INCOME TAX OFFICER, WARD-1(1)(1), AHMEDABAD , AAYAKAR BHAVAN NEAR SACHIN TOWER ANAND NAGAR ROAD VEJALPUR AHMEDABAD V. DHWANI ALPESH SHAH, UGANDA PARK SOC, AHMEDABAD

ITA 1817/AHD/2024

AI Insights

The case involves two appeals by the Income Tax Department against Dhwani Alpesh Shah, concerning reassessment orders for the Assessment Years 2016-17 and 2017-18. The reassessment was based on allegations that the assessee benefited from bogus Long Term Capital Gains (LTCG) through price rigging of shares in Kushal Tradelinks Limited. The Assessing Officer (AO) treated these gains as unexplained credits under section 69 read with section 115BBE of the Income-tax Act, 1961, leading to substantial additions to the assessee's income. The CIT(A) reversed these additions, finding the transactions genuine based on extensive documentary evidence provided by the assessee, including broker's ledger, bank statements, and demat account statements. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of direct evidence linking the assessee to any manipulation or accommodation entry.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712787 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2016-2017
• Other Referred Cases: Parasben Kasturchand Kochar, Kishanchand Chellaram, Andaman Timber Industries, Alpesh H. Shah HUF, PCIT v. Indravadan Jain HUF, Atulbhai Amritlal Mehta v. DCIT, Manish Kumar Baid v. ACIT, Kiran Kothari v. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARGOVIND SINGH
• Assessee Lawyers: P. D. SHAH
• Keywords: Set aside; Reassessment proceedings; Unexplained cash credit; Capital Gains; Principle of natural justice; Accommodation entries; Tangible material; Procedural lapse; Bogus
• Section: 147; 148; 271(1)(c); 69

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘D’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD ]BEFORE MS.SUCHITRA R. KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.1817 and 1818/Ahd/2024 Asstt.Year : 2016-17 and 2017-18 ITO, Ward-1(1)(1) Anand Nagar, Vejalpur Ahmedabad. Vs. Dhwani Alpesh Shah 17, Uganda Park Society Subhash Chowk Opp: Sarthi Row House Memnagar Ahmedabad City Memnagar SO Ahmedabad. PAN : DXMPS 9377 G (Applicant) (Responent) Assessee by : Shri P.D. Shah, AR Revenue by : Shri Hargovind Singh, Sr.DR सुनवाई क तारीख/Date of Hearing : 24/07/2025 घोषणा क तारीख /Date of Pronouncement: 29/07/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: These two appeals filed by the assessee are directed against the separate appellate orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as \"the CIT(A)\"] for the Assessment Years 2016–17 and 2017–18 respectively. The impugned orders were passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] on 29.08.2024, arising out of the reassessment orders dated 25.03.2022 and 30.03.2022 passed by the Assessing Officer (National Faceless Assessment Centre, Delhi) under section 147 read with section 144B of the Act for A.Ys. 2016– 17 and 2017–18 respectively. Since the issues involved in both the appeals Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 2 are identical except for the quantum of addition, both appeals were heard together and are being disposed of by this common order for the sake of convenience and to avoid repetition. 2. Brief Facts of the Case 2.1 The assessee is an individual deriving income from trading in shares, capital gains, and income from other sources. For the relevant assessment years, the assessee filed her original returns of income declaring total incomes of Rs. 11,47,890/- for A.Y. 2016–17 and Rs. 39,71,120/- for A.Y. 2017–18. Pursuant to information received from the DDIT(Inv.), Unit 1(1), Ahmedabad through the Insight Portal, alleging that the assessee was one of the beneficiaries of bogus Long Term Capital Gains (LTCG) generated through rigging of share price in the scrip of Kushal Tradelinks Limited (a company identified as an accommodation entry provider), the cases of the assessee were reopened by issuance of notices under section 148 of the Act dated 29.03.2021. 2.2 The reassessment proceedings were concluded by the Assessing Officer (NFAC), who passed orders under section 147 r.w.s. 144B on 25.03.2022 and 30.03.2022 respectively for A.Ys. 2016–17 and 2017–18, making the following additions: Assessment Year LTCG Addition Assessed Total Income 2016–17 Rs.1,38,28,376/- Rs.1,48,42,560/- 2017–18 Rs.1,28,65,612/- Rs.1,68,10,042/- 2.3 The additions were made on the ground that the transactions of sale of shares of Kushal Ltd. were nothing but accommodation entries and lacked genuineness. The AO observed that the share price of Kushal Ltd. had risen from Rs.2 to Rs.469 within a short span without any corresponding financial fundamentals, and concluded that the price Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 3 movement was artificially manipulated. Relying on general observations regarding modus operandi of penny stock companies, the AO held that the capital gains earned by the assessee were unexplained credits assessable under section 69 read with section 115BBE of the Act. Accordingly, penalty proceedings were initiated under section 271(1)(c) for A.Y. 2016–17 and under section 271AAC(1) for A.Y. 2017–18. 2.4 In the appellate proceedings before the learned CIT(A) the assessee challenged the validity of the reassessment proceedings and also contested the addition made by the Assessing Officer treating the long-term capital gains (LTCG) earned from sale of shares of Kushal Tradelink Ltd. as unexplained income under section 69 of the Act. The assessee submitted that the transactions of purchase and sale of shares were carried out through a SEBI-registered broker on recognized stock exchange platforms, and the payments for purchase and receipts from sale were made through normal banking channels. It was contended that the shares were credited to the assessee’s demat account and were held for a period exceeding 25 months prior to their sale, which demonstrates that the gains arose from genuine investment activity and not from any pre-arranged accommodation entry scheme. 2.5 In support of the claim, the assessee furnished extensive documentary evidence including contract notes for purchase and sale, demat account statements reflecting credit and debit of shares, bank statements evidencing payments and receipts, as well as the broker's ledger. These documents, according to the assessee, were duly submitted during the course of assessment proceedings and had not been disputed or disproved by the Assessing Officer. The assessee further submitted details of Kushal Tradelink Ltd., including its market capitalization exceeding Rs. 6,500 crore, dividend payment history, bonus issuance, and wide public shareholding. It was also pointed out that the said company was listed on the BSE and was not a penny stock as generally perceived. Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 4 2.6 The assessee also took strong exception to the action of the Assessing Officer in relying upon the Investigation Wing report and drawing adverse inference without confronting the assessee with any adverse material or allowing opportunity of cross-examination of any person relied upon. It was contended that there was no evidence of cash movement, no seizure or recovery of documents indicating collusion, and no inquiry from the brokers or stock exchange authorities to substantiate the allegation of price rigging. The AO, as per the assessee, acted on mere suspicion and generalized findings, without demonstrating any link between the assessee and any alleged operator or entry provider. Further, the assessee also highlighted procedural lapses such as denial of hearing through video conferencing despite a specific request and technical difficulties faced in uploading submissions prior to the closure of the portal. 3. After considering the submissions of the assessee and the material on record, the learned CIT(A) found merit in the contention that the transactions were duly supported by documentary evidences, carried out through recognized exchanges, and settled through demat and banking channels. It was observed by the CIT(A) that no adverse inference could be drawn merely on the basis of price movement or general allegations against the scrip when the assessee had discharged her onus by furnishing cogent documentation. The CIT(A) also held that the Assessing Officer had failed to bring any tangible material or direct evidence linking the assessee with any entry provider or to establish that the transaction was arranged to convert unaccounted money into LTCG. 3.1 In reaching this conclusion, the CIT(A) relied on several judicial precedents, including the decisions of the Hon’ble Gujarat High Court in Parasben Kasturchand Kochar, the Hon’ble Supreme Court in Kishanchand Chellaram and Andaman Timber Industries, as well as coordinate Bench rulings of the Ahmedabad ITAT in Alpesh H. Shah HUF and others, where similar additions based on generic reports and unsubstantiated suspicions were held to be unsustainable. The CIT(A) thus concluded that in the Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 5 absence of any material disproving the genuineness of the transactions or linking the assessee to any alleged manipulation, the addition made by the Assessing Officer could not be sustained. Accordingly, the CIT(A) deleted the addition of Rs.1,38,28,376/- for A.Y. 2016–17 and Rs.1,28,65,612/- for A.Y. 2017–18, and allowed the appeals in full. 4. Aggrieved by the orders of CIT(A), the Revenue is in appeal before us raising following common grounds of appeal except the quantum involved – In ITA No. 1817/Ahd/2024 1. Whether on the facts and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,38,28,376/- (In ITA No.1818 the amount is Rs.1,28,65,612/-), without appreciating the facts of the case? 2. Whether on the facts and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee has transacted with M/s Kushal Group, an entity which is an accommodation entry provider? 3. The appellant craves leave to add, amend, alter or withdraw any ground, which may be necessary. 4. It is therefore prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored. 5. During the course of appellate proceedings before us, the learned Departmental Representative (“DR”) supported the reassessment orders passed by the Assessing Officer in both assessment years and submitted that the action of the AO was based on concrete field information received from the Investigation Wing, Ahmedabad, pointing out large-scale accommodation entries and artificial LTCG generated through price rigging in the scrip of Kushal Tradelink Ltd. The DR emphasised that the price of the said scrip had risen abnormally from Rs.2 to over Rs.469 in a short span, which was not supported by fundamentals of the company, and that such price rise was a classic indicator of artificial rigging. In view of the above, the DR urged that the findings of the Assessing Officer be upheld and the orders of the CIT(A) deleting the impugned additions be reversed. Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 6 5.1 In response, the learned Authorised Representative (“AR”) appearing on behalf of the assessee relied on the detailed findings recorded by the learned CIT(A) and submitted that the orders passed by the appellate authority were well-reasoned, supported by material evidence, and in accordance with settled judicial principles. 6. We have carefully perused the assessment order, the impugned appellate order passed by the learned CIT(A), the documentary evidences furnished by the assessee, and the rival submissions advanced before us. 6.1 The addition of Rs.1,38,28,376/- (in A.Y. 2016–17) and Rs.1,28,65,612/- (in A.Y. 2017–18) made by the Assessing Officer under section 69 of the Act pertains to the sale of shares of Kushal Tradelink Ltd., which the Assessing Officer treated as a bogus accommodation entry arising out of penny stock manipulation. The AO relied primarily on a report of the Investigation Wing and general allegations of price rigging without bringing on record any direct nexus between the assessee and any accommodation entry provider. No material evidence, such as a money trail or statement implicating the assessee, was cited by the AO to substantiate the charge of sham transaction. 6.2 The learned CIT(A), after a comprehensive appreciation of the record, has rendered a well-reasoned finding supported by judicial precedents and evidentiary material placed before the AO. The assessee had furnished complete documentation, including contract notes for purchase and sale, demat statements, bank statements evidencing payment for purchase and receipt of sale proceeds, NSDL transaction statement, and broker ledger. The shares were purchased on the stock exchange through a registered broker, held in the demat account for over two years, and sold on the exchange platform with STT duly paid. 6.3 The CIT(A) noted that Kushal Tradelink Ltd. was not a penny stock in the conventional sense. It was a dividend-paying, profit-making company Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 7 with a turnover of Rs. 1,589.90 crore and net profit of Rs. 105.81 crore as on 31.03.2016. The company had issued bonus shares, had subsidiaries abroad, and the price movement in the shares did not follow a bell-curve pattern. The CIT(A) rightly observed that an investor cannot be faulted merely because the market price of a scrip witnessed an unusual upward trend. 6.4 It was further observed that the AO failed to point out any defect in the documentary evidences furnished, nor did he establish that any cash was involved or routed back to the assessee. The entire addition was made on the basis of surmises and general suspicion, without any investigation specific to the assessee. The assessee’s request for cross-examination of the person(s) whose statements were relied upon was not granted, rendering the assessment vulnerable to violation of the principles of natural justice. The CIT(A) has rightly relied upon the decisions of the Hon’ble Supreme Court in Andaman Timber Industries v. CCE [Civil Appeal No. 4228 of 2006] and the Bombay High Court in CIT v. Mukesh Ratilal Marolia [ITA No. 456 of 2007], where denial of cross-examination was held to vitiate the proceedings. 6.5 The CIT(A) also relied on the judgment of the Hon’ble Bombay High Court in PCIT v. Indravadan Jain HUF (ITA No. 454 of 2018, dated 12.07.2023), and the decisions of the coordinate Benches in Atulbhai Amritlal Mehta v. DCIT [2023 TAXSCAN (ITAT) 709], Manish Kumar Baid v. ACIT [ITA No. 1237/Kol/2017], and Kiran Kothari v. ITO [ITA No. 443/Kol/2017], to support the proposition that once the assessee has discharged the initial onus through documented evidence and the Revenue fails to rebut the same with credible contrary material, the capital gains cannot be treated as bogus merely on the basis of suspicion. 6.6 We find no infirmity in the conclusion drawn by the learned CIT(A) that the AO proceeded merely on presumptions drawn from third-party investigations without making any enquiry or verification specific to the Printed from counselvise.com ITA No.1817 and 1818/Ahd/2024 8 assessee’s case. The explanation of the assessee that her sale prices (ranging from Rs. 71.40 to Rs. 112.86) were much lower than the peak price of Rs.611 per share was not controverted by the AO and negates the theory of a pre-mediated accommodation exit. 6.7 In the totality of facts and circumstances, and considering the documentary evidence on record and the settled legal position that suspicion cannot replace proof, we are in agreement with the findings of the learned CIT(A) that the long-term capital gain earned by the assessee was genuine and cannot be brought to tax under section 69. The Revenue’s appeal, bereft of any fresh material or cogent reasoning, merits no interference. 7. In the result, both the appeals filed by the Revenue for A.Y. 2016–17 and A.Y. 2017–18 are dismissed. Order pronounced in the Court on 29th July, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA R. KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 29/07/2025 vk* Printed from counselvise.com "