GOVINDBHAI T. PATEL, HUF,SABARKANTHA vs. THE ITO, WARD-1, HIMATNAGAR

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ITA 2162/AHD/2025Status: DisposedITAT Ahmedabad23 April 2026AY 2012-137 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer wrongly treated the entire sale proceeds of shares as income without allowing the cost of acquisition. It also found that the source of investment in NHAI bonds was explained and the addition was made without proper opportunity, violating natural justice.

What were the facts?

The assessee, an HUF, did not file its original return. The case was reopened based on information about share transactions and bond investments. The Assessing Officer made additions for share sale proceeds and bond investment, which were confirmed by the CIT(A).

What were the issues?

Whether the reopening of assessment was valid and whether the additions made for share transactions and bond investments were justified without proper evidence and opportunity.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 69,Section 48,Section 234A,Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL

For Appellant: Shri D K Parikh, AR
For Respondent: Shri Girish Parihar, Sr. DR
Hearing: 23.03.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.2162/Ahd/2025 (Assessment Year: 2012-13) Govindbhai T. Patel-HUF, Vs. Income Tax Officer, Patel Niwas, Uplagodiya, Tal: Ward-1, Vijaynagar, Dist: Sabarkantha, Himmatnagar Gujarat-383460 [PAN No.AAEHG7445P] (Appellant) .. (Respondent) Appellant by : Shri D K Parikh, AR Respondent by: Shri Girish Parihar, Sr. DR Date of Hearing 23.03.2026 23.04.2026 Date of Pronouncement 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)”), ADDL/JCIT(A), Panaji vide order dated 29.09.2025 passed for A.Y. 2012-13.

2.

The assessee has raised the following grounds of appeal:

“1. That on the facts and in the circumstances of the case and in law, the order of the Ld. Commissioner of Income Tax (Appeals) (hereinafter referred to as the "Ld. CIT(A)") is erroneous, arbitrary, and bad in law to the extent it is prejudicial to the interests of the Appellant. 2. That the Honorable CIT(A) had erred in law and on facts in dismissing the ground of appeal challenging the reopening the assessment under section 147/148 of the Income Tax Act without appreciating the submission of the appellant and the same being against the law is require to be held so now. 3. The Honourable CIT(A) has erred in law and facts in making addition treating sale value of share and bond allotted in IPO as income is wholly illegal, unlawful and against the principles of natural justice.

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 2– 4. The Honourable CIT(A) has erred in not issuing show cause notice for addition of Rs. 5,00,000/- and not proving any opportunity to explain the source of fund to the Appellant. In show cause notice, AO has issued show cause of only VMS Industry amount of Rs. 1,42,847/-, while passing order, AO has apart from Rs. 1,42,847/-, also added Rs. 5,00,000/- as unaccounted investment without affording an opportunity u> the show cause notice. 5. The Assessing Officer has made addition of sale proceeds of VMS Industries shares of Rs 1,42,847/- without allowing the cost of acquisition as documented in the purchase bills; hence the net short-term capital gain declared at Rs 172,433/- was wrongly rejected. 6. The addition of Rs 5,00,000/- being "investment in NHAI bond" was not part of the show-cause notice and was made without verification of facts and submissions of the appellant; this addition is beyond the scope of the assessment and violates principle of natural justice. 7. That the Ld. AO erred in law and in the facts of the case in charging interest u/s 234A and 234B of the I.T Act. 8. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing.” 3. The brief facts of the case are that the assessee, being an HUF, had not filed the original return of income for the assessment year 2012- 13. Based on information received from the Investigation Wing regarding certain share transactions and investment in bonds, the case was reopened under section 147 of the Act after obtaining necessary approval and notice under section 148 of the Act was issued. In response, the assessee filed return of income declaring total income of Rs. 1,79,640/-.

4.

On examination of the material on record, the Assessing Officer observed that the assessee had carried out share transactions in a penny stock namely VMS Industries Ltd. amounting to Rs. 1,42,847/-. The assessee was asked to furnish complete details such as contract notes, demat account and other supporting evidences. However, according to the Assessing Officer, the assessee failed to furnish complete evidence

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 3– in support of such transactions. Accordingly, the entire sale value of Rs. 1,42,847/- was treated as undisclosed income of the assessee. Further, the Assessing Officer noticed from ITS data that the assessee had made investment in bonds amounting to Rs. 5,00,000/- during the year under consideration. Since the assessee failed to explain the source of such investment with supporting evidence, the same was treated as unexplained investment under section 69 of the Act. Accordingly, additions of Rs. 1,42,847/- and Rs. 5,00,000/- were made and the total income was assessed at Rs. 8,22,490/- under section 143(3) read with section 147 of the Act. Penalty proceedings under section 271(1)(c) were also initiated.

5.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(Appeals). The assessee challenged both the validity of reopening as well as the additions made on merits. The Ld. CIT(Appeals), while adjudicating the ground relating to reopening of assessment, observed that the Assessing Officer had received specific and tangible information regarding undisclosed share transactions and investment in bonds which were not reflected in any return of income. The CIT(A) further noted that the assessee had not filed original return and filed return only after issuance of notice under section 148. Relying on judicial precedents including the decision of the Hon’ble Supreme Court in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. and Raymond Woollen Mills Ltd., the Ld. CIT(Appeals) held that the reopening was valid as the Assessing Officer had reason to believe that income had escaped assessment. Accordingly, the grounds challenging the jurisdiction were dismissed.

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 4– 6. With regard to the addition of Rs. 1,42,847/- on account of share transactions, the Ld. CIT(Appeals) observed that although the assessee claimed to have earned short-term capital gain, the assessee failed to furnish primary evidences such as contract notes, proof of purchase, demat statements or any independent corroboration to establish genuineness of the transactions. The CIT(Appeals) held that mere bank statements and broker ledger were not sufficient to discharge the onus. Applying the principles laid down by the Hon’ble Supreme Court in the cases of Durga Prasad More and Sumati Dayal, the Ld. CIT(Appeals) held that the transaction was not proved and accordingly confirmed the addition made by the Assessing Officer.

7.

Further, with respect to the addition of Rs. 5,00,000/- on account of investment in NHAI bonds, the Ld. CIT(Appeals) held that the assessee failed to explain the source of such investment. The CIT(A) observed that mere reflection of debit entry in bank account does not establish the source of funds. The assessee also failed to furnish any corroborative evidence to show availability of funds or linkage with explained sources. Relying on provisions of section 69 of the Act and judicial precedents, the Ld. CIT(Appeals) confirmed the addition made by the Assessing Officer.

8.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

9.

We have heard the rival contentions and perused the material on record. We find that the additions made by the Assessing Officer and confirmed by the Ld. CIT(Appeals) are primarily on account of alleged

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 5– unexplained share transactions and investment in NHAI bonds without proper appreciation of the evidences placed on record by the assessee. So far as the addition of Rs. 1,42,847/- on account of share transactions is concerned, we note that the assessee has consistently submitted that the shares of VMS Industries Ltd. were acquired through IPO by making payment of Rs. 1,98,400/- through banking channel, out of which 3160 shares were allotted and the balance amount was refunded. The assessee has further demonstrated that the cost of acquisition of shares was Rs. 1,26,400/- and the shares were sold through stock exchange, resulting into short term capital gain of Rs. 16,012/-, which has already been duly offered to tax in the return of income filed in response to notice under section 148 of the Act. The assessee has also placed on record broker ledger, bank statements, demat transaction details and other supporting evidences evidencing the purchase and sale of shares.

10.

In our considered view, the action of the Assessing Officer in treating the entire sale proceeds as income without allowing deduction of cost of acquisition is contrary to the settled provisions of law under section 48 of the Act. Once the transaction of purchase and sale is evidenced through banking channel and supporting records, only the profit element, if any, can be brought to tax. The lower authorities have failed to appreciate this fundamental aspect and have proceeded to make addition of entire sale consideration merely on suspicion, which is not sustainable.

11.

With regard to the addition of Rs. 5,00,000/- on account of investment in NHAI bonds, we find that the assessee has furnished a

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 6– confirmation from Smt. Laxmi Harish Patel stating that the amount of Rs. 5,00,000/- was paid by her through banking channel on behalf of the assessee HUF for subscription to NHAI bonds. The said confirmation is supported by bank statement and PAN details of the contributor. Thus, the identity, genuineness and source of the transaction stand duly established. Further, the assessee has demonstrated that the bonds were allotted and subsequently sold and the resultant short term capital gain has already been offered to tax.

12.

We also find merit in the contention of the assessee that the addition of Rs. 5,00,000/- has been made without issuing any specific show cause notice during the assessment proceedings, thereby violating the principles of natural justice. The assessee was not afforded proper opportunity to explain the source of investment before making such addition.

13.

Further, we note that the entire addition has been made by the Assessing Officer on the basis of general information and suspicion relating to penny stock transactions without bringing any cogent material on record to establish that the transactions of the assessee were non-genuine. The assessee has demonstrated that the shares and bonds were acquired through IPO subscription, payments were made through banking channels, transactions were routed through demat account and recognized stock exchange and gains have been duly offered to tax.

14.

In view of the above factual findings, we hold that the assessee has satisfactorily explained the nature and source of both the share transactions as well as the investment in bonds. The additions made by

ITA No. 2162/Ahd/2025 Govindbhai T. Patel-HUF vs. ITO Asst.Year –2012-13 - 7–

the Assessing Officer and confirmed by the Ld. CIT(Appeals) are therefore not sustainable.

15.

Accordingly, we direct the Assessing Officer to delete the addition of Rs. 1,42,847/- made on account of share transactions and Rs. 5,00,000/- made on account of unexplained investment in NHAI bonds.

In the result, the appeal of the assessee is allowed. 16. This Order pronounced in Open Court on 23/04/2026

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/04/2026 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

1.

Date of dictation 06.04.2026 (Dictated over dragon software) 2. Date on which the typed draft is placed before the Dictating Member 06.04.2026 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 16.04.2026 5. Date on which the fair order is placed before the Dictating Member for pronouncement 23.04.2026 6. Date on which the fair order comes back to the Sr.P.S./P.S 23.04.2026 7. Date on which the file goes to the Bench Clerk 23.04.2026 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……………………………………

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