GITABEN DINESHBHAI PATEL,AHMEDABAD V. ITO WARD 5(3)(1), AHMEDABAD

ITA 717/AHD/2025

AI Insights

The case involves Gitaben Dineshbhai Patel, the appellant, who contested the reassessment of her income for the Assessment Year 2017-18 by the Income Tax Officer, Ward-1(2)(1), Ahmedabad. The reassessment was based on information from the Investigation Wing indicating that the shares of Kushal Tradelink Ltd., from which the appellant claimed LTCG, were part of a scheme to provide accommodation entries of bogus capital gains. The Commissioner of Income Tax (Appeals) upheld the reassessment, leading to this appeal. The Tribunal examined the validity of the reassessment and the merits of the addition under section 68, ultimately dismissing the appeal and affirming the lower authorities' decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783544 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 31-03-2025
• Other Referred Cases: CIT v. SFIL Stock Broking Ltd., CIT v. Atul Jain, Kamdhenu Steel & Alloys Ltd. v. CIT, Varshaben Sanatbhai Patel v. ITO, Meenakshi Overseas (P.) Ltd. v. Pr. CIT, Backbone Projects Ltd. v. ITO, Swati Bajaj v. ITO, Principal Commissioner of Income-tax v. Smt. Usha Devi Modi, Suman Poddar v. Income Tax Officer, Kaushik Chandravadan Parikh v. ACIT, Income-tax Officer v. Neetaben Snehalkumar Patel, Shailesh K. Patel HUF v. ITO, Smt. Paramadevi Tekriwal v. ITO, Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd., Sumati Dayal v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: ANIL KSHATRIYA
• Keywords: Reassessment proceedings; Income from undisclosed sources; Reopening of assessment; Capital Gains; Principle of natural justice; Search and seizure; Accommodation entries; Assessment record; Deemed to accrue or arise in india; Tangible material; Borrowed satisfaction; Bogus
• Section: 147; 148; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.717/Ahd/2025 (Assessment Year: 2017-18) Gitaben Dineshbhai Patel, 2nd Floor, Anison Building, Swastik Society, Navrangpura, Ahmedabad-380009 Vs. Income Tax Officer, Ward-5(3)(1), Ahmedabad Now Income Tax Officer, Ward-1(2)(1), Ahmedabad [PAN No.ABEPP8382M] (Appellant) .. (Respondent) Appellant by : Shri Anil Kshatriya, Advocate Respondent by: Shri Abhijit, Sr. DR Date of Hearing 14.08.2025 Date of Pronouncement 04.11.2025 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 11.03.2025 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the Order so passed by the Ld. AO is bad in law, illegal, invalid as passed without assuming a valid jurisdiction and also that of the Ld. CIT(A) inasmuch as that the order appealed against is a result of a complete misunderstanding, non-reading of cogent document evidences produced by the appellant and being in violation of principle of natural justice the impugned appellant order renders itself as perverse and devoid of any merit. Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 2– 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has further erred in dismissing the legal grounds no. 1 & 2 of the appeal filed before him challenging the impugned assessment order so passed by the A.O. being in violation of set procedure of law and thus being void ab initio. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has further erred in denying justice, without any justification and thereby further erred in sustaining addition of Rs.93,92,789/- representing LTCG claimed by the appellant as deemed income u/s.68 of the Act.” 3. The brief facts of the case are that the assessee filed her return of income for the Assessment Year 2017-18 declaring a total income of Rs. 13,74,880/-. The case was reopened under section 147 of the Income-tax Act, 1961 (“the Act”) and assessment was completed under section 147 read with section 144B of the Act. During the reassessment proceedings, the Assessing Officer made an addition of Rs. 93,92,789/- under section 68 of the Act by treating the Long-Term Capital Gain (LTCG) claimed by the assessee as exempt under section 10(38) as bogus. The Assessing Officer was of the view that the assessee had earned the impugned capital gain from sale of shares of Kushal Tradelink Ltd., which, according to the information received from the Investigation Wing, was one of the penny stock companies used for providing accommodation entries of bogus capital gains and losses. The Assessing Officer relied upon the findings of the Investigation Wing and SEBI’s order on price manipulation of the said company’s shares to hold that the assessee had converted her unaccounted income into legitimate form by claiming the said LTCG as exempt. Accordingly, the entire gain of Rs. 93,92,789/- was added to the assessee’s income under section 68 of the Act and the assessment was completed on that basis. 4. Before the Commissioner of Income Tax (Appeals), the assessee challenged the validity of the reassessment proceedings as well as the Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 3– addition on merits. The primary ground raised was that the reassessment notice under section 148 was issued mechanically and without any independent application of mind by the Assessing Officer. It was contended that the reassessment proceedings were initiated solely on the basis of information received from the Investigation Unit, without the Assessing Officer forming his own satisfaction as to escapement of income. The assessee argued that such reopening of assessment was bad in law, being based on borrowed satisfaction. To support this contention, reliance was placed on several judicial precedents including CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi), CIT v. Atul Jain [2008] 299 ITR 383 (Delhi), Kamdhenu Steel & Alloys Ltd. v. CIT [2008] 248 CTR 33 (Delhi), Varshaben Sanatbhai Patel v. ITO (Gujarat High Court, ITA No. 12873 of 2014, dated 13.10.2015), and Meenakshi Overseas (P.) Ltd. v. Pr. CIT [2017] 82 taxmann.com 300 (Delhi). The assessee further submitted that all transactions of purchase and sale of shares were genuine and supported by documentary evidence including contract notes, demat account statements, and bank statements showing payments through banking channels. The assessee submitted that the purchases were made from the open market through a registered stockbroker, shares were held in demat form, and the sales were executed on recognized stock exchanges at prevailing market prices. The assessee also submitted that the Assessing Officer had not brought any material evidence on record to prove that the broker or the counterparty was engaged in providing accommodation entries, or that the assessee had received any cash in exchange for these transactions. It was contended that the addition was made merely on the basis of general findings of the Investigation Wing and not on any specific material Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 4– related to the assessee. The assessee also drew attention to a decision in a comparable case of her close relative, Pranav Mahendrabhai Patel v. NFAC, Delhi (ITA No. 10118737/A.Y. 2017-18, dated 12.12.2023), wherein under identical facts and circumstances, the addition made under section 68 in respect of sale of shares of Kushal Tradelink Ltd. had been deleted by the NFAC, holding that the scrip was not a penny stock and was still being traded on BSE. However, the learned CIT(Appeals) did not accept the submissions of the assessee. In his order, the CIT(A) first dealt with the issue of validity of reopening and held that the notice under section 148 was validly issued. The CIT(Appeals) observed that tangible material had been received from the Investigation Wing following search and seizure operations in the Kushal Group of Ahmedabad, which revealed that the group was engaged in providing accommodation entries of bogus capital gains. The CIT(A) relied on the judgment of the Gujarat High Court in Backbone Projects Ltd. v. ITO [2021] 131 taxmann.com 80 (Gujarat), where it was held that a reopening of assessment based on credible information from the Investigation Wing and supported by further verification by the Assessing Officer was valid. Accordingly, the CIT(A) rejected the assessee’s ground challenging the validity of reopening and upheld the action under section 147 of the Act. On the merits of the addition under section 68, the CIT(Appeals) noted that the scrip of Kushal Tradelink Ltd. was found by SEBI to have been manipulated through synchronized and reversal trades by connected entities, leading to artificial price rise. The SEBI adjudication order dated 31.05.2019, after detailed investigation, concluded that the trades in Kushal Tradelink Ltd. were fraudulent and designed to create a misleading appearance of genuine trading. The CIT(A) further observed that the Assessing Officer had rightly Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 5– held that the assessee had benefitted from the artificial rise in prices and had failed to discharge the onus of proving that the capital gains were genuine. The CIT(Appeals) referred to the decision of the Hon’ble Calcutta High Court in Swati Bajaj v. ITO (IA No. GA/2/2022), the CIT(A) noted that in similar cases involving penny stock transactions, the courts had upheld the application of the test of human probabilities and held that the Assessing Officer was justified in treating such gains as bogus where the transactions lacked commercial substance. The CIT(A) observed that the assessee had not provided any evidence to demonstrate independent evaluation or risk analysis before investing in the shares of Kushal Tradelink Ltd. and that the conduct of the assessee was inconsistent with that of a prudent investor. Therefore, applying the principle of preponderance of probabilities, the CIT(A) held that the transactions were non-genuine and that the LTCG claimed as exempt under section 10(38) represented unexplained income assessable under section 68 of the Act. Accordingly, the CIT(Appeals) dismissed the appeal of the assessee both on the issue of validity of reopening and on the merits of the addition. 5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. 6. We have heard the rival contentions and perused the material available on record. The issue under consideration relates to the validity of reopening of the assessment under section 147 of the Income-tax Act, 1961. The assessee has contended that the reassessment notice issued under section 148 was invalid, being based solely on information received from the Investigation Wing without any independent application of mind by the Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 6– Assessing Officer. However, on a careful consideration of the findings of the learned CIT(Appeals) and the materials forming part of the assessment record, we find no infirmity in the conclusion arrived at by the CIT(Appeals). We observe that the Assessing Officer had received credible and tangible material from the Investigation Wing following search and seizure operations conducted in the Kushal Group of Ahmedabad, which revealed the group’s involvement in providing accommodation entries of bogus long-term capital gains and losses. The Assessing Officer thereafter examined the material, conducted necessary verifications, and recorded satisfaction that income chargeable to tax had escaped assessment in the case of the assessee. The learned CIT(Appeals) has rightly relied upon the judgment of the Hon’ble Gujarat High Court in Backbone Projects Ltd. v. ITO [2021] 131 taxmann.com 80 (Gujarat), wherein it was held that when an Assessing Officer receives tangible material from the Investigation Wing and, after conducting inquiries and applying his mind, forms a belief that income has escaped assessment, the reopening of assessment under section 147 is valid in law. In the present case, the information received from the Investigation Wing was duly examined and acted upon by the Assessing Officer in a reasonable and judicious manner. The formation of belief by the Assessing Officer that income had escaped assessment cannot be said to be based on borrowed satisfaction. The material on record establishes that the reopening was not a mechanical exercise but was based on cogent information and due satisfaction recorded by the Assessing Officer. We, therefore, find no error in the finding of the learned CIT(Appeals) in upholding the validity of the reassessment proceedings. In light of the above discussion and following the ratio laid down by the Hon’ble Gujarat High Court in Backbone Projects Ltd. Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 7– v. ITO (supra), we hold that the reassessment proceedings initiated under section 147 of the Act are valid in law. On this issue, we find no infirmity in the order of the learned CIT(Appeals) so as to call for any interference. Accordingly, this ground of appeal raised by the assessee is dismissed. 7. On merits, the ld. counsel for the assessee also placed reliance on the decision of order of the CIT(A), NFAC in Pranav Mahendrabhai Patel v. ITO (ITA No. NFAC/2016-17/10118737, order dated 12.12.2023), where on identical facts involving the same scrip Kushal Tradelink Ltd., the addition made under section 68 of the Act was deleted. The said order was subsequently affirmed by the ITAT Ahmedabad Bench in ITA No. 182/Ahd/2024, dated 17.12.2024. 8. We have heard the rival contentions and perused the material on record. The issue involved in the present appeal relates to the addition made under section 68 of the Acton account of alleged bogus Long-Term Capital Gain (LTCG) arising from sale of shares of Kushal Tradelink Ltd. claimed by the assessee as exempt under section 10(38) of the Act. It is an admitted position that despite repeated opportunities, the assessee has not furnished any plausible or satisfactory explanation as to why such a large number of shares of Kushal Tradelink Ltd., a company having no financial credentials, business performance, or market fundamentals, were purchased, nor was any material placed on record to justify the astronomical rise in its share price within a short span of time. Mere reliance on contract notes, demat statements, and bank payment records cannot discharge the onus placed upon the assessee under section 68 of the Act to prove the genuineness of the transactions, particularly when the surrounding facts and circumstances point Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 8– to a pre-arranged and artificial accommodation entry designed to convert unaccounted income into exempt capital gains. 9. We find that the Assessing Officer has drawn his conclusions based on cogent material and well-documented findings of the Investigation Wing and the SEBI order, which established that the shares of Kushal Tradelink Ltd. were part of a manipulated trading pattern through synchronized and circular trades by connected entities, resulting in artificial inflation of the share price. The assessee’s failure to justify the investment in such a company clearly demonstrates that the entire transaction was a colourable device lacking any commercial substance. 10. The Hon’ble Calcutta High Court in Principal Commissioner of Income-tax v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta)/[2022] 288 Taxman 403 (Calcutta)/[2022] 446 ITR 56 (Calcutta) has laid down that where there is data showing an unreasonable rise in the prices of shares of penny stock companies over a short period, the genuineness of such a rise must be established by the assessee, and in the absence of satisfactory explanation, the Assessing Officer is bound to invoke section 68. The Court further observed that genuineness cannot be established merely through bank statements, contract notes, or demat accounts when the factual matrix and conduct of the assessee defy human probability. Applying this ratio, the onus that lay upon the assessee in the present case has not been discharged. Similarly, in Principal Commissioner of Income-tax v. Smt. Usha Devi Modi [2023] 151 taxmann.com 119 (Calcutta), the Hon’ble High Court upheld the Revenue’s action in treating gains on sale of penny stock shares as unexplained income under section 68 where the assessee failed to establish Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 9– the identity and creditworthiness of counterparties and could not substantiate the genuineness of steep price rise in shares of a company with no commercial worth. The ratio of this judgment squarely applies to the present case, as the assessee has completely failed to demonstrate the bona fides of the impugned transactions or to explain the rationale of investment in Kushal Tradelink Ltd. The Hon’ble Supreme Court in Suman Poddar v. Income Tax Officer [2019] 112 taxmann.com 330 (SC)/[2020] 268 Taxman 320 (SC) dismissed the SLP against the findings of the Delhi High Court and ITAT that share transactions involving penny stock companies were bogus and that the purported long-term capital gains were to be treated as unexplained income. The Hon’ble Apex Court thereby affirmed that findings based on appreciation of evidence and human probabilities in such cases are pure findings of fact that require no interference. 11. The above legal principles have been consistently followed by various judicial authorities, including Kaushik Chandravadan Parikh v. ACIT [2025] 172 taxmann.com 694 (Mumbai - Trib.), Income-tax Officer v. Neetaben Snehalkumar Patel [2024] 167 taxmann.com 660 (Ahmedabad - Trib.), Shailesh K. Patel HUF v. ITO [2024] 164 taxmann.com 669 (Ahmedabad - Trib.), and Smt. Paramadevi Tekriwal v. ITO [2025] 172 taxmann.com 430 (Ahmedabad - Trib.), wherein it has been categorically held that long-term capital gains arising from manipulated penny stock transactions, supported only by paper documentation, cannot be treated as genuine. 12. We note that the assessee contended that the transactions were genuine and duly supported by documentary evidence such as demat statements, Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 10– contract notes, and bank records. The assessee also placed reliance on the order of the ITAT Ahmedabad Bench in ITO v. Deval Pranav Patel (L/H of Late Shri Pranav Mahendrabhai Patel), ITA No. 182/Ahd/2024, dated 17.12.2024, where the Tribunal had deleted a similar addition relating to the same scrip, M/s. Kushal Tradelink Ltd., and held that the transactions were genuine. However, it is well-settled law that judicial precedents are to be applied in the context of their specific facts and circumstances. Each case must rest upon its own factual matrix, and no decision can be treated as a binding precedent for a proposition divorced from the context in which it was rendered. The Hon’ble Supreme Court in Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442 (SC)/[1992] 198 ITR 297 (SC)/[1992] 107 CTR 209 (SC) has clearly laid down that “it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration, and treat it to be the complete law declared by the Court.” The Court further observed that “a judgment must be read as a whole, and the true ratio must be understood in light of the questions that were before the Court; a decision takes its colour from the facts of the case in which it was rendered.” 13. The principle enunciated by the Hon’ble Supreme Court in Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) is also squarely applicable here, wherein it was held that the test of human probabilities and surrounding circumstances must prevail over mere documentary evidence while determining genuineness of income transactions. The pattern of conduct of the assessee in the instant case, the absence of commercial rationale, and the artificially inflated share prices of Kushal Tradelink Ltd. clearly demonstrate Printed from counselvise.com ITA No. 717/Ahd/2025 Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 11– that the entire transaction was a premeditated arrangement to obtain tax exemption on fictitious gains. 14. In light of the above discussion and judicial precedents, we hold that the Assessing Officer has rightly invoked the provisions of section 68 and treated the so-called Long-Term Capital Gain as unexplained income, since the assessee failed to establish the genuineness of the transactions or to discharge the onus placed upon her under the statute. The findings of the Assessing Officer are consistent with the principles laid down by the Hon’ble Calcutta High Court in Swati Bajaj (supra), Usha Devi Modi (supra), and the Hon’ble Supreme Court in Suman Poddar (supra) and Sumati Dayal (supra). 15. Accordingly, the appeal filed by the assessee is, therefore, dismissed. 16. In the result, the appeal filed by the assessee is dismissed. This Order pronounced in Open Court on 04/11/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 04/11/2025 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 Printed from counselvise.com "