AMITKUMAR AMULAKHRAY SHAH ,BHAVNAGAR vs. THE DY.CIT, CIRCLE-1, BHAVNAGAR

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ITA 2569/AHD/2025Status: DisposedITAT Ahmedabad30 June 2026AY 2013-147 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the alleged long-term capital gains were bogus and the AO was justified in treating them as undisclosed income. The Tribunal relied on various judicial precedents concerning penny stock transactions and non-genuine capital gains.

What were the facts?

The assessee claimed long-term capital gains from the sale of shares of Hemo Organics Ltd. The Assessing Officer (AO) initiated reassessment proceedings, alleging the transactions were non-genuine and intended to bring unaccounted income under the guise of exempt capital gains. The AO made an addition of Rs. 13,72,542/- under Section 68 of the Act.

What were the issues?

Whether the reassessment proceedings were validly initiated and whether the addition on account of alleged non-genuine profit from share transactions was justified.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 144B,Section 68,Section 10(38),Section 28,Section 139,Section 143(3),Section 143(2),Section 142(1),Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD ‘SMC’ BENCH, AHMEDABAD

Before: DR. BRR KUMAR & MS. SUCHITRA KAMBLE

For Appellant: Ms. Nupur Shah, A.R
For Respondent: Shri Rameshwar P. Meena, Sr.DR
Hearing: 30.04.2026

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD ‘SMC’ BENCH, AHMEDABAD

BEFORE DR. BRR KUMAR, VICE PRESIDENT AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.2569/AHD/2025 (Assessment Year: 2013-14)

Mr. Amitkumar Amulakhray Shah, ITO, National e-Assessment Centre, 2130-A/2, 3rd Floor, Delhi “Vrajraj”, Atabhai Road, Aayakar Bhavan, Bhavnagar, Bhavnagar Income Tax Office, Vs. Gujarat – 364001 Jashonath Chowk, Nakubaug, Bhavnagar, Gujarat -364001 PAN:AJBPS3135N (Appellant) : (Respondent)

Assessee by : Ms. Nupur Shah, A.R. Respondent by : Shri Rameshwar P. Meena, Sr.DR

Date of Hearing : 30.04.2026 : 30.06.2026 Date of Pronouncement

O R D E R PER : SUCHITRA KAMBLE, J M:

The appeal filed by the assessee is against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC),Delhi [in short “Ld. CIT(A)”]dated 27.10.2025 for the Assessment Year (in short “AY”) 2013-14.

2.

The assessee has raised the following grounds of appeal: “1. The Ld. CIT (A) has grossly erred in law and on facts in dismissing the appeal filed by the appellant. He ought to have allowed the appeal fully in accordance with the grounds of appeal raised by the appellant before him.

I. CHALLENGING THE VALIDITY OF NOTICE ISSUED U/S. 148 OF THE ACT AND PASSING THE ORDER U/S. 147 R.W.S. 144B OF THE ACT

1.

That the Ld. CIT(A) has erred in law and on facts in upholding the validity of the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961,

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah notwithstanding the fact that the original assessment was duly completed under Section 143(3) on 29.02.2016 after full and proper examination of all material facts.

The reopening has been initiated merely on a change of opinion, without any fresh tangible material, and is therefore bad in law and liable to be quashed.

2.

The Ld. CIT(A) failed to appreciate that the Assessing Officer lacked any new, tangible material to form a valid 'reason to believe' that income had escaped assessment. The reopening of the assessment was initiated solely on the basis of information received from the Investigation Wing, without any independent application of mind, verification, or inquiry by the Assessing Officer.

3.

The appellant respectfully submits that the reassessment order stands vitiated due to a gross violation of the principles of natural justice. No copy of the Investigation Report was ever furnished to the appellant, nor was any opportunity granted to rebut the purported findings contained therein. Further, the appellant was also not granted opportunity of cross-examination for the individuals whose statements, if any, were relied upon by the Assessing Officer for forming the alleged 'reason to believe'. Such procedural lapses render the reassessment proceedings unsustainable in law.

II. Addition on account of non-genuine profit of Rs. 13,72,542/- u/s. 68 of the Act

1.

The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs. 13,72,542/- merely on surmises and conjectures.

2.

The Ld. CIT(A) has erred in not duly considering the detailed written submissions filed during the appellate proceedings and has further erred in making the unwarranted observation that the appellant has sought to bring the impugned income under the guise of bogus exempt long-term capital gains.

3.

The Ld. CIT(A) has erred in failing to appreciate that the appellant has not carried out any trading in the shares of Hemo Organics Limited. The appellant had undertaken only legitimate, document-backed, bona fide transactions in the shares of Dinesh Allorga Limited, which was subsequently renamed as Hemo Organics Limited.

4.

The Ld. CIT(A) has further failed to recognize that the results of the trading activities in the shares of Dinesh Allorga Limited formed an integral part of the computation of income chargeable under section 28 of the Act, and were never claimed as exempt under section 10(38), even at the time of filing the return of income under section 139.

5.

The Ld. CIT(A) has erred in failing to duly consider and appreciate the judicial precedents relied upon by the appellant, which directly support the appellant's contentions and have a material bearing on the issues under appeal.

The appellant reserves his right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing.

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah PRAYER

The appellant therefore respectfully prays that:

1.

The re-opening of the case of appellant by issuing the notice u/s. 148 of the Act and order passed u/s. 147 r.w.s. 144B of the Act may kindly be quashed.

2.

The addition of Rs. 13,72,542/- confirmed by the CIT (A) on account of non-genuine profit u/s. 68 of the Act may kindly be deleted.

3.

Such and further relief as the nature and circumstances of the case may justify.”

3.

The assessee is an individual and filed return of income for the AY 2013- 14 on 04.10.2013 showing a loss of Rs.(-)11,92,225/- and revised the said return of income on 13.11.2013 showing a loss of Rs.17,43,419/-. The information received from DDIT (Investigation) that the assessee had shown to have sold the shares of Hemo Organics at price of Rs.48,85,810/-. The Ld. Assessing Officer (in short “Ld. AO”) further observed that the assessee had filed accommodation entry by way of non-genuine high value financial transactions in the shares of Hemo Organics to bring unaccounted income under the garb of exempt Long Term Capital Gains (in short “LTCG”). The entire consideration of Rs.48,85,810/- shown by the assessee on sale of shares of Hemo Organics represents unaccounted income of the assessee. The assessee has not paid any tax showing the gain under the head “exempt LTCG”. Notice u/s 148 of the Income Tax Act, 1961 (in short “the Act”) was issued to the assessee on 30.03.2021 which was served to the assessee. The assessee filed return of income for AY 2013-14 in response to notice u/s 148 of the Act declaring total income of Rs.(-)17,43,420/-. Notice u/s 143(2) of the Act was issued on 25.10.2021 and reason for reopening was supplied to the assessee on the very same day. Statutory notices u/s 142(1) of the Act was issued. Notice u/s 133(6) of the Act was also issued to the chief financial officer, Bombay Stock Exchange of India Ltd. as well as National Stock Exchange for requesting to furnish the complete information/documents, but no reply was filed by the Bombay Stock Exchange as well as National Stock Exchange. The assessee also replied through written submissions on 25.01.2022. The Ld. AO observed that the assessee failed to explain the bogus

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah LTCG from a penny stock amounting to Rs.48,85,810/- and made addition u/s 68 of the Act as unexplained income amounting to Rs.13,72,542/-. While making the addition, the Ld. AO observed that the assessee purchased shares of Dinesh Allorga Ltd. (renamed as Hemo Organics Ltd.) for Rs.34,62,747/- and sold the same for Rs.48,35,289/-. Thus, the assessee earned fictitious profit of Rs.13,72,552/-.

4.

The Ld. Departmental Representative (in short “Ld. DR”) for the Revenue relied upon the assessment order and the order of the Ld. CIT(A). The Ld. DR submitted that there are price manipulation activitiesand the assessee has also availed the accommodation entry by way of non-genuine high volume financial transactions in the shares of to bring unaccounted income under the garb of exempt capital gains.

5.

We have heard the rival submissions and perused the material available on record. We find that the assessee has furnished complete details relating to the purchase and sale of the scrip, including the demat account statements, contract notes, and account statements evidencing the transactions in the said scrip.However, it is observed that the addition under section 68 of the Act has been made by the Assessing Officer primarily on the basis of the investigation findings pertaining to Hemo Organics and the uncharacteristic appreciation in the price of the scrip. We further note that an identical issue came up for consideration before the Tribunal in the case of Rameshkumar Karsanbhai Patel v. ITO in ITA No. 669/SRT/2025, wherein the matter was examined and adjudicated vide order dated 09.04.2026.

6.

At this stage, it would also be appropriate to refer to various judicial precedents which have dealt with identical issues relating to penny stock transactions and bogus claims of long-term capital gains.

6.1 Hon'ble Delhi High Court in the case of NDR Promoters (P) Ltd, 102 taxmann.com 182, held that where the assessee created lot of paper work to camouflage the transactions of bogus nature to look like genuine, there is no need of cross examination.

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah 6.2 Reliance is being placed on Hon'ble Delhi High Court's decision of Suman Poddar Vs. PCIT 112 taxmann.com 329 where it was held that the share transactions were bogus because the company whose shares allegedly purchased were of penny stock and this decision was affirmed by Hon'ble Supreme Court, 112 taxman.com 330. The Hon'ble court has opined that in this type of cases, cross-examination opportunity is not required because statements and other material found in the course of investigation were used as a corroborative material to strengthen the findings of Assessing Officer. The Assessing Officer made the addition based on several factors and analysis to prove that there is no genuineness in the transaction and utilised the statements of operators as corroborative evidence only.

6.3 In the case of Udit Kalra ITA No. 220/2009, Hon'ble Delhi High Court held that the company had meagre resources at disposal, negligible profit, but there was unusual and very high growth in the share price which does not support the same, the transaction was held to be sham.

6.4 In the case of Sanat Kumar Vs. ACIT Delhi, Circle 36(1), Hon'ble ITAT Delhi Bench has held that the so-called sale proceeds of shares received and claimed as exempt u/s. 10(38) was held to be sham transaction because of huge price rise of shares at the time of sale despite the fact that company's profits are negligible and did not support such price rise.

6.5 In the case of Abhimanyu Soin Vs. Asst, CIT, Circle VII, Ludhiana, ITAT, Chandigarh, Bench A, in ITA No. 951/CHD/2016, the Tribunal held as under:-

"On consideration of the facts of the case as a whole it cannot be accepted that the assessee can have long term capital gains of Rs. 80,25,291/- within 17 months of buying of shares at Rs.2,72,000/- a non- descript company incorporated in 2007 which got merged in 2009. This cannot be a case of intelligent investment or a simple tax planning to gain benefit of long term capital gains".

6.6 In the case of Somnath Maini Vs. CIT 306 ITR 414, the Hon'ble Punjab & Haryana High Court, held that claim of genuineness of transactions can be rejected even if the assessee backs the same with evidence which is not

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah trustworthy. Hon'ble Income Tax Appellate Tribunal - Chandigarh, in the case of Assistant Commissioner of Income Tax Vs. Som Nath Maini by placing reliance on the decision of Hon'ble Supreme Court in the case of Durga Prasad More (2002) 3 BOMLR 747, 2003 (1) MhLj 420 has observed as under :-

"It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, it is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque does not render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. …..

We accordingly set aside the order of the CIT(A)and restore that of the AO."

6.7 Further, reliance is being placed on the following orders of the Co- ordinate benches of the Tribunal:

a) Usha Chandresh Shah ITA No. 6858/Mum/2011, Mumbai b) Zakrullah Chaudhary ITA No. 669/PN/2012, Pune c) Chandan Gupta ITA No. 7024/Mum/2010, Mumbai e) Napar Drugs Ltd. 98 ITD 265, Delhi

6.8 The Co-ordinate Bench of ITAT Chennai in the case of Rajnish Agarwal in I.T.A.No.1419/CHNY/2018 has held that the penny stock not having any financial strength of its own and the sale and purchase of these shares were held to be sham and LTCG u/s. 10(38) was denied to the assessee.

7.

We, therefore, hold that the facts and circumstances of the present case are very tightly knit case where the Revenue has gone behind the transaction of capital gains to know the factual operation of sudden volatility in the prices of the scrip. The present case is, therefore, required to be adjudicated on the given set of facts and evidence.

ITA No.2569/AHD/2025 Mr. Amitkumar Amulakhray Shah 8. In view of the above discussion, we hold that the alleged long-term capital gain claimed by the assessee is bogus and the Assessing Officer was justified in treating the same as undisclosed income under the Income-tax Act, 1961.

In view of the above, the grounds of appeal raised by the assessee are dismissed.

9.

In result, appeal of the assessee is dismissed.

Order pronounced in the open court on 30.06.2026

Sd/- Sd/- (DR. BRR KUMAR) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated: 30.06.2026

* Kishore, Sr. P.S.

Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Ahmedabad 5. Guard File By order,

Assistant Registrar/Sr.PS/PS ITAT, Ahmedabad Bench

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