JELLY SAMKIT DOSHI,SABARKANTHA V. THE ITO, WARD-1, HIMATNAGAR

ITA 167/AHD/2025

AI Insights

The case revolves around the assessee, Jelly Samkit Doshi, who claimed an exemption for LTCG on the sale of shares of M/s. Kappac Pharma Ltd. The shares were initially acquired in physical form and later dematerialized before being sold. The Assessing Officer disbelieved the genuineness of the transaction, citing it as part of a scheme to convert unaccounted money into tax-exempt capital gains. The CIT(A) upheld this decision, referencing similar cases involving the same scrip. The Tribunal dismissed the appeal, agreeing with the lower authorities' findings that the transaction lacked commercial substance and was a colorable device to evade tax.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712797 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2015-2016
• Other Referred Cases: CIT v. Durga Prasad More (82 ITR 540), Sumati Dayal v. CIT (214 ITR 801), Udit Kalra v. ITO (ITA No. 6717/Del/2017), Manvi Khandelwal v. ITO (ITA No. 3212/Del/2018), PCIT-1 Vs. Parasben Kasturchand Kochar (Tax Appeal No. 204 of 2020)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Assessee Lawyers: VIPUL KHANDHAR
• Keywords: Unexplained cash credit; Capital Gains; Principle of natural justice; Accommodation entries; Share purchase agreement; Penny stocks
• Section: 142(1); 68

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ]BEFORE MS.SUCHITRA R. KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.167/Ahd/2025 Asstt.Year : 2015-16 Jelly Samkit Doshi 18, Mahavirnagar Society Mahavirnagar, Himatnagar Sabarkantha-383 001. PAN : BYBPS 4687 R Vs. ITO, Ward-1 Himatnagar. (Applicant) (Responent) Assessee by : Shri Vipul Khandhar , AR Revenue by : Shri Amit Pratap Singh, Sr.DR सुनवाई क तारीख/Date of Hearing : 29/07/2025 घोषणा क तारीख /Date of Pronouncement: 01/08/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal filed by the assessee is directed against the order dated 25.11.2024 passed by the office of Commissioner of Income-tax (Appeals), Bengaluru [hereinafter referred to as “CIT(A)”], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2015–16, whereby the learned CIT(A) upheld the addition of Rs.11,97,725/- made by the Assessing Officer under section 68 of the Act in respect of Long-Term Capital Gain (LTCG) claimed by the assessee as exempt under section 10(38) of the Act on the sale of shares of M/s. Kappac Pharma Ltd. 2. Facts of the case 2.1 The facts, in brief, as emanating from the records are that the assessee is an individual who filed her return of income on 07.09.2015 Printed from counselvise.com ITA No.167/Ahd/2025 2 declaring total income of Rs.6,21,190/-. The case was selected for complete scrutiny under CASS and notice under section 143(2) was issued on 28.07.2016 and duly served. Subsequent notices under section 142(1) along with questionnaires were also issued, in response to which the assessee attended and submitted written submissions along with supporting documents. During the year under consideration, the assessee had claimed exemption under section 10(38) of the Act in respect of Long-Term Capital Gain amounting to Rs.11,97,725/- arising on the sale of 5,000 equity shares of M/s. Kappac Pharma Ltd. It was submitted before the Assessing Officer that the shares were originally acquired in physical form on 02.04.2012 for a consideration of Rs. 1,00,000/- and were dematerialized in October 2013 and later sold through a SEBI registered broker on 21.11.2014 for a sale consideration of Rs. 12,97,725/-, resulting in the impugned LTCG. It was claimed that all transactions were carried out through recognised stock exchange, STT was paid, and payments were received through banking channels. Accordingly, the gain was claimed exempt under section 10(38). 2.2 The Assessing Officer, however, disbelieved the genuineness of the transaction. He specifically noted that the shares were acquired in physical form through an off-market transaction and that the payment for purchase of shares was made in cash. He took note of investigation reports from the Directorate of Investigation (Kolkata) which had flagged transactions in penny stocks, including Kappac Pharma Ltd., as being part of an orchestrated accommodation entry racket to convert unaccounted money into tax-exempt capital gains. The AO observed that the assessee had earned an abnormal return within a short span of time through shares of a fundamentally weak company. He held that such gain defied commercial prudence and failed the test of human probabilities. It was further observed that the purchase of shares in physical form, dematerialisation shortly before sale, and sale at a highly inflated price suggested a premeditated scheme to create artificial long-term capital gains. The Assessing Officer applied the ratio laid down by the Hon’ble Supreme Court in the cases of Printed from counselvise.com ITA No.167/Ahd/2025 3 CIT v. Durga Prasad More (82 ITR 540) and Sumati Dayal v. CIT (214 ITR 801) to disregard the documentary evidence produced by the assessee and held that the transaction was a colourable device. The AO also placed reliance on the investigation findings that the share price of Kappac Pharma Ltd. was artificially manipulated through circular trading among related parties and entry operators. The LTCG was thus held to be unexplained cash credit under section 68 and brought to tax under section 115BBE. 2.3 The assessee preferred an appeal before the CIT(A), contending that the transactions were genuine, duly supported by documentary evidence such as purchase bills, demat account statements, contract notes, bank statements and STT payment records. It was further submitted that no opportunity for cross-examination of the brokers or alleged entry providers was granted, thereby violating the principles of natural justice. The assessee also relied on several judicial precedents in support of the contention that the addition under section 68 was unjustified in the absence of any direct adverse material or inquiry against the assessee. The assessee vehemently contended that there was no link established by the AO between her and any entry provider, nor was any material brought on record to suggest cash was introduced by her and routed back through sale of shares. It was also submitted that no opportunity for cross-examination of any alleged brokers or third parties had been granted. 2.4 The learned CIT(A), however, confirmed the action of the AO. He held that the overall pattern of purchase and sale, particularly the initial cash purchase, long gap in dematerialisation, and the eventual high-value sale within a rigged market setup, corroborated the conclusion that the transaction was not genuine. The CIT(A) also referred to various decisions of the coordinate benches of ITAT and Delhi High Court involving identical facts and the same scrip (Kappac Pharma Ltd.), including the decisions of Co-ordinate Bench in case of Udit Kalra v. ITO (ITA No. 6717/Del/2017) and Manvi Khandelwal v. ITO (ITA No. 3212/Del/2018). The CIT(A) also noted that in case of Udit Kalra (Supra) the Hon’ble Delhi High Court dismissed Printed from counselvise.com ITA No.167/Ahd/2025 4 the appeal filed by the assessee. Relying on these, the CIT(A) held that the LTCG in the present case was also a result of a pre-planned, orchestrated scheme and liable to be treated as unexplained income under section 68. 3. Aggrieved by the above findings, the assessee has preferred the present appeal before raising following grounds: 1. The learned CIT (A) erred in passing the order u/s 250 of IT Act, 1961. 2. The learned CIT (A) erred in confirming the addition of Rs.11,97,725/- being LTCG u/s 68 of IT Act, 1961. 3.1 During the course of hearing, the learned Authorised Representative appearing on behalf of the assessee submitted that the entire transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd., resulting in Long-Term Capital Gain (LTCG) of Rs.11,97,725/-, is genuine, duly documented, and undertaken in compliance with applicable provisions of the Income-tax Act. It was contended that the assessee has discharged the burden cast under section 68 of the Act by furnishing complete evidentiary support for the transaction and, therefore, the addition made by the Assessing Officer under section 68 is unsustainable. It was pointed out that the purchase and sale transactions are duly supported by documentary evidence, including Bills of purchase of shares, Share transfer forms and dematerialisation requests, Demat account statement, Contract notes issued by SEBI-registered stockbroker (ASE Capital Markets Ltd.) and Proof of STT payment and Copy of bank statement reflecting receipt of sale consideration through RTGS. In addition to the above, the AR placed on record a copy of the receipt issued by the selling party, confirming the sale of the shares to the assessee. Further, to substantiate the identity and transaction trail, the AR also furnished the ledger account of the assessee in the books of the seller, M/s. Corporate Stock Broking Pvt. Ltd., which clearly showed the debit towards share sale consideration received from the assessee. These evidences, it was submitted, fully establish the identity of the counterparty and the genuineness of the transaction, even in respect of the initial acquisition of shares in physical form. Printed from counselvise.com ITA No.167/Ahd/2025 5 3.2 It was further reiterated that the Assessing Officer had not made any enquiry with the seller or broker, nor examined the contract notes or demat records to disprove the transaction. There was no material on record to suggest any involvement of the assessee in accommodation entries or price rigging, nor any link established between the assessee and any entry operator. The AO’s reliance on generalised findings of the Directorate of Investigation (Kolkata) was assailed as speculative and not directly relatable to the assessee. Notably, the assessee was not provided with a copy of such investigation report, nor any adverse material or statement relied upon, and was not granted opportunity to cross-examine any person alleged to be part of the so-called accommodation chain. The AR submitted that no order from SEBI or BSE has declared Kappac Pharma Ltd. as a shell or rigged scrip during the relevant period, and the assessee, as a small investor, cannot be penalised merely for trading in a scrip which was later suspected in other unrelated cases. In conclusion, the AR submitted that the addition made under section 68 was made on the basis of presumptions and suspicion. 3.3 In response to the specific query raised by the Bench regarding the availability of cash in the hands of the assessee on the date of purchase of shares, the learned Authorised Representative submitted the copy of the cash book maintained by the assessee for the relevant period, i.e., for the financial years relevant to A.Y. 2012–13 and A.Y. 2013–14. It was submitted that the cash book clearly reflected sufficient cash in hand on 02.04.2012, the date on which the shares of M/s. Kappac Pharma Ltd. were acquired in physical form. To further substantiate the claim, the AR placed on record the copies of the return of income filed by the assessee for the aforesaid assessment years, along with the computation of income. 3.4 The AR also placed reliance on the judgement of Hon’ble High Court of Gujarat in case of PCIT-1 Vs. Parasben Kasturchand Kochar (Tax Appeal No. 204 of 2020) where the appeal of the revenue against the order of the Co-ordinate Bench (ITA No. 549/Ahd/2018) was dismissed. Printed from counselvise.com ITA No.167/Ahd/2025 6 3.5 On the other hand, the learned Departmental Representative (DR) strongly relied upon the findings recorded by the Assessing Officer in the assessment order and the detailed reasoning of the CIT(A) in the appellate order. The DR referred the judicial precedents relied on by the CIT(A), specifically Udit Kalra v. ITO (supra) and Ms. Manvi Khandelwal v. ITO (supra). 4. We have carefully perused the record and considered the chronology of events as emerging from the assessment order and submissions of the assessee. It is an admitted position that the assessee purchased 5,000 shares of M/s. Kappac Pharma Ltd. on 02.04.2012 for a consideration of Rs.1,00,000/-, which was paid in cash. The share certificate is dated 20.11.2010, i.e., much prior to the claimed date of purchase, and the shares were transferred in the name of the assessee only on 09.10.2012, i.e., after a lapse of more than six months. The shares were thereafter sent for dematerialisation on 04.10.2013, transferred to another demat account on 31.03.2014, and eventually sold on 21.11.2014. 4.1 It is further notable that the assessee had no prior or subsequent history of trading or investment in shares, and this transaction in Kappac Pharma Ltd. appears to be the sole transaction of its kind, both in terms of nature and volume. The payment of Rs.1,00,000/- was claimed to have been made from opening cash balance of Rs.1,25,484/- as on 01.04.2012, as per the cash book for the period 01.04.2012 to 31.05.2012. However, on examining the cash book for the preceding year (01.04.2011 to 31.03.2012), it is observed that the assessee's receipts consisted mainly of tuition fees in cash, and cash withdrawals of Rs.5,000/- per month, thereby not exhibiting the kind of liquidity or surplus that would plausibly explain a one-time cash investment of Rs.1,00,000/- in a little-known company. The return of income for A.Y. 2012–13 declared a total income of Rs.1,56,000/-, further corroborating the limited financial capacity of the assessee. Printed from counselvise.com ITA No.167/Ahd/2025 7 4.2 Upon careful consideration of the factual chronology, supporting documents, rival submissions, and the consistent reasoning of the Assessing Officer and the learned CIT(A), we are of the considered view that the transaction in question does not inspire confidence as a genuine investment, and bears the hallmark of an accommodation entry scheme devised to generate tax-exempt long-term capital gain. The suspicious time gaps, the mode of acquisition (cash), lack of prior or subsequent trading activity, the scrip’s tainted profile, and the implausible price appreciation, all cumulatively establish that the transaction fails the test of human probability as laid down in Sumati Dayal v. CIT (214 ITR 801) and Durga Prasad More (82 ITR 540). 4.3 We further find that the CIT(A), in affirming the addition, has placed reliance on decisions of the Delhi Bench in Udit Kalra v. ITO (ITA No. 6717/Del/2017) and Ms. Manvi Khandelwal v. ITO (ITA No. 3212/Del/2018), where the facts were strikingly similar. In both decisions, the scrip involved was M/s. Kappac Pharma Ltd., the purchase was made in cash, and the assessee had not undertaken any other share transactions, thereby mirroring the present factual situation in material respects. The Delhi Bench, after examining the pattern of price rise, the timing of events, and the outcome of investigations by the Directorate of Income-tax (Investigation), concluded that the transactions lacked commercial substance and upheld the additions under section 68. 4.4 On the other hand, the reliance placed by the assessee on the Coordinate Bench decision in Parasben Kochar v. ITO (ITA No. 549/Ahd/2018) is clearly distinguishable. In Parasben Kochar, the scrips involved were different, the purchase was not in cash, the assessee was engaged in regular trading activity, and the transaction did not relate to Kappac Pharma Ltd. 4.5 In view of the factual parity between the present case and the decisions relied on by the CIT(A), and the complete dissimilarity with the Printed from counselvise.com ITA No.167/Ahd/2025 8 Parasben Kochar ruling, we find no reason to interfere with the reasoned findings of the learned CIT(A). Accordingly, the grounds raised by the assessee are dismissed. 5. In the result the appeal of the assessee is dismissed. Order pronounced in the Open Court on 1st August, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA R. KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 01/08/2025 vk* Printed from counselvise.com "