal found that the assessee had engaged in transactions that were part of a scheme to route unaccounted money into the books as exempt LTCG, thus justifying the disallowance of the LTCG exemption. However, regarding the cash deposits, the Tribunal noted that the matter required further examination and thus restored it to the Assessing Officer for a detailed investigation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668644 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Other Referred Cases: Sumati Dayal vs. CIT 214 ITR 801 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARGOVIND SINGH
• Assessee Lawyers: VIPUL KHANDHAR
• Keywords: Corroborative evidences; Unexplained cash credit; Onus to prove; Accommodation entries; Source of fund; Share purchase agreement; Benefit of exemption; Bogus
• Section: 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER I.T.A. No.1525/Ahd/2024 (Assessment Year: 2012-13) Chimanbhai Chhaganbhai Pokal-HUF, 8, Satatya Green Bunglows, B/h. Rajpath Club, Bodakdev, Ahmedabad-380054 Vs. Income Tax Officer, Ward-3(3)(1), Ahmedabad [PAN No.AABHP7994M] (Appellant) .. (Respondent) Appellant by : Shri Vipul Khandhar, A.R. Respondent by: Shri Hargovind Singh, Sr. D.R. Date of Hearing 18.06.2025 Date of Pronouncement 23.06.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 18.05.2024 passed for A.Y. 2012-13. 2. At the outset, we note that the appeal is time barred by 36 days. The assessee filed an Affidavit dated 22.08.2024 stating that the assessee was not aware about the order which was passed by the CIT(A) dated 18.05.2024. When the assessee received the recovery letter from the Department, it came to the knowledge of the assessee about the order and due to this the appeal could not be filed before the Tribunal within the stipulated time and the appeal got delayed by 36 days. Looking into the contents of the Affidavit filed by the assessee, the delay is hereby condoned, in the interest of justice. ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 2– 3. The Assessee has taken the following grounds of appeal:- 1. The CIT(A) erred both in law and on facts in confirming the adition of Rs.55,52,890/- being LTCG exemption u/s 10(38) of the IT Act, 1961. 2. The CIT(A) erred both in law and on facts in confirming the addition of Rs.32,70,000/- being unexplained cash credit u/s 68 of IT Act, 1961.” Ground No. 1:- Disallowance on account of bogus penny stock 4. The brief facts of the case are that the Assessing Officer received information from DDIT (Investigation), Calcutta that M/s. Jai Maa Kali Enterprise (Proprietor Shri Mukesh Kumar Gupta) indulged in suspicious transactions relating to cash deposits. It was found that huge amount of cash was deposited in the bank account of such enterprise, which was later transferred to Mr. Ashok Kumar Kayan, a share broker and accommodation entry provider, who in his statement categorically admitted that he is engaged in providing entries of bogus Long Term Capital Gain (in short “LTCG”) or Short Term Capital Loss (in short “STCL”). As per information received by the Assessing Officer, the assessee was one of the beneficiaries who had taken accommodation entries amounting to Rs. 59,18,118/- from Mr. Ashok Kumar Kayan. After taking the submissions of the assessee on record, the Assessing Officer noted that the assessee had purchased shares of M/s. Neo Polymers (now known as Vindus Holdings) on 10.08.2009. The assessee initially purchased 3750 equity shares for Rs. 100/- each for which assessee paid Rs. 35,000/- in cash on 01.11.2009 and thereafter, the assessee made the balance payment of Rs. 3,40,000/-, after a time span of eight months, vide cheque dated 20.07.2010. The Assessing Officer noted that just before selling the shares, the assessee made request for dematerialization of these shares and after dematerialization, the shares were sold on 24.10.2011, 08.11.2011 and 07.02.2012 through Mr. Ashok Kumar Kayan. On perusal ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 3– of the financial results of the company, it is evident that the company was not financially sound at all. However, the assessee still received more than Rs. 59 lakhs within a short span of time and claimed exemption on such sale of shares. Even on going through the history of investment in shares made by the assessee, the Assessing Officer noted that the assessee has not been dealing in shares except the instant one. Further, the Assessing Officer noted that the other family members had also taken similar benefit of exemption of bogus LTCG. The purchase of the shares were through off-market deals and not through recognized stock exchanges and the shares were converted in dematerialized form shortly before the date of sale and further, the assessee had engaged in back dating to show the purchase of shares (by obtaining bill from a suspicious broker). Accordingly, looking into the facts of the instant case, and the totality of circumstances, the Assessing Officer was of the considered view that the assessee had taken a bogus LTCG for the purpose of introducing unaccounted cash in the garb of exempt LTCG. Accordingly, the Assessing Officer added the sale consideration of Rs. 55,52,890/- to the total income of the assessee. 5. In appeal, Ld. CIT(A) dismissed the appeal of the assessee with the following observations: “4.3 I have gone through the grounds of appeal, statement of facts, assessment order and the submissions made by the appellant. It is observed from the submissions as well as the assessment order that as per the bill dated 10.08.2009 of Cosmat Marketing P Ltd. Assessee purchased 3750 equity shares of Rs. 100 each for which assessee paid Rs. 35,000/- in cash on 01.11.2009 and after that balance Rs. 3,40,000/- by cheque dated 20.07.2010 after more than 8 months of time span. The appellant had not involved in any trading activities. He purchased only one script and made gain of Rs. 59 lakhs. It is confirmed by the appellant 'that it had traded in the script. This traded value was found suspicious and detailed investigation of this issue was undertaken by the DDIT (Inv), Kolkata. Various tools available including ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 4– were used to decide the true nature of transactions executed by the assessee. The basic aim of this dubious scheme was to route the unaccounted money earned from explained / undisclosed sourced by the Beneficiaries into their account/ books in the garb of exempt long term capital gain. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as exempt LTCG. For implementing this scheme, shares of some penny stock companies were used. The same modus operand! adopted by providing accommodation entry of bogus loss. 4.3.1 It is further seen from the Investigation report that in this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices through the route of preferential allotment and off market transactions, then granting the bonus shares and finally splitting face value of the shares so that value of a share was reduced to almost a small fraction of a rupee. These shares have a lock in period of 1 year as per Securities and Exchange Board of India. General public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. Once the period of 1 year has passed and the share prices have been sufficiently rigged, the beneficiaries sell their shares at the inflated prices on the stock exchange. The purchase of shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as exist providers. The unaccounted money of the beneficiaries is routed to these bogus entities exist providers and the shares held by the beneficiaries are bought by these bogus entities from the money which is the unaccounted money of the beneficiaries.” 6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). Before us, the Counsel for the assessee submitted that the entire transaction has been carried out through banking channels and the relevant Demat Account statement and share certificate is also on record. Secondly, it was argued that the proceedings have been initiated on the assessee on account of statement of a broker namely Mr. Ashok Kumar Kayan, who has admitted to providing bogus LTCG. However, despite the specific request for cross-examination of Shri Ashok Kumar Kayan, no such opportunity of cross-examination was granted to the assessee. The Counsel for the assessee submitted that during the year, the assessee had also transacted in other scripts as well and not exclusively in the script of M/s. Vindus Holdings Ltd. Accordingly, in view of those fact, the Counsel for the assessee submitted that it is not a fit case for disallowing the LTCG as bogus. ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 5– 7. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A), in their respective orders. 8. We have heard the rival contentions and perused the materials on record. 9. On going through the facts we observe that the assessee had initially purchased 3000 equity shares of M/s. Neopolymers Pvt. Ltd. on 19.10.2009 and purchased further 750 equity shares on 19.10.2009. Thereafter, M/s. Neopolymers Pvt. Ltd. amalgamated with M/s. Vindus Holdings Ltd. and as a result of such amalgamation, in lieu of 3750 shares of M/s. Neopolymers Pvt. Ltd. held by the assessee, 18,750 shares of M/s. Vindus Holdings Ltd. were allotted to the assessee on 19.11.2010, in the ratio of 5:1. One of the arguments taken by the Counsel for the assessee is that he did not get an opportunity of cross-examination of Mr. Ashok Kumar Kayan, despite a specific request. On going through the facts of the instant case, we are of the considered view that in each and every case, it is not possible / viable to give opportunity of cross-examination. Further, in the instant case, the additions have not been made solely on the basis of statement of Mr. Ashok Kumar Kayan, but also on account of various discrepancies noted by the Assessing Officer in the assessee’s set of facts. The assessee was not a regular investor in shares, the company whose shares the assessee sold i.e. M/s. Vindus Holding Ltd. did not have any sound financials so as to justify making investment in the shares of such company, there is no justifiable reason as to why such a company with weak financials could make such astronomical gains and that too within a short duration of time, the Assessing Officer also noted that the other family members of the assessee’s family has also engaged in obtaining similar bogus LTCG, the shares were purchased through off ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 6– market transactions and the same were dematerialized only shortly before such sale of shares. Therefore, all the facts point out that the assessee had obtained bogus LTCG for the purpose of introducing his unaccounted cash in the garb of LTCG, on which exemption was claimed by the assessee. In the case of Sumati Dayal vs. CIT 214 ITR 801 (SC), the Hon’ble Supreme Court has held that the genuineness of transactions could validly be tested on the grounds or principle of preponderance of human probabilities. The Court have held that documentary evidences are not by themselves to conclusive and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case. 9.1 We further noted that in the instant case, the Counsel for the assessee submitted before us that the company M/s. Neopolymers Pvt. Ltd., in which the assessee had initially purchased the shares in the month of October 2009 had amalgamated into M/s. Vindus Holdings Ltd., which issued shares certificate to the assessee (for allotting 18750 shares) on 19.11.2010. However, on perusal of the stock holding statement of the assessee, it is seen that the shares of M/s. Vindus Holdings Ltd. were credited / appearing in the account of the assessee on 15.02.2010 itself, whereas as per the assessee’s own statement such shares were allotted to the assessee vide share certificate dated 19.11.2010. Therefore, it is quite unusual that shares of M/s. Vindus Holdings Ltd. had been allotted to the assessee on a date much prior to the date on which share certificate was issued by M/s. Vindus Holdings Ltd. to the assessee. All these facts further establish that the assessee has clearly engaged in fictitious / bogus transaction to obtain bogus LTCG. Accordingly, looking into the facts of the assessee’s case we hold that there is no infirmity in the order of Ld. CIT(A) so as to call for any interference. ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 7– 10. In the result, Ground No. 1 of the assesee’s appeal is dismissed. Ground No. 2:- Cash Deposits 11. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer noted that the assessee had made huge amount of cash deposits in his bank account. In response to notice issued by the Assessing Officer, the assessee submitted that the cash was deposited in the bank account from accumulated cash balances which have been sourced out of earlier withdrawals from the bank accounts and/or out of opening accumulated cash on hand which could be verified from the cash book for the year under consideration. However, the Assessing Officer did not agree with the contention of the assessee and noted that in the cash book, opening balance is only Rs. 5,00,000/- and the assessee has not furnished any documentary evidences and has not been able to substantiate it’s claim of cash deposit in it’s bank account amounting to Rs. 32,70,000/-. Accordingly, the Assessing Officer added this amount as unexplained income of the assessee under Section 68 of the Act. 12. In appeal, Ld. CIT(A) dismissed the appeal of the assessee with the following observations: “5.3 I have gone through the assessment order and the submissions made by the appellant. During the course of appellate proceedings, the appellant reiterated the facts narrated before the Assessing Officer. No new material has been brought on record. Even during the present proceedings also, the appellant failed to explain the nature and sources for such huge amount of cash deposits. It is seen from the ROI that the assessee is having the sources of income is other sources. Therefore, the cash deposits may not be his business turnover. In the appellate proceedings, burden of proof lies on the appellant to prove that facts and findings of the AO are incorrect. Rather than pointing out the observations of the Assessing officer, the appellant would have filed the details in support of his claim that the cash deposited are accounted money and offered to tax. Since the appellant did not come forward with any supporting evidences/information/confirmation/sale bills issued ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 8– to customers responding to the notices issued so far, the submissions of the appellant cannot be accepted. In view of the foregoing discussion, I am of the considered opinion that the addition of Rs.32,70,000/- made by the AO is justified and I hereby confirm the addition. Ground No. 7 to 9 are dismissed.” 13. Before us, the Counsel for the assessee drew our attention to Pages 36-40 of the Paper Book (copy of bank statement) and submitted that the assessee had also made substantial withdrawals from the same bank account, which was the source of cash deposited in the bank account held by the assessee. Further, the Counsel for the assessee drew our attention to cash book filed before us at (Page 41 of the Paper Book) and submitted that from a perusal of the cash book it is evident that cash was withdrawn by the assessee and thereafter deposited in another bank account. The Counsel for the assessee submitted that all these aspects had not been verified by the Assessing Officer and the entire credits appearing in the bank account was added as unexplained income in the hands of the assessee. Accordingly, in light of these facts, the Counsel for the assessee requested that the matter may be set-aside to the file of Assessing Officer for de-novo consideration, keeping in light the evidences placed on record by the assessee to prove the source of cash deposits made by the assessee in his bank account. 14. In response, Ld. D.R. also did not object to the matter being restored to the file of Assessing Officer for de-novo consideration, in the interest of justice. 15. Accordingly, looking into the instant facts, Ground No. 2 of the assessee’s appeal is hereby restored to the file of Assessing Officer for de- novo consideration and liberty is granted to the assessee to file supporting evidences in support of it’s case and thereafter, the Assessing Officer may pass appropriate orders in accordance with law. ITA No. 1525/Ahd/2024 Chimanbhai Chhaganbhai Pokal-HUF vs. ITO Asst. Year –2012-13 - 9– 16. In the result, Ground No. 2 of the assessee’s appeal allowed for statistical purposes. 17. In the combined result, the appeal of the assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 23/06/2025 Sd/- Sd/- (NARENDRA P. SINHA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/06/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 19&20.06.2025 2. Date on which the typed draft is placed before the Dictating Member 20.06.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 23.06.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 23.06.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 23.06.2025 7. Date on which the file goes to the Bench Clerk 23.06.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "