RAMILABEN VINODBHAI PATEL,AHMEDABAD vs. THE ITO, WARD-3(1)(1), AHMEDABAD

The Learned CIT(A) at National Faceless Appeal Centre (NFAC) has erred in law and in facts in confirming the addition of Rs.1,17,60,000/- u/s 68 of the Act in respect of unsecured loans received by the appellant.”

The brief facts of the case are that the assessee is an individual engaged in business in the name and style of “Elemech Engineering”. The assessee filed original return of income declaring total income of Rs.48,71,690/-. Subsequently, information was received by the Assessing Officer through the Insight Portal that during the course of search action carried out in the case of Kushal Group, it was found that the group was allegedly engaged in providing accommodation entries in the form of bogus LTCG/STCG through penny stock transactions in shares of Kushal Tradelink Ltd. Accordingly, notice u/s 148A(b) dated 17.03.2022 was issued. The relevant portion of the notice reads as under:

1 Thereafter, order u/s 148A(d) was passed and notice u/s 148 was issued. In response thereto, the assessee filed return declaring total income of Rs.54,14,880/-. During reassessment proceedings, the Assessing Officer observed that the assessee had shown Short Term Capital Gain (STCG) arising from transactions in shares of Kushal Tradelink Ltd. The Assessing Officer further observed that the assessee had also received unsecured loans aggregating to Rs.1,17,60,000/- from various parties.

2 The Assessing Officer thus held that (i) the alleged STCG of Rs.26,56,627/- represented accommodation entries and accordingly treated the same as unexplained cash credit under section 68 of the Act and (ii) unsecured loans aggregating to Rs.1,17,60,000/- remained unexplained for want of satisfactory proof regarding identity, genuineness and creditworthiness of the lenders. Accordingly, assessment u/s 143(3) r.w.s. 147 and 144B was framed determining total income at Rs.1,92,88,317/-.

Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT (A), who confirmed the action of the Assessing Officer, by observing as under:-

1 The appellant has taken total 3 Grounds of Appeal. Ground No.1 is regarding invalid reopening, Ground No-2 contains two sub grounds of appeal one related to addition on account of bogus STCG on sale of shares of Rs. 26,56,627/- and second addition on account of interest free unsecured loan received by the appellant of Rs. 1,17,60,000/- u/s 68 of the Act. Ground No-3 is general in nature and does not require separate adjudication.

2 The Ground No.1 is related to reopening of assessment. The appellant has contended that notice u/s 148A(b) was in in contravention of section 144B and section 151. The assessment should have been done in faceless manner u/s 144B and in accordance with the scheme enacted by the Central Government u/s 151A. The appellant has relied on the decision of Hon'ble High Court of Telangana in the case of Kankanala Ravindra Reddy [2023] 156 taxmann.com 178 (Telengana). It is seen from the assessment order that due approval of the competent authority was obtained u/s.151 of the Income-tax Act, 1961 before issuing notice u/s 148 of the Income-tax Act, 1961. In this context, it may be mentioned that in view of the Gazette Notification No. 18/2022/F. No. 370142/16/2022-TPL (part-1) dated 29- 03-2022, and the provisions of section 151A of the Income Tax Act, 1961, the e- Assessment of Income Escaping Assessment Scheme 2022 was notified vide notification no. S.O. 1466(E) dated 29.03.2022. The scope of the scheme as per this notification is as under "Scope of the Scheme. For the purpose of this Scheme, (a) assessment, reassessment or re-computation under section 147 of the Act, (b) issuance of notice under section 148 of the Act, Shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 1448 of the Act with reference to making assessment or reassessment of total income or loss of assessee." On perusal of the above notification it is observed that issuance of notice under section 148 of the Act shall be in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee. The relevant portion of Section 1448 is reproduced as under: Faceless Assessment. 144B. [(1) Notwithstanding anything to the contrary contained in any other provision of this Act, the assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:- (2) The faceless assessment under sub-section (1) shall be made in respect of such territorial area, or persons or class of persons, or incomes or class of incomes, or cases or class of cases, as may be specified by the Board. In this regard the CBDT has issued Order F. No. 187/3/2020-ITA-1 dated 31.03.2021 under section (2) of section 1448 of the Income-tax Act, 1961 to specify the scope/cases to be done under the Act, as follows: "In pursuance of sub-section (2) of Section 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Central Board of Direct Taxes hereby specifies that all the assessment proceedings pending as on 31.03.2021 - 5– and the assessment proceedings initiated on or after 01.04.2021 (other than those in the Central Charges and international Taxation charges) which fall under the following class of cases shall be completed under section 1448 of the Act: a. where the notice under section 143(2) of the Act was/is issued by the (erstwhile) NeAC or by the NaFAC; b. where the assessee has furnished her/his return of income under section 139 or in response to a notice issued under section 142(1) or section 148(1); and a notice under section 143(2) of the Act, has been issued by the Assessing Officer or the Prescribed Income-tax Authority, as the case may be c. where the assessee has not furnished her/his return of income in response to a notice issued under section 142(1) of the Act by the Assessing Officer, d where the assessee has not furnished her/his return of income under section 148(1) of the Act and a notice under section 142(1) of the Act has been issued by the Assessing Officer.

This order shall come into force with effect from the 1st day of April, 2021.” The CBDT has thus specifically excluded the Central and International Taxation charges from the purview of faceless assessment Scheme. In the case of Kankanal Ravindra Reddy vs Income Tax Officer cited by assessee, the Hon'ble Bombay High Court relied on the decision of the same court in Hexaware Technologies Limited v. Assistant Commissioner of Income Tax, Circle- 15(1)(2), Mumbai and Ors. (WP no. 1778 of 2023). The Hon'ble Bombay High Court, while delivering the judgment in Hexaware relied on the decision of Hon'ble Officer and disposed of the writ petition in favour of the assessee, by holding, inter- alia, as follows: "With respect to the arguments of the Revenue, le., the notification dated 29th March 2022 provides that the Scheme so framed is applicable only to the extent' provided in Section 144B of the Act and Section 1448 of the Act does not refer to issuance of notice under Section 148 of the Act and hence, the notice cannot be issued by the FAO as per the said Scheme, we express our view as follows:- "Section 151A of the Act itself contemplates formulation of Scheme for both assessment, reassessment or recomputation under Section 147 as well as for issuance of notice under Section 148 of the Act. "Therefore, the Scheme framed by the CBDT, which covers both the aforesaid aspect of the provisions of Section 151A of the Act cannot be said to be applicable only for one aspect, Le., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act. The Scheme is clearly applicable for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the notice under Section 148 of the Act and not the JAO."

4 Ground of appeal No-2, Sub ground 1 is related to addition on account of alleged STCG earned on sale of shares of Kushal Tradelink Ltd. The appellant has contended that the A.O. has wrongly treated the genuine STCG of Rs.26,56,627/- being sale proceeds of shares as bogus STCG/accommodation entry. Further, the appellant has submitted that while filing ROI in response to the notice u/s 148 of the Act, the appellant had made mistake in calculating Capital Gain and the appellant here accept the said mistake and is ready to pay the capital gain taxes on the same. The appellant has requested to consider the said income as STCG and not to treat the same as unexplained cash credit u/s 68 of the Act. I have carefully perused the submission of the appellant and the findings of the A.O. recorded in the assessment order. The A.O. has categorically mentioned the entire modus operandi of generating bogus LTCG/STCG on sale of shares of "Kushal Tradelink Ltd". The AO has analysed the price rise of scrip of Kushal Limited from Rs. 2 per shares on 03.09.2015 to 234 times ie Rs. 469 per shares on 13.02.2017 by rigging the price of shares and the assessee has been the beneficiary of this rigged in price of Kushal Tradelink Limited. The AO has noted that the scrip price was highly volatile and its movement had no basis, either fundamental or technical. The financials of the company Kushal Limited are also not commensurate with sudden price rise. Further, during the search it has been found that the scrip Kushal Tradelink Limited was used to provide accommodation entry of bogus LTCT/STCG/Loss to be claimed as exempt income and thereby introduce the unaccounted income in the books without paying any taxes. In this manner, the assessee's own unaccounted money was camouflaged as exempt LTCG/STCG. The modus operandi as incorporated in the assessment order leaves no doubt that the appellant has taken accommodation entries in the form of STCG as the appellant has not shown capital gain income from sale of shares Kushal Tradelink Ltd in its ROI filed in response to notice u/s 148 of the Act. Further, the appellant during the course of assessment proceedings has made false claim of wrong calculation. The appellant has submitted that while working brokerage and commission it has taken figure of Rs. 50 per share instead of Rs. 0.05 per share. The contention of the appellant with regard to wrong calculation is totally baseless, irrational and non-justifiable. It is only a colorable devise to misguide the Revenue and evade taxes. However, as the appellant has accepted her mistake during the appellate proceedings and has agreed to pay taxes on alleged capital gain therefore the only issue remains in hand is with regard to treatment of the said earnings that is whether it should be treated as normal STCG or accommodation entry within the meaning of unexplained cash credit u/s 68 of the Act. Here, it is important to take note of the findings of the A.O. that despite of multiple requests made to the appellant by the Ramilaben Vinodbhai Patel Vs. ITO - 7– A.O. to submit true and correct picture of sale of shares, the appellant did not provide the same during the course of assessment proceedings for which the AO has initiated penalty proceedings as well can not be neglected. Therefore, having considered the facts and circumstances of the case in its entirety, and that no material evidence(s) has been adduced by the appellant to counter these findings, I do not find any reason to interfere with the order of the A.O. on this ground and hence the order of the A.O. is confirmed.

5 Ground of appeal No-2, Sub ground 2 is related to addition in respect of unsecured loan amounting to Rs. 1,17,60,000/-. The appellant has contended that during the course of assessment proceedings the appellant could not upload the evidences in support of unsecured loans received by the appellant during the relevant FY. The contention of the appellant has been considered. It is seen from the submissions of the appellant that the appellant has submitted copy of confirmation letter, copy of ITR in respect of the some lender from whom the appellant has obtained interest free unsecured loan. The AO in the assessment order has tabulated the findings in respect of lender of unsecured loan. The AO has specifically mentioned that the appellant has failed to establish the creditworthiness of the lender(s) and thus the addition to the tune of Rs. 1,17,60,000/- was made. On careful perusal of the submissions of the appellant it is seen that the loan confirming parties from whom loans were availed have not filed their ROI owing to being senior citizens and the ITR acknowledgment submitted in respect of some parties do not bear creditworthiness proportionate to their income with the amount of loan advanced to the appellant. Further, one of the lender namely Shri V K Patel (U. S. Loan) is found to be an employee of the appellant's group concern. Therefore, in view of the facts and circumstances of the case in its entirety wherein the appellant has earned STCG of Rs.26,56,627/- on sale of shares of M/s Kushal Trade Limited which was established to be a penny stock company providing accommodation entries in the form of bogus capital gain/loss to the beneficiaries, I am of the considered opinion that the addition made on account of unexplained cash credit and invoking provisions of section 68 of the Act by the AO do not require any interference on this ground and accordingly the order of the AO is confirmed. This ground of appeal is accordingly dismissed.

In the result, the appeal is dismissed”

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The Ld. AR challenged the reopening primarily on the ground that notice u/s 148A(b) was not issued in faceless manner as contemplated u/s 151A r.w.s. 144B of the Act. Reliance was placed on various decisions including Mita Ashish Desai, Mohit Somchand Shah (HUF), Adeshwara Cement Company Pvt. Ltd., - 8– Ashishbhai Jashwantbhai Desai (HUF), Deepakbhai Balkrishna Garg and Laxmi Infra Developers Limited rendered by the Hon’ble Gujarat High Court.

1 The Ld. DR, on the other hand, supported the orders of lower authorities and submitted that reopening was based on tangible information received from Investigation Wing pursuant to search proceedings.

2

On this issue, the Ld. AR submitted that the transactions were genuine stock exchange transactions supported by contract notes, demat statements and banking channels. It was further submitted that the assessee had mistakenly computed lower STCG in return filed in response to notice u/s 148 and later furnished correct computation during assessment proceedings. We have noted that the assessee filed a paper book containing demat account statements, transaction reports, broker statements, bank statements, capital gain workings etc. before the lower authorities and a copy of the same was also placed on record before us. To support the arguments of Ld. AR, he relied upon the Ramilaben Vinodbhai Patel Vs. ITO - 9– decisions of the Tribunal in the case of SK Hisaria (HUF), Dhwani Alpesh Shah, Vikash More, Harsha Asheshbhai Patel, Nikulbhai Chaturbhai Patel (HUF) 278 taxmann.com 697, and Tripoli Management (P.) Ltd., 178 taxmann.com 706. 7.1 The Ld. DR, on the other hand, relied upon the orders of the authorities below.

2

4 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.

5 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 Ramilaben Vinodbhai Patel Vs. ITO - 10– 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 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.

7 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.

8 Chandigarh, Bench A, in ITA No. 951/CHD/2016, the Tribunal held as under:-

9 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 trustworthy. Hon'ble Income Tax Appellate Tribunal - Chandigarh, in the case of Ramilaben Vinodbhai Patel Vs. ITO - 11– 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 :-

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

11 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.

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.

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. Ground No.2 of the assessee’s appeal is thus dismissed.

The Assessing Officer made addition of Rs.1,17,60,000/- u/s 68 in respect of unsecured loans received from various parties. Before us, the assessee furnished details of creditors along with supporting evidences as under: Name of Creditor Amount (Rs.) Mangalam Packaging (Yogeshbhai) 25,00,000/- Samir Construction 25,00,000/- Shri Sureshchandra S. Shah 15,90,000/- Smt. Vanitaben S. Shah 14,20,000/- Shri V.K. Patel 37,50,000/- Total 1,17,60,000/-

1 The assessee submitted confirmations, PAN/Aadhaar details, bank statements, ITR acknowledgements, computation of income and declarations regarding non-filing of return in certain cases.

2

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 17.06.2026 (SUCHITRA R. KAMBLE) VICE-PRESIDENT Ahmedabad; Dated 17.06.2026 **btk