ZALAVADIYA KALUBHAI MOHANBHAI, HUF,AHMEDABAD V. THE INCOME TAX OFFICER, WARD-5(3)(1), AHMEDABAD

ITA 806/AHD/2024

AI Insights

The case revolves around the appeal by Zalavadiya Kalubhai Mohanbhai HUF against the order of the National Faceless Appeal Centre (NFAC), which confirmed the additions made by the Assessing Officer under section 68 of the Income Tax Act, treating the long-term capital gains (LTCG) as bogus. The Assessing Officer had reopened the assessment for the year 2015-16 based on information from the Investigation Wing regarding share manipulations involving penny stocks. The Tribunal examined the legality of the reopening and the merits of the additions made. It was found that the reopening was based on insufficient and vague information, and the assessee was not provided with the necessary details or opportunity to contest the material used against him, leading to a violation of principles of natural justice.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774996 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 22-04-2024
• Other Referred Cases: 03 Developers Pvt. Ltd. vs. ITO, Anwar Mohammad Shaikh v. ACIT, Harvinder Singh v. PCIT, Surani Steel Tubes Ltd. v. ITO, Sabh Infrastructure Ltd. v. ACIT, Patel Engineering Ltd. v. DCIT, Yuva Trading Co. Pvt. Ltd. v. ITO, Anurag Gupta v. ITO, Babcock Borsig Ltd. v. UOI, Jignesh Ramjibhai Patel vs. ITO, Alpa Udaykumar Shah vs. ITO, Sanjay P. Mehta vs. DCIT, Sejalben N. Vora and others vs. ITO, PCIT vs. Smt Krishna Devi, CIT vs. Smt. Sumitra Devi, CIT vs. Udit Narain Agarwal, CIT vs Anirudh N. Agarwal, Kishinchand Chellaram vs. UOI, PCIT vs Chartered Speed P. Ltd., Andaman Timber Industries vs CCE
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: TUSHAR HEMANI; KUSHAL FOFARIA
• Keywords: Unexplained expenditure; Cost of acquisition; Tax effect; Reopening of assessment; Principle of natural justice; Accommodation entries; Reason to believe; Tangible material; Borrowed satisfaction; Bogus
• Section: 147; 148; 142(1); 68

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before Ms. Suchitra Kamble, Judicial Member And Shri Narendra Prasad Sinha, Accountannt Member Zalavadiya Kalubhai Mohanbhai HUF, B-48, Shaktidhara Colony, Behind Dinesh Chambers, India Colony, Bapugnar, Ahmedabad PAN: AADHP0829D (Appellant) Vs The ITO, Ward-5(3)(1), Ahmedabad (Respondent) Assessee by: Shri Tushar Hemani, Sr. A.R. & Shri Kushal Fofaria, A.R. Revenue by: Shri Abhijit, Sr. D.R. Date of hearing : 17-07-2025 Date of pronouncement : 04-09-2025 आदेश/ORDER Per Suchitra Kamble, Judicial Member: This is an appeal filed against the order dated 02-04- 2024 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2015-16. 2. The grounds of appeal are as under:- “1. Ground No. 1 Assessment Order u/s. 147 rws 144B: The order passed by the ld. AO u/s. 147 rws 144B is bad in law and contrary to the provisions of IT Act. The Id. CIT(A)-NFAC has disposed-off of this ground without considering appellant's ITA No. 806/Ahd/2024 Assessment Year 2015-16 Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 2 submission. Therefore, it is prayed that the assessment so framed may kindly be quashed. 2. Ground No. 2 Notice u/s. 148: The ld. AO had erred in issuing notice u/s 148 of the I.T. Act on the basis of information from the Investigation wing uploaded on insight portal. The AO reopened assessment without having any tangible evidence for escapement of income and without application of mind. The ld CIT(A)-NFAC has disposed-off of this ground without considering appellant's submission. The notice issued on borrowed satisfaction is legal and void and consequently assessment based on such notice may kindly be quashed. 3. Ground No. 3-Assessment us. 147 is bad-in-law: The AO has erred in law and on facts in reopening the assessment proceedings on the basis of Information received from Insight Portal. The AO has not provided any tangible evidence of escapement of income except report of Investigation Wing. The Id CIT(A)-NFAC has disposed-off of this ground without considering appellant's submission. Therefore assessment u/s 147 is bad-in- law and the same may kindly be cancelled/ quashed. 4 Ground No. 4-LTCG of Rs. 3,71,94,167/-: The ld CIT(A)-NFAC erred in confirming the addition of Rs. 3,71,94,167/- in terms of Long-term capital gain taken by appellant as bogus. The ld. CIT(A)-NFAC has disposed-off of this ground without considering appellant's submission. Therefore, it is prayed that addition of LTCG as unexplained income may kindly be deleted. 5. Ground: The appellant reserves its right to submit further details in connection with additions disallowances made by AO as fresh evidence at the time of hearing of Appeal. 5 Ground: Your appellant craves liberty to add to alter to modify, to amend or to withdraw/delete any of the grounds of appeal at any time on or before the hearing of appeal. Total tax effect: Rs.1,26,43,930/-” 3. As per the information received in assessee’s case, it was found that 18 scrips were identified, share manipulation in trading by way of bogus LTCG/STCL entries to the interested persons (beneficiaries). The assessee’s one of the beneficiaries who had obtained accommodation entries in the form of fictitious profit in equity/derivative trading amounting to Rs. 3,71,94,167/- through one concern JRI Industries and Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 3 Infrastructure Ltd. which is a penny stock during the year under consideration as mentioned by the Assessing Officer in the assessment order. The Assessing Officer mentioned that the assessee filed ITR for assessment year 2015-16 and claimed long term capital gain as exempt u/s. 10(38) of the Act. The case of the assessee was reopened after recording the reason for reopening u/s. 147 of the Act. Notice u/s. 148 of the Act dated 30-03-2021 were issued. In response to the notice u/s. 148, the assessee filed return of income declaring income of Rs. 3,29,320/-. Notice u/s. 143(2) of the Act was issued to the assessee. Thereafter, notice u/s. 142(1) was issued on 17-12- 2021 and 17-01-2023 along with questionnaires. The assessee submitted reply to the notices. The Assessing Officer observed that the assessee traded in the share of JRI Industries and Infrastructure Ltd. during financial year 2014-15. The assessee purchased the shares between 22-03-2013 to 25-03-2013 at the purchase value ranging from Rs. 18.50 to 18.37. However, these shares were sold on 14-11-2014 to 03-02-2015 ranging from Rs. 183.35 to 142.7 meaning thereby that the assessee has substantial gain on this scrip during A.Y. 2015-16. The assessee submitted the details of broker. But the Assessing Officer held that the assessee has not explained what factors to invest involved in this scrip. The Assessing Officer held that the long term capital gain and short term capital losses booked by assessee in his books were pre-arranged method to evade taxes and launder money. The Assessing Officer therefore made addition Rs. 3,71,94,167/- in respect of sale transaction of M/s. JRI Industries and Infrastructure Ltd. (being scrip). Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 4 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The ld. A.R. submitted that as regards to ground nos. 1 to 3, the assessee is challenging the reopening of the assessment u/s. 147 of the Act. For reasons for reopening, it was stated that information was reflected on inside portal that 18 penny scrips were utilized to book bogus LTCG/STCL. However, such information is no-where coming out in the reasons for reopening . The ld. A.R. submitted that whether information uploaded on insight portal is a report of investigation wing, statement recorded by Department, or some piece of material is not known to the assessee or has not mentioned in the assessment order. The ld. A.R. submitted that the assessee demanded such information from Assessing Officer in his objections filed against reopening dated 27-12-2021. However, the objections were disposed of on 12-03-2022 without providing such information. During the course of assessment proceedings, the appellant repeatedly asked for such information thereby filing application dated 15-02-2022 u/s. 138(1)(b) addressed to NFAC as well as application dated 23-02-2022 u/s. 138(1)(d) addressed to PCIT. The assessee has also filed RTI application on 23-02-2022 and application dated 08-03-2022 u/s. 138(1)(b) addressed to the JAO. The ld. A.R. submitted that the PCIT vide letter dated 28- 02-2022 and NFAC letter dated 23-03-2022 provided these information and in fact there is no whisper in the entire assessment order regarding any report of investigation, statement recorded by Department etc. which has been relied upon. Even the extract of insight portal therein is not provided to the assessee. Hence, the ld. A.R. submitted that the Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 5 Assessing Officer do not have any tangible material or information based upon which he can form a belief of escapement of income chargeable to tax. The ld. A.R. submitted that merely because some information related to assessee is blocked on insight portal cannot be a basis to form a belief of escapement of income in absence of some tangible matter or information being live nexus with such information available on Insight Portal. It is well settled that reopening of assessment in absence of any intangible material is bad in law and without jurisdiction. The ld. A.R. relied upon the following decisions:- ➤03 Developers Pvt. Ltd. vs. ITO [2025] 174 taxmann.com 1028 (Gujarat) ➤Anwar Mohammad Shaikh v. ACIT - [2023] 459 ITR 534 (Bombay) ➤ Harvinder Singh v. PCIT - [2025] 172 taxmann.com 315 (Delhi) The ld. A.R. further submitted that assuming without admitting that the Assessing Officer has some information received from external authority, the same does not constitute reason to believe until and unless such information is subject to investigation by the Assessing Officer and on the basis thereof and on independent application of mind, the Assessing Officer records independent reasons before issuing notice u/s. 148 of the Act. The ld. A.R. relied upon the decision: ➤Surani Steel Tubes Ltd. v. ITO [2022] 136 taxmann.com 139 (Guj.) Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 6 Further, it is well settled that reopening of assessment without providing information relied upon to assessee is bad in law since the same amounts to gross violation of principles of natural justice. Reopening in the present case deserves to be quashed even on this count. Reliance is placed on the following: ➤Sabh Infrastructure Ltd. v. ACIT - [2017] 398 ITR 198 (Delhi) ➤Patel Engineering Ltd. v. DCIT (Bombay) [2022] 136 taxmann.com 115 ➤Yuva Trading Co. Pvt. Ltd. v. ITO [2023] 150 taxmann.com 187 (Gujarat) ➤ Anurag Gupta v. ITO [2023] 454 ITR 326 (Bombay) ➤Babcock Borsig Ltd. v. UOI- [2022] 449 ITR 613 (Calcutta) In view of the above, the assessee submitted that the reopening of the assessment by the A.O. is bad in law without jurisdiction and deserves to be quashed. As regards merits of the case, i.e. ground no. 4, the ld. A.R. has given the comment/written submissions which are as follows:- “Assessee claimed exemption u/s. 10(38) of the Act in respect of LTCG arising on sale of shares of JRI Industries and Infrastructure Ltd (earlier known as Jalgaon Re Rolling Ind Ltd) (hereinafter referred to as scrip in question) AO made addition of Rs 3,71,94,167 in respect of aforesaid LTCG u/s. 68 of the Act after concluding that such LTCG is bogus. Such addition has been confirmed by CIT(A) as well. Hence, assessee is in appeal before Hon'ble the ITAT. LTCG claimed by assessee is absolutely genuine: Some of the vital and undisputed facts are as follows: Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 7 Assessee purchased shares in demat form from the Stock Market Shares were held for more than I year (to be precise almost 20 to 23 months) Entire payment of the purchase consideration was by cheque. Shares were sold on the floor of recognized stock exchange STT at the applicable rates was duly paid: All the transactions were through proper banking channel: Assessee is not aware who are the final buyers, Assessee merely got incidental benefit of price rise. Assessee has placed following documentary evidences on record to demonstrate the LTCG in question is absolutely genuine. Demat account P/b. Pgs. 59-62 Broker's leger P/b. Pgs. 63-91 Contract notes P/b. Pgs. 100-256 In view of the above it cannot be said by any stretch of imagination that assessee was involved either in rigging of share prices or any other sort of wrong doings, as alleged by the revenue. Assuming without admitting that scrip in question was used by accommodation entry providers for providing entries in the form of bogus LTCG, then also LTCG earned by the assessee cannot be treated as bogus in view of the following vital aspects emanating from the orders of lower authorities; There is no evidence to prove that there is any live nexus between the assessee & entry provider or \"company in question or its directors; There is nothing on record to even remotely demonstrate that assessee has paid any cash to the buyer broker or any other entry provider for taking entry in form of LTCG; General information with AO w.r.t accommodation entries in relation to the scrip in question can, at best, be the starting point of investigation so as to find out whether assessee has actually earned genuine L TCG or has availed accommodation entries However, such genuine information\" (which in this case, has also not been parted with the assessee) can never take place of evidence to hold that assessee has earned bogus LTCG. Unless 40 carries out independent inquiry and brings on record any cogent material to link assessee with any entry providers and also demonstrate exchange of cash for availing accommodation entry in the form of LTCG. AO cannot presume that dealings of the assessee in view of the scrip in question are bogus merely based on \"general information; Suspicion howsoever strong, can never take place of \"evidence in view of the settled legal position; Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 8 In this case, A.O. has not carried out any independent inquiry so as to bridge the gap between assessee and information received w.r.t accommodation entries in relation to scrip in question. Without bridging such gap, AO could not have treated LTCG in question as bogus. In any case, AO has taxed only LTCG which implies AO has allowed deduction of cost of acquisition from the total sale consideration of shares as evident from computation of LTCG placed at P/b, Pgs. 96-97. Thus, it is implied that purchase of shares has been admitted to be genuine transaction by A.O. At this stage following aspects may be appreciated: Transactions of purchase and sale of shares go hand to hand. There could not be any sale of shares without actually purchasing shares. Once purchase has been found to be genuine, then corresponding sales of shares cannot be doubted unless and until some adverse material has been brought on record, the same is provided to assessee and opportunity has been granted to the assessee to furnish response in relation to the same. In this case, AO took contradictory stand i.e. on one hand. AO treated the entire transaction as a sham transaction and on the other hand, AΟ has allowed cost of acquisition of the shares while computing LTCG. Thus, A.O. had blown hot and cold simultaneously. Such an approach is not permissible in the eye of law. Various trivial objections raised by lower authorities can also not justify the impugned addition in view of the following: As regards rigging of price of the scrip in question, Sharp rise in the price cannot be sole factor for concluding that prices of shares were rigged in order to generate LTCG. Share prices are market driven and there are large number of factors affecting share prices traded on floor of recognized stock exchange. As regards suspension of trading in scrip, The suspension was made on account of non-payment of listing fees & not on account of any finding of SEBI regarding bogus transactions as evident from paragraph no. 5 of the assessment order During the year under consideration (i.e. FY 14-15/AY 15- Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 9 16) the transactions in scrip were very much permissible. Accordingly, assessee traded on the floor of stock exchange and earned the LTCG in question. If, for some reason, trading in scrip in question is suspended subsequently assessee cannot be penalized on the ground that the assessee also must have been benefitted in the form of bogus LTCG in relation to scrip in question. As regards investigation report and other material as well as statements of various persons referred to and relied upon by A.O. Except a snippet of excel sheet at P/b. Pg. 45, neither the Investigation Report nor any other material relied upon has been provided to the assessee. Please refer to applications requesting such information and disposal letters at P/b. Pgs. 36-52; Assessee has not been afforded opportunity of cross-examination. Hence such material cannot be made the basis for making addition. In view of the above, LTCG in question is absolutely genuine. Reliance is placed on followings: Jignesh Ramjibhai Patel vs. ITO - ΙΤΑ 452-454/Ahd/2018 Alpa Udaykumar Shah vs. ITOITA 391/Ahd/2018; Sanjay P. Mehta vs. DCITITA 509/Ahd/2018; Sejalben N. Vora and others - ITA 329-331/Ahd/2018; PCIT vs. Smt Krishna Devi (2021) 431 ITR 361 (Del). CIT vs. Smt. Sumitra Devi (2014) 229 Taxman 67 (Rajasthan): CIT vs. Udit Narain Agarwal (2013) 213 Taxman 178 (Allhabad): CIT vs Anirudh N. Agarwal (2013) 219 Taxman 126 (Allhabad); Assessed was never confronted with the \"report of Investigation Wing, i.e. material used against the assessee for making the impugned addition: AO has extensively relied upon Contents of report of \"Investigation Wing but assessee was never confronted with such material which has been used behind the back of assessee for making the addition. If any material is not confronted to an assessee it would not constitute as an \"admissible evidence\" and hence addition made based on such evidence is to be deleted. Reliance is placed on \"Kishinchand Chellaram 125 ITR 713 (SC)\" Opportunity of \"cross-examination\" has not been afforded: Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 10 An opportunity of cross-examination has also not been afforded to the assessee It is a settled law that in absence of cross- examination, no addition could have been made based on such statement. Reliance is placed on: PCIT vs Chartered Speed P. Ltd. Tax Appeal No.126 & 126 of 2015: Andaman Timber Industries vs CCE (2015) 62 taxmann.com 3 (SC); Under such facts and circumstances, impugned addition deserves to be deleted.” 6. The ld. D.R. submitted that the Assessing Officer has rightly reopened the assessment. The ld. D.R. pointed out the reply/objections against reopening stating therein that the Assessing Officer has rightly decided the objection and disposed of the same vide order dated 12-03-2022. The ld. D.R. submitted that in assessee’s case there were tangible material/information was received to the Assessing Officer and therefore section 147 was invoked in assessee’s case. The D.R. relied upon the page no. 45 of the paper book wherein assessee’s name has been reflected including that of transactions of penny scrip/stock for financial year 2014-15. The ld. D.R. relied upon the finding and conclusion of the Assessing Officer more specifically page no. 3-4 of the assessment order. 7. We have heard both the parties and perused all the material available on record. It is pertinent to note that the reasons recorded by the Assessing Officer has only mentioned the information reflected on insight portal without giving the complete information relating to the assessee and the conclusion of the assessee in respect of the equity/derivative trading namely JRI Industries and Infrastructure Ltd. The assessee has filed his objection to Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 11 the reopening at that time also despite calling upon the information on which basis the assessee’ case was reopened was not provided and that can be seen from the order dated 11-03-2021 while dismissing assessee’s objection. Merely the word information will not suffice the actual information on the basis of which the Assessing Officer has satisfied himself for reopening the assessee’ case. Besides this, the Assessing Officer while passing the assessment order at any point of time has made any co-relation related to the assessee’s transaction to that of not mentioned information by the Assessing Officer being considered as unexplained expenditure u/s. 68 of the Act. Thus, the reopening itself is not justified as the very basis of the reopening and its satisfaction/reasoning has not been given by the Assessing Officer to the assessee at any point of time and also statement inquiry related to that information which was never disclosed by the Assessing Officer to the assessee at any point of time. Thus, the reopening itself becomes bad in law and the CIT(A) should have decided this issue. Thus, ground nos. 1 to 3 of the assessee’s appeal are allowed. As regards the merit of the case, the assessee has given the details of purchase of shares as well as demat form from the stock market. The assessee has also given the details of shares sold on the recognized stock exchange along with other relevant documentary evidences to the Assessing Officer which was never questioned by the Assessing Officer and has not given any finding to the extent of these evidences in his assessment order. Since, the Assessing Officer has not disputed the purchase as well as has not Printed from counselvise.com I.T.A No. 806/Ahd/2024 Zalavadiya Kalubhai Mohanbhai, HUF, A.Y. 2015-16 12 disputed the shares when sold the assessee’s case holds stands on merit as well. Since ground nos. 1 to 3 which are legal ground has been allowed, the assessment itself becomes invalid. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 04-09-2025 Sd/- Sd/- (Narendra Prasad Sinha) (Suchitra Kamble) Accountant Member Judicial Member Ahmedabad : Dated 04/09/2025 आदेश क\u0006 \u0007\bत ल प अ\u000fे षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील\u0012य अ\u0013धकरण, अहमदाबाद Printed from counselvise.com "