KRUTIK ASHOKKUMAR PARIKH HUF,AHMEDABAD V. INCOME TAX OFFICER WARD 1(2)(2), AHMEDABAD

ITA 1239/AHD/2025

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The case involves Krutik Ashokkumar Parikh-HUF, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 21,72,300 as income from a long-term capital gain on the sale of shares of Karma ISP, a penny stock. The Assessing Officer (AO) had initially treated the transaction as sham and non-genuine, leading to a reassessment under section 147 of the Income Tax Act. The CIT(A) upheld the AO's decision, noting the lack of commercial justification for the extraordinary gains and the suspicious nature of the stock involved. The Tribunal dismissed the appeal, agreeing with the lower authorities that the transaction was part of a scheme to generate fictitious long-term capital gains.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717371 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 29-05-2025
• Other Referred Cases: CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], Sumati Dayal v. CIT [(1995) 80 Taxman 89 (SC)], CIT v. Swarup Cold Storage & General Mills [(1982) 10 Taxman 215 (All)], Rishi Kesh Singh v. State [AIR 1970 All 61]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRATEEK SHARMA
• Assessee Lawyers: SUNIL MALOO
• Keywords: Condonation of delay; Income from undisclosed sources; Onus to prove; Capital Gains; Earning of tax free income
• Section: 147; 148; 144; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.1239/Ahd/2025 (Assessment Year: 2012-13) Krutik Ashokkumar Parikh-HUF, 1/501, Shilalekh Tower, Opp. Police Stadium, Shahibaug, Ahmedabad-380004 Vs. Income Tax Officer, Ward-1(2)(2), Ahmedabad [PAN No.AAIKH3753L] (Appellant) .. (Respondent) Appellant by : Shri Sunil Maloo, AR Respondent by: Shri Prateek Sharma, Sr. DR Date of Hearing 06.08.2025 Date of Pronouncement 13.08.2025 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 18.03.2024 passed for A.Y. 2012-13. 2. We note that there is delay of 363 days in filing of appeal. The assessee has filed application for condonation of delay along-with an Affidavit. The delay in filing the appeal has been explained on account of the issuance of notices or order sent to previous authorized representative and assessee not being informed about the same. It has been submitted that although the assessee had duly filed Form 35 and provided a correct email address, certain notices and the final order were sent to a different Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 2– email ID, resulting in the assessee remaining unaware of the proceedings and the passing of the order under section 250 of the Act by CIT(Appeals). Upon being apprised of the matter only recently, the assessee has promptly moved this appeal and sought condonation. Considering the above facts and the bona fide nature of the reasons provided, the delay in filing the appeal is hereby condoned in the interest of justice. 3. The assessee has raised the following grounds of appeal: “1. The Appellant prays that any unintentional delay in filing this appeal may be condoned under section 253(5) of the Income Tax Act, 1961, as the delay is due to sufficient cause, substantiated by an affidavit on oath. 2. The Ld. CIT(A) grossly erred in law and facts in confirming the denial of exemption Claimed u/s 10(38) of the Income-tax Acton long term capital gain earned on sale of listed shares at stock exchange. 3. The Ld. CIT(A) grossly erred in law and facts in confirming the addition of Rs 21,72,300/- being entire sale value of shares of listed shares at stock exchange on the basis of irrelevant external material by disregarding the relevant material and evidence furnished by the appellant. 4. The Ld. CIT(A) grossly erred in law and facts in confirming the addition of Rs 21,72,300/- which was made without granting cross examination of witnesses relied upon to make addition to the returned income and without providing the appellant copy of various information collected behind the back of the Appellant. 5. The Ld. CIT(A) grossly erred in law and facts in confirming the addition of Rs 21,72,300/- treating it as accommodation entry without furnishing any proof of cash trail involving the Appellant. 6. The Appellant reserves the right to add, alter, amend, or modify any of the grounds of appeal during the course of the appellate proceedings.” 4. The brief facts of the case are that the assessee, a Hindu Undivided Family (HUF), had filed its original return declaring income of Rs. 1,90,780/-. The Assessing Officer (AO), based on information that the assessee had transacted in a penny stock scrip named \"Karma ISP,\" Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 3– reopened the case of the assessee under section 147 of the Act. However, the assessee did not file fresh return of income in response to the notice issued by the Assessing Officer. During re-assessment proceedings, the AO observations that the assessee had sold 7,800 shares of Karma ISP for a consideration of Rs. 21,72,300/- at a rate of Rs. 278.50 per share, despite having purchased the same for Rs. 1,76,670/- at Rs. 22.65 per share. The assessee had claimed the “long-term capital gain” as exempt under section 10(38) of the Act. However, the AO treated the transaction as sham, and non-genuine, on the grounds that Karma ISP was a known penny stock which was being used in tax evasion practices to convert unaccounted income into exempt income. Accordingly, the AO added a sum of Rs. 21,72,300/- to the assessee's income under best judgment assessment, as the assessee had not filed a return in response to the notice under section 148 and failed to file any response during assessment proceedings. 5. In appeal, the assessee contended before the CIT(A) that the assessee had in fact responded to the show cause notice and had furnished relevant documents, and therefore the assessment under section 144 of the Act was unwarranted. It was further submitted that the transaction was a genuine one, it was carried out through recognized stock exchanges with Security Transaction Tax (STT) having duly been paid, and hence the transaction was eligible for claim of exemption under section 10(38) of the Act. The assessee filed written submissions and additional documentary evidence during the appellate proceedings before CIT(Appeals), which were forwarded to the AO for verification in remand proceedings. The AO, Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 4– in the remand report, reiterated that the assessee had not filed a return in response to notice issued under section 148 of the Act, which led to the framing of assessment order under section 144 of the Act. The AO also noted that the assessee’s 1118% return from a single scrip in just 15-16 months was not supported by any commercial justification and also matched with findings of the Investigation Wing and CBDT guidelines on penny stock manipulations. The Assessing Officer point out that Karma ISP was among the penny scrips identified as part of a wider scheme to generate fictitious exempt long-term capital gains. The CIT(A), after reviewing the submissions and remand report, held that the AO had correctly reopened the case and validly treated the transaction as non- genuine. This was further supported by the fact that there was lack of any further trading activity by the assessee in this stock (being a one-time exercise), the extraordinary quantum of returns which were earned by the assessee, and the nature of the scrip which raised strong suspicion and the assessee failed to rebut these with any reliable evidence. Accordingly, the addition of Rs. 21,72,300/- made by the AO was upheld. 6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. We have heard the rival contentions and perused the material on record. On going through the case records, we note that there are several inconsistencies in the transaction. First, the shares of Karma ISP were purchased from broker M/s Vishal Vijay Shah on 29th April 2010, but the payment for the same was made only on 30th March 2011-after nearly eleven months-without Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 5– any credible explanation or agreement to defer such payment. Such a time period delay between purchase and payment without any formal terms clearly erodes the credibility and commercial substance of the transaction. Secondly, the scrip Karma ISP has been highlighted in multiple investigations by the Department and the Investigation Wing as a well- known penny stock used for tax evasion by routing unaccounted cash through circuitous means to generate fictitious long-term capital gains. Thirdly, the assessee’s extraordinary gain of over 1,100% in a span of approximately 15-16 months in a single scrip without any business activity in shares before or after cannot be regarded as a normal or routine investment. We note that this purchase made by the assessee was a one- time, isolated transaction in this share with no pattern of further purchase of this share. Fourthly, the company in question (Karma ISP) had no apparent business operations or financial fundamentals that could justify such an exponential increase in market value. In fact, there was no intrinsic value or economic basis to support the increase in share price from ₹22.65 to ₹278.50 per share within such a short time frame. We note that the conduct of the assessee and the nature of the transaction must be tested on the yardstick of human probabilities and commercial prudence. This principle is now well-settled in Indian jurisprudence. The Hon’ble Supreme Court in CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)] held that taxing authorities are entitled to look into the surrounding circumstances to determine the reality of documents and transactions, and need not put on blinkers. Similarly, in Sumati Dayal v. CIT [(1995) 80 Taxman 89 (SC)], the Apex court held that apparent facts must yield to Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 6– real substance, especially when the reality does not accord with human probabilities. The Court held that the apparent must be shown to be real by testing it against the backdrop of human conduct and surrounding circumstances. The application of “preponderance of probabilities”, as laid down by Lord Denning in Miller v. Minister of Pensions [[1947] 2 All ER 372], requires that a fact is proved if it is more likely than not. The same standard has been adopted in Indian tax jurisprudence, including by the Allahabad High Court in CIT v. Swarup Cold Storage & General Mills [(1982) 10 Taxman 215 (All)] and in Rishi Kesh Singh v. State [AIR 1970 All 61]. In the present case, it is beyond reasonable doubt that the transaction, though apparently structured as a genuine share trade on paper, does not meet the test of commercial credibility and human probability. The long gap between purchase and payment, absence of supporting commercial rationale, the astronomical and unjustified rise in price of a non-performing company and the assessee’s lack of further or prior involvement in share trading with respect to this stock, all point toward a pre-conceived and colourable transaction aimed at tax avoidance. The facts of the case fit squarely within the pattern identified by various Courts and the CBDT regarding penny stock manipulations. Therefore, we are of the considered view that the CIT(A) rightly upheld the AO’s conclusion that the present transaction was a sham transaction aimed at tax avoidance. In our considered view, the addition of ₹21,72,300/- made by the AO under section 68 of the Act is justified looking into the assessee’s set of facts and therefore does not warrant any interference. The assessee has failed to discharge the burden of proof resting upon him to substantiate Printed from counselvise.com ITA No. 1239/Ahd/2025 Krutik Ashokkumar Parikh-HUF vs. ITO Asst.Year –2012-13 - 7– the genuineness of the transaction either by way of credible evidence or by satisfying the standard of preponderance of probabilities. 7. In the result, the appeal filed by the assessee is dismissed. This Order pronounced in Open Court on 13/08/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 13/08/2025 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 11.08.2025 (Hon’ble Member dictated on his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 11.08.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 12.08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 13.08.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 13.08.2025 7. Date on which the file goes to the Bench Clerk 13.08.2025 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…………………………………… Printed from counselvise.com "