INCOME TAX OFFICER, INTL. TAXN-2, AHMEDABAD, AHMEDABAD vs. PAYAL MANAN SHAH, AHMEDABAD

PDF · subscribers
ITA 1286/AHD/2025Status: DisposedITAT Ahmedabad06 August 2026AY 2018-1910 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer's addition was based on mere presumption and not on material facts, as the share transactions were conducted through a broker on the stock exchange and reflected in the demat account. The assessee was not liable for alleged manipulation by brokers when transactions were through banking channels.

What were the facts?

The assessee did not file her return of income for AY 2018-19 despite selling shares for Rs. 1,60,49,630. The Assessing Officer treated the entire sale consideration as an accommodation entry and added it to the assessee's income.

What were the issues?

Whether the sale of shares constituted an accommodation entry and whether the reopening of assessment was valid.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 144,Section 69A,Section 10(38)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SHRI NARENDRA PRASAD SINHA

For Appellant: Shri Biren Shah, CA
For Respondent: Shri Rameshwar P Meena, SR-DR
Hearing: 15.06.2026Pronounced: 06.08.2026

Heard together (2 matters)

ITA No. 1286/Ahd/2025
CO No. 65/Ahd/2025

Read from the judgment's own cause title. This page is filed under one of them.

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal of the Revenue and the cross-objection of the Assessee is against the order of Commissioner of Income Tax (Appeals), Ahmedabad -13 [hereinafter referred to as “CIT(A)”] dated 08.01.2025 for the Assessment Years (A.Ys.) 2018-19 in the proceeding u/s. 147 r.w.s. 144 of the Act [hereinafter referred as “the Act”].

2.

There was delay of 64 days in filing of the appeal by the Revenue. A condonation application has been filed by the Assessing Officer explaining the reason for delay. Considering the reason as explained, the delay in filing of the appeal is condoned.

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 2 3. The brief facts of the case are that the assessee did not file her return of income for A.Y. 2018-19. The AO had received an information that the assessee had entered into significant financial transaction during the year by way of sale of shares of M/s. Kushal Tradelink Pvt. Ltd., for a total consideration of Rs. 1,60,49,630/- but no return of income was filed. The AO had, therefore, initiated proceeding u/s. 147 of the Act for escapement of income and a notice u/s. 148 of the Act was issued on 31.03.2022. The AO had treated the entire sale consideration of Rs.1,60,49,630/- as accommodation entry taken by the assessee and added to income. The assessment was completed u/s. 147 r.w.s 144 of the Act on 27.04.2023 at total income of Rs.1,60,50,010/-.

4.

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed.

5.

Now the Revenue is in appeal before us. The following grounds have been taken in this appeal:

(i) On facts and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,60,49,630/- made by the Assessing Officer under Section 69A of the Income Tax Act, 1961, without properly appreciating the findings of the AO and the evidence brought on record that clearly indicated that the transactions in shares of Kushal Tradelink Pvt. Ltd. were accommodation entries intended to introduce unaccounted income in the guise of Long-Term Capital Gain (LTCG). (ii) The Ld. C1T(A) failed to appreciate that the assessee's transactions in shares of Kushal Tradelink Pvt. Ltd. formed part of a larger pre-arranged scheme involving penny stock companies, entry operators, and price rigging mechanisms as confirmed by the SEBI adjudication order dated 22.12. 2017, which rendered such transactions devoid of any commercial substance or bona fide investment intent.

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 3

(iii) The Ld. CIT(A) erred in holding that the appellant's retention of bonus shares in the demat account and the timing/pricing of sale indicated genuine transactions, ignoring that the sale itself was made after a significant artificial price rise in the stock driven by manipulation and that such circumstantial factors cannot override hard evidence and investigation findings. (iv) The Ld. CIT(A) erred in not giving due weight to the abnormal appreciation of over 220% in one year in a penny stock with negligible net worth and weak financials, which strongly indicates price manipulation and artificial inflation to facilitate tax exempt gains. (v) The Ld. CIT(A) failed to consider that the burden of proving the genuineness of the transaction under Section 69A lies on the assessee, and in the absence of any credible explanation or rebuttal to the findings of the Investigation Wing and SEBI, the addition made by the AO was fully justified. (vi) On facts and in law, the Ld. CIT(A) has erred in ignoring the Para 3.1(h) of CBDT's directions vide circular no. 05/2024 regarding the transactions involving organized tax evasion including cases of bogus capital gain/loss through penny stocks and cases of accommodation entries. 6. The Assessee in the Cross-objection has taken the following grounds:

1.

In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in upholding the reopening u/s 148 though the reopening itself is bad in law & deserved to be quashed. 2. The appellant craves leave to add to, alter, amend and or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.

7.

Shri Rameshwar P Meena, the Ld. SR-DR, submitted that the Ld. CIT(A) was not correct in deleting the addition of Rs.1,60,49,630/- on account of accommodation entries obtained by sale of shares of penny scrips company of M/s. Kushal Tradelink Pvt. Ltd. He submitted that the assessee did not file her return of income and the sale proceeds/capital gain derived thereon was not disclosed to the Department. According to the Ld. SR-DR, the assessee was required to file her return even if the LTCG was claimed as exempt u/s. 10(38) of the Act. He explained that the transactions in the Kushal group scrips were utilized for allowing accommodation entries to the beneficiaries and the assessee was one

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 4 such beneficiaries. He, therefore, strongly supported the order of the Assessing Officer and contended that the Ld. CIT(A) was not correct in deleting the addition.

8.

Shri Biren Shah, the Ld. AR of the assessee submitted that the Ld. CIT(A) had considered the reasons recorded by the AO and rightly held that there was no evidence on record to establish that the assessee had taken any accommodation entry. He explained that the purchase and sale of shares of Kushal Tradelink Pvt. Ltd was done on the stock-exchange through SEBI registered broker and the transactions were duly reflected in the de-mat account of the assessee. Further, that the payment of sale consideration was received through banking channel. Regarding non- filing of the return, the Ld. AR explained that the assessee was under bona-fide belief that the LTCG derived by the assessee was exempt from tax and the other income of the assessee being below taxable limit, she was not required to file return of income. The Ld. AR reiterated that the Ld. CIT(A) had rightly taken cognizance of the evidences and has rightly deleted the addition.

9.

We have considered the rival submissions. A copy of the notice u/s. 148A(b) of the Act issued by the AO has been brought on record from which it is found that the AO had issued the notice on the ground that no return of income was filed by the assessee in spite of having substantial LTCG on sale of shares of M/s. Kushal Tradelink Pvt. Ltd. In the reason as recorded by the AO, there is no mention of any accommodation entry taken by the AO. Though the AO had mentioned about the evidences of cash transactions found in the course of search and seizure action conducted in the case of Kushal Group for providing long term capital

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 5 gain/loss or short term capital gain/loss, there is no mention of any cash transactions made by the assessee in respect of her LTCG. The fact that the purchase and sale of shares of Kushal Tradelink Pvt. Ltd was made through broker and were duly reflected in the de-mat account of the assessee, has not been disputed. The assessee has brought on record the copy of bills, bank statement, de-mat holding and transaction statement reflecting purchase and sale of shares of Kushal Tradelink Pvt. Ltd. Though the AO mentioned in the assessment order that purchase of shares made by the assessee on 12.05.2016 (51,500 shares) and on 13.05.2016 (19,800 shares) for a total consideration of Rs. 49,82,060/- was bogus, neither any reason has been given nor any evidence has been brought on record as to why the purchase of shares could be treated as bogus. The undisputed fact is that the purchase and sale of shares were made through the banking channel and were duly reflected in the de-mat account. No evidence has been brought on record that any cash was exchanged by the assessee either at the time of purchase or sale of these shares. Under the circumstances, the finding of the AO that the LTCG derived by the assessee in the sale of shares of Kushal Tradelink Pvt. Ltd was bogus, is found to be based on mere presumption and not on any material fact. The Ld. CIT(A) has rightly held that the assessee had duly explained these transactions through the evidences and there was no basis to treat the sale proceeds of the assessee as unexplained. The specific finding by the Ld. CIT(A) in this regard, is reproduced below:

“9.1. The brief facts of the case are that the case of the appellant, who is a non-resident individual was re-opened u/s 148A of the Act on the basis of information flagged on Insight Portal relating to a Search and seizure action u/s. 132 of the Act in the case of Kushal Group of Ahmedabad carried out on 05/02/2019. It is the allegation of the AO that Kushal Group is engaged in providing accommodation entries in the form of bogus Long Term Capital Gain/Loss (LTCG/LTCL) and Short-Term Capital gain/loss. It was

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 6

observed that the appellant has also entered into the transactions in the script of "Kushal Limited" and consequently notice u/s 148 of the Act was issued on 31.03.2022 in response to which the appellant filed her return of income declaring total income at Rs. 380/- and exempt income u/s 10(38) of the Act at Rs. 60,85,507/-. The exempt income u/s 10(38) pertains to Long Term Capital Gain ("LTCG") earned by the appellant in the script of Kushal Tradelink Private Limited (Kushal Limited).

9.2 The brief facts as emanating from the records are that the appellant purchased 71,300 shares of Kushal Limited (51,500 shares on 12.05.2016 and 19,800 shares on 13.05.2016) for an aggregate consideration of Rs. 99,64,123/-. Thereafter, the appellant was allotted bonus shares in the ratio of 1:1 resulting in allotment of 71,300 shares. Subsequently, the appellant sold 71,300 shares of Kushal Limited on 08.06.2017 for an aggregate consideration of Rs. 1,60,49,630/- resulting in LTCG of Rs. 60,85,507/- which is claimed as exempt by the appellant u/s 10(38) of the Act. The balance 71,300 shares are not sold by the appellant and are still lying in her de-mat account as per the latest submission filed by the appellant during the course of first appeal proceedings. The shares were bought and sold by the appellant through the broker "Shah Investors Home Limited". ………….. 9.12 Thus, it is clear that unless specific evidence found against appellant, addition is not justified. In view of above discussion, and considering relevant facts on record, it is observed as under: (i) The appellant has proved with all documentary evidence that transaction is genuine in nature and AO has not found any irregularity in the same. (ii) No specific evidence is brought on record to prove that the appellant was involved in the collusion with the entry operator/ stock brokers for such a scheme. (iii) Neither the Stock Exchange or SEBI has disputed the appellant’s transaction nor was any action against the appellant’s broker taken by stock exchange or SEBI. (iv) In the present case, no addition has been brought on record by proving that appellant has transferred its unaccounted money and part of modus operandi, further AO has never doubted the genuineness of documents submitted by appellant and entire addition is only on presumption that appellant is part of modus operandi without bringing any evidence on record. (v) Neither any evidence is found in search and survey action on Kushal Group, which can prove that appellant was beneficiary of bogus LTCG. 9.13 In view of detailed discussion made above, it is observed that addition made in present case is without any evidence and only on basis of presumption, surmises and conjectures, hence addition made u/s 69A of Rs. Rs.1,60,49,630/- is deleted. Thus, these grounds of appeal no. 3 to 10 of the appeal are allowed.

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 7

10.

The Revenue has been unable to controvert the findings of the Ld. CIT(A). Hon’ble Gujarat High Court has held in the case of Sanjaykumar Damjibhai Gangani [2025] 178 taxmann.com 276 (Gujarat) that where assessee-company claimed LTCG under section 10(38) arising out of sale of shares of S and had furnished complete evidence including contract note of shares, de-mat details, detail of bonus shares, since no adverse evidence was brought against said evidences, Assessing Officer was not justified in making addition under section 68 merely on allegation that assessee was a beneficiary of penny stock scrip. The findings of the Hon’ble Court are reproduced below:

[16] Considering the contentions raised on behalf of the Revenue, the Tribunal has arrived at a finding of fact that shares of Sunrise Asian Ltd. sold by the assessee cannot be doubted as bogus and exemption under Section 10(38) of the Act was rightly availed by the assessee. The Tribunal has also concluded that the presumption drawn by the Assessing Officer was not corroborated by any evidence to establish the alleged non- genuine transaction by the assessee. It was, therefore, rightly held by the Tribunal that the claim of the assessee for exemption of Long Term Capital Gains under Section 10(38) of the Act cannot be held to be bogus on the basis of presumption in absence of any evidence brought on record by the assessee with regard to shares of Sunrise Asian Ltd, which is not even found to be rigged by the SEBI also. The Tribunal has also considered that the assessee held the shares for two and half years and after holding the shares for a long period, the same were sold by the assessee and therefore, reliance was placed on the decision of this Court in the case of Jagat Pravinbhai Sarabhai (supra), wherein this Court has held as under: "5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span. 6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises.

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 8 7. Resultantly, appeal is dismissed." [17] In view of the above, we are of the opinion that no question of law much less any substantial question of law arises from the impugned order passed by the Tribunal. The appeal, being devoid of any merit, is, accordingly, dismissed. 4. Considering the above dictum of law in case of Divyaben Prafulchandra Parmar (supra) and applying the same to the facts of the case, we are of the opinion that no question of law much-less any substantial question of law arises from the impugned order of the Tribunal on the same reasoning as assigned by this Court in the said case.

11.

In view of the facts as already discussed earlier and also following the judicial precedents, we do not find any infirmity in the order of the Ld. CIT(A). The Assessing Officer had merely relied upon the findings of Investigation Wing without carrying out any independent investigation of his own. Nothing was brought on record that would establish that the assessee was beneficiary of alleged accommodation entries. No corroborative evidences to support the allegations of Assessing Officer are found available on record. The documentary evidences submitted by the assessee were neither proved contrary nor proved fabricated. Assuming that the brokers may have done some manipulation; but the assessee cannot be held liable for the act of the brokers when the entire transactions have been done through banking channel duly recorded in the de-mat account with a depository and traded on the stock exchange. The sale transactions took place through recognized stock exchange and statutory Securities Transaction Tax (STT) was paid on sale transactions. In the online platform, the identity of the seller as well as purchaser would not be known. The shares were delivered in de-mat form through clearing mechanism of the stock exchange. Therefore, unless any link is established, the assessee could not be held to be part of the group indulging into rigging of share prices of the scrip. The sale proceeds were realized through banking channel and there was no evidence of any cash

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 9 exchange. The assessee had not sold the entire shareholding, rather 50% of the shares were retained by her. The findings as well as conclusion of Assessing Officer are found to be based on mere suspicion and surmises, as against settled proposition of law that suspicion howsoever strong can’t partake the character of legal evidence. The entire case of Assessing Officer was based on mere presumption that the assessee ploughed back her own unaccounted money in the form of bogus LTCG. The presumption needs to be corroborated by some evidence to establish the same. It is trite law that presumption, however, strong, cannot be a substitute, nor can it take place of evidence. For the said proposition, reliance is placed on Hon'ble Supreme Court decision, in the case of Omar Salay Mohamed Sait reported in (1989) 37 ITR 151 (SC) wherein it was held that no addition can be made in the basis of surmise, suspicion and conjectures.

12.

In view of the above facts and the legal position, the order of the Ld. CIT(A), deleting the addition of Rs.1,60,49,630/- on account of unexplained money, is upheld and the grounds taken by the Revenue are dismissed.

13.

In the result, the appeal of the Revenue is dismissed.

CO No.: 65/Ahd/2025

14.

The only ground taken by the assessee in the cross-objection is against the reopening of the case u/s. 147 of the Act. The fact that the assessee did not file her return of income for A.Y. 2018-19 is not under dispute. The assessee was duty bound to disclose the LTCG derived by her even if it was exempt u/s. 10(38) of the act. The AO had, therefore, rightly initiated the reopening proceeding. Accordingly, the action of the

ITA No. 1286 & CO No. 65/Ahd/2025 ITO Vs. Payal Manan Shah, A.Y – 2018-19 10

AO in reopening of the case is upheld and the ground taken by the assessee in the cross-objection is dismissed.

15.

In the final result, the appeal of the Revenue and the cross-objection of the Assessee, both are dismissed.

Order pronounced in the Court on 06/08/2026 at Ahmedabad.

Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Dated – 06th August, 2026 Neelesh, Sr. PS (True Copy) आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file. आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार पंजीकार (Dy./Asstt.Registrar) उप उप/सहायक उप उप सहायक सहायक पंजीकार सहायक पंजीकार पंजीकार आयकर अपीलीय आयकर अपीलीय अिधकरण अिधकरण, अहमदाबाद अहमदाबाद / ITAT, Ahmedabad आयकर आयकर अपीलीय अपीलीय अिधकरण अिधकरण अहमदाबाद अहमदाबाद

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Recent GST High Court judgments

Search GST case law →