INCOMET TAX OFFICER, MUMBAI V. DEEPAK GOVINDBHAI GANGANI, MUMBAI

ITA 5945/MUM/2024

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the CIT(A) which had allowed the appeal of the assessee, Deepak Govindbhai Gangani, for the Assessment Year 2011-2012. The assessee was implicated in transactions involving Aarya Global Shares and Securities Ltd., a penny stock, which were used to introduce unaccounted income into the books of beneficiaries. The Assessing Officer had made an addition of INR.82,44,116 in the hands of the assessee under Section 69 of the Income Tax Act, 1961, treating it as unexplained investment. The CIT(A) had deleted this addition, accepting the assessee's claim of being merely a commission agent and exit provider in these transactions. The Tribunal, however, found procedural lapses in the CIT(A)'s acceptance of additional evidence and directed a fresh examination of the case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782958 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: misc
• Appeal Filed On: 18-11-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE; ISSUANCE OF NOTICE; DATED; UNDER SECTION
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Unexplained investment; Income from undisclosed sources; Capital Gains; Source of fund; Bogus
• Section: 147; 148; 144; 69

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.5945/MUM/2024 (Assessment Year:2011-2012) Income Tax Officer Ward 41(2)(1), Mumbai 833, Kautilya Bhavan, Bandra (East), Mumbai – 400051. Maharashtra …………. Appellant Deepak Govindbhai Gangani 21, Sanjay Gandhi Nagar, Dr. RP Road, Mulund (West), Mumbai – 400080, Maharashtra. [PAN:AMMPG5038L] Vs …………. Respondent Appearance For the Appellant/Department For the Respondent/Assessee : : Shri Annavaran Kosuri None Date Conclusion of hearing Pronouncement of order : : 01.10.2025 30.10.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Revenue is directed against the order, dated 03/09/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] whereby the Ld. CIT(A) had allowed the appeal against the Assessment Order, dated 17/12/2018, passed under Section 144 read with Section 147 of the Income Tax Act, 1961 for the Assessment Year 2011-2012. 2. The Revenue has raised following grounds of appeal : “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the appeal of the assessee despite the fact that Printed from counselvise.com 2 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 the assessee is one of the beneficiaries in the transactions of sale and purchases of scrip of Aarya Global Shares and Securities Limited (penny stock). 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the appeal of the assessee merely on the basis of two affidavits furnished by the assessee – one from himself stating that he was opened share trading and demat account for which he was received commission and another from one Deepak Rathod, who has accepted that he has introduced himself to many persons and they have opened bank accounts for commission. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the appeal of the assessee despite the fact that the authenticity of the affidavits furnished by the assessee could not be verified by the AO in absence of original affidavits during remand proceedings.” 3. The relevant facts in brief are that assessee, resident individual, filed return of income for the Assessment Year 2011-2012 on 26/03/2013. Information was received from Deputy Director of Income Tax Investigation Unit – 8(2), Mumbai to the effect that a company, namely Aarya Global Shares and Securities Ltd., listed on Bombay Stock Exchange with scrip Code 531731 has been used for the purpose of introduction of unaccounted income by way of long term capital gain/short term capital loss in the books of account of the beneficiaries and that the Assessee had also benefited from the said transaction. Reassessment proceeding were initiated in the case of the Assessee by issuance of notice, dated 30/03/2018, under Section 148 of the Act. Since the Assessee did not respond to the aforesaid process, another opportunity was granted to the Assessee to file the return of income and in response to the same, Assessee filed Letter, dated 01/10/2018, requesting for some more time to file return of income. During the assessment proceedings, the Assessee filed an affidavit stating that his bank account and Demat account were operated by one Mr. Rakesh Doshi who had undertaken transaction of purchase and sale of share in the name of the Assessee. In the said Printed from counselvise.com 3 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 affidavit, the Assessee stated that the Assessee did not have the requisite financial capacity to undertake the transaction and was told by one Mr. Deepak Rathod and Mr. Bhavesh Makwana, associates of Mr. Rakesh Doshi, that all the funds for the said transactions would be arranged by Mr. Rakesh Doshi. It was submitted that the Assessee was merely a commission agent who had received commission for name-lending. After filing the aforesaid documents/details, the Assessee did not come forward to file return of income or to make any further submissions. Therefore, the Assessing Officer proceeded to frame under Section 144 of the Act. The Assessing Officer noted that investigation carried out by the Mumbai Investigation Directorate clearly established that the Aarya Global Securities Ltd. was a penny stock company listed on BSE. In a pre-determined manner, the shares of aforesaid penny stock company were allotted/purchased and sold for claiming artificial capital gain/loss by the beneficiaries and analysis of the trades undertaken in the said script showed that the sale/purchase transactions were manipulated and this was taken note of by the Securities and Exchange Board of India (SEBI) and investigation into the said irregularities was carried out. SEBI found that a group of 15 people had traded amongst themselves in the said penny stock scrip to artificial increase the price of the script. The Assessing Officer note that during the relevant previous year, the Assessee had bought shares of INR.1,08,09,355/- and had sold shares for INR.25,65,239/-. Assuming that the part of the purchases were funded by the said sale proceeds, the Assessing Officer made an addition of INR.82,44,116/- [INR.1,08,09,355/- less INR.25,65,239/-] in the hands of the assessee invoking provisions contend in Section 69 of the Act vide Assessment Order, dated 17/12/2018. 4. Being aggrieved, the Assessee challenged the above addition in appeal before Learned CIT(A). The Assessee filed written submission before Learned CIT(A) supporting the grounds raised by the Assessee Printed from counselvise.com 4 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 in appeal. Taking into consideration, the aforesaid submission as well as the affidavit of Mr. Deepak Rathod an employee/associate of Mr. Rakesh Doshi, the Learned CIT(A) called for a remand report from the Assessing Officer. In response, the Assessing Officer filed remand report before Learned CIT(A) on 28/06/2024 which was followed by another remand report dated 19/07/2024. In the said remand report, the Learned Assessing Officer objected to the admission of additional evidences being furnished by the Assessee. However, the Learned CIT(A) accepted the contention of Assessee that the Assessee was merely an exit provider and observed that having filed affidavit disclosing party is benefitting from the sales/purchase on action, the Assessee had discharged the onus to place on record the correct fact. On the other hand, the Assessing Officer had simply rejected the evidences/documents furnished by Assessee without conducted any enquiry and calling for any information or details from Mr. Deepak Rathod who had by way of written affidavit, explained the modus operandi and had supported the case of the assessee by stating that assessee was merely a commission agent. Making the above observation, the Learned CIT(A) allowed the appeal and deleted the addition made in the hands of the Assessee. 5. Being aggrieved the revenue has preferred the present appeal before the Tribunal on the ground that reproduced in Paragraph 2 above. 6. When the appeal was taken up for hearing, none was present on behalf of the Assessee. However, after going through the memorandum of appeal and the other material on record, we proceeded to hear the Learned Departmental Representative for adjudicating the appeal on merit. 7. We have given thoughtful consideration to the submissions advanced by the Learned Departmental Representative and the stand taken by the Assessee before the Learned CIT(A). We find that on perusal of Printed from counselvise.com 5 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 the impugned order while granting relief to the Assessee, the Learned CIT(A) has made following observation: “10. If Ld. A.O. wants any evidence or report on how there was this drastic change of share price, he should examine reports of M/s. Aarya Globals shares and Securities. How Appellant should know about the performance of the company. According to Ld. A.O. the director of Aarya Global were not able to provide any circumstantial evidence to prove that anything was held between prospective allottees and directors, no proof was given as to how the allottees were identified and how they were communicated to attend the meeting. If this is the concern of Ld. A.O he should ask to M/s Aarya Globals shares and securities and not to the Appellant. How Appellant will be liable if there is any discussion has been held between members and directors or allottees if Appellant is no way involved in any business or management or work taking place in that company. 11. From the facts and analysis mentioned by Ld. A.O. it appears that the scrip M/s Aarya Global Shares & Securities Ltd has been used to provide bogus long Term Capital Gains to various beneficiaries. This again has no relation with Appellant. From the discussion, in order it is concluded that the assessee has acted as an exit provider and rendered help in the method to evade taxes and launder money, but the question here is that is Appellant that learned enough to be familiar with the facts that there is something known as money laundering, evasion of tax any whether he knows that there can be any benefit availed from it. 12. It is Mr. Deepak Rathod who asked Appellant to open Demat account for some profit and the credentials were provided. Even in the Affidavit submitted by Mr. Deepak Rathod, it is stated that he completed his education till 7th STD from Guajarati medium. There is no such involvement of Appellant which can state that all these transactions were carried out by Appellant to avail any tax benefit. 13. In view of the discussion it is clear that the Appellant has acted in the role of exit provider and he has purchased the shares of Aarya Global and his source of funds for the purchase of the same is unexplained and hence it is considered that he has made the investment in Aarya Global and acted as an exit provider and hence the same is treated as an unexplained investment and brought to tax under section 69 of the I.T Act by Ld. A.O. but Printed from counselvise.com 6 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 there is no evidence that Appellant was acting as exit provider and for his own benefits he had made changes in price of shares of company.” 8. On perusal of above, we find that while Learned CIT(A) has noted that no enquiry was carried out by the Assessing Officer, the Learned CIT(A) has failed to examine the relevant facts. No reasoning has been given by Learned CIT(A) for admitting the additional evidence even though the Assessing Officer has opposed admission of additional evidence contending that the Assessee had failed to show why additional evidence should be admitted in terms of Rule 46A of the Income Tax Rules, 1963. Rule 46A of the Income Tax Rules, 1963 provides of circumstances in which additional evidence can be admitted by the first appellate authority. 9. As per Rule 46A(2) of the Income Tax Rules, 1963 the first appellate authority is required to record reasons in writing for admitting such additional evidence. We find that in the present case, the CIT(A) has failed to comply with Rule 46A(2) of the Income Tax Rules, 1963 as the additional evidence has been admitted without recording the reasons.Therefore, in our view, the impugned order, dated 03/09/2024, passed by Learned CIT(A) cannot be sustained as far as admission of additional evidence is concerned. 10. Further, we note that the CIT(A) has accepted additional evidence without examining its veracity or carrying out any independent examining. The CIT(A) has recorded that the Assessing Officer was required to carry out thorough verification of additional evidence in the remand proceedings and since the Assessing Officer had not done the same, the Learned CIT(A) proceeded to accept the veracity of additional evidence and relied upon the same to grant relief to the Assessee. From the material on record, it is not clear as to what enquiry/investigation was carried out in relation to 81 parties identified by Mr. Deepak Rathod in his affidavit. Given the totality of Printed from counselvise.com 7 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 facts and circumstances of the case, we deem it appropriate to set aside the order, dated 03/09/2024 passed by Learned CIT(A) with the directions to adjudicate the appeal preferred by the Assesee afresh after granting the Assessee a reasonable opportunity of being heard and in compliance with the provisions contained in Rule 46A of the Income Tax Rules, 1963. The Assessee is also directed to co-operate in the appellate proceedings and forthwith file details, documents & submission in support of its claims/contentions before the Learned CIT(A). The Learned CIT(A) would be at liberty to admit/consider the same as per law. It is, however, clarified that in case the Assessee fails to enter appearance and/or fails to file details/documents/submission in response to notice of hearing issued by the Learned CIT(A), the Learned CIT(A) shall be at liberty to decide the issues on merits on the basis of material on record. The Assessee is directed to be vigilant and track the appellate proceedings through Income Tax Business Application Portal. 11. In view of the above, Ground No.3 raised by the Revenue is allowed for statistical purposes while Ground No. 1 & 2 are rendered infructuous in view of the fact that the impugned order has been set aside. 12. In result, appeal preferred by the Revenue is treated as allowed for statistical purposes. Order pronounced on 30.10.2025. Sd/- Sd/- (Vikram Singh Yadav) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 30.10.2025 Milan, LDC Printed from counselvise.com 8 ITA No. 5945/Mum/2024 Assessment Year 2011-2012 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai Printed from counselvise.com "