GITABEN DINESHBHAI PATEL,AHMEDABAD vs. ITO WARD 5(3)(1), AHMEDABAD

The brief facts of the case are that the assessee filed her return of income for the Assessment Year 2017-18 declaring a total income of Rs. 13,74,880/-. The case was reopened under section 147 of the Income-tax Act, 1961 (“the Act”) and assessment was completed under section 147 read with section 144B of the Act. During the reassessment proceedings, the Assessing Officer made an addition of Rs. 93,92,789/- under section 68 of the Act by treating the Long-Term Capital Gain (LTCG) claimed by the assessee as exempt under section 10(38) as bogus. The Assessing Officer was of the view that the assessee had earned the impugned capital gain from sale of shares of Kushal Tradelink Ltd., which, according to the information received from the Investigation Wing, was one of the penny stock companies used for providing accommodation entries of bogus capital gains and losses. The Assessing Officer relied upon the findings of the Investigation Wing and SEBI’s order on price manipulation of the said company’s shares to hold that the assessee had converted her unaccounted income into legitimate form by claiming the said LTCG as exempt. Accordingly, the entire gain of Rs. 93,92,789/- was added to the assessee’s income under section 68 of the Act and the assessment was completed on that basis.

Before the Commissioner of Income Tax (Appeals), the assessee challenged the validity of the reassessment proceedings as well as the Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 3– addition on merits. The primary ground raised

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

We have heard the rival contentions and perused the material available on record. The issue under consideration relates to the validity of reopening of the assessment under section 147 of the Income-tax Act, 1961. The assessee has contended that the reassessment notice issued under section 148 was invalid, being based solely on information received from the Investigation Wing without any independent application of mind by the Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 6– Assessing Officer. However, on a careful consideration of the findings of the learned CIT(Appeals) and the materials forming part of the assessment record, we find no infirmity in the conclusion arrived at by the CIT(Appeals). We observe that the Assessing Officer had received credible and tangible material from the Investigation Wing following search and seizure operations conducted in the Kushal Group of Ahmedabad, which revealed the group’s involvement in providing accommodation entries of bogus long-term capital gains and losses. The Assessing Officer thereafter examined the material, conducted necessary verifications, and recorded satisfaction that income chargeable to tax had escaped assessment in the case of the assessee. The learned CIT(Appeals) has rightly relied upon the judgment of the Hon’ble Gujarat High Court in Backbone Projects Ltd. v. ITO [2021] 131 taxmann.com 80 (Gujarat), wherein it was held that when an Assessing Officer receives tangible material from the Investigation Wing and, after conducting inquiries and applying his mind, forms a belief that income has escaped assessment, the reopening of assessment under section 147 is valid in law. In the present case, the information received from the Investigation Wing was duly examined and acted upon by the Assessing Officer in a reasonable and judicious manner. The formation of belief by the Assessing Officer that income had escaped assessment cannot be said to be based on borrowed satisfaction. The material on record establishes that the reopening was not a mechanical exercise but was based on cogent information and due satisfaction recorded by the Assessing Officer. We, therefore, find no error in the finding of the learned CIT(Appeals) in upholding the validity of the reassessment proceedings. In light of the above discussion and following the ratio laid down by the Hon’ble Gujarat High Court in Backbone Projects Ltd. Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 7– v. ITO (supra), we hold that the reassessment proceedings initiated under section 147 of the Act are valid in law. On this issue, we find no infirmity in the order of the learned CIT(Appeals) so as to call for any interference. Accordingly, this ground of appeal raised by the assessee is dismissed.

We have heard the rival contentions and perused the material on record. The issue involved in the present appeal relates to the addition made under section 68 of the Acton account of alleged bogus Long-Term Capital Gain (LTCG) arising from sale of shares of Kushal Tradelink Ltd. claimed by the assessee as exempt under section 10(38) of the Act. It is an admitted position that despite repeated opportunities, the assessee has not furnished any plausible or satisfactory explanation as to why such a large number of shares of Kushal Tradelink Ltd., a company having no financial credentials, business performance, or market fundamentals, were purchased, nor was any material placed on record to justify the astronomical rise in its share price within a short span of time. Mere reliance on contract notes, demat statements, and bank payment records cannot discharge the onus placed upon the assessee under section 68 of the Act to prove the genuineness of the transactions, particularly when the surrounding facts and circumstances point

We find that the Assessing Officer has drawn his conclusions based on cogent material and well-documented findings of the Investigation Wing and the SEBI order, which established that the shares of Kushal Tradelink Ltd. were part of a manipulated trading pattern through synchronized and circular trades by connected entities, resulting in artificial inflation of the share price. The assessee’s failure to justify the investment in such a company clearly demonstrates that the entire transaction was a colourable device lacking any commercial substance.

The Hon’ble Calcutta High Court in Principal Commissioner of Income-tax v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta)/[2022] 288 Taxman 403 (Calcutta)/[2022] 446 ITR 56 (Calcutta) has laid down that where there is data showing an unreasonable rise in the prices of shares of penny stock companies over a short period, the genuineness of such a rise must be established by the assessee, and in the absence of satisfactory explanation, the Assessing Officer is bound to invoke section 68. The Court further observed that genuineness cannot be established merely through bank statements, contract notes, or demat accounts when the factual matrix and conduct of the assessee defy human probability. Applying this ratio, the onus that lay upon the assessee in the present case has not been discharged. Similarly, in Principal Commissioner of Income-tax v. Smt. Usha Devi Modi [2023] 151 taxmann.com 119 (Calcutta), the Hon’ble High Court upheld the Revenue’s action in treating gains on sale of penny stock shares as unexplained income under section 68 where the assessee failed to establish Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 9– the identity and creditworthiness of counterparties and could not substantiate the genuineness of steep price rise in shares of a company with no commercial worth. The ratio of this judgment squarely applies to the present case, as the assessee has completely failed to demonstrate the bona fides of the impugned transactions or to explain the rationale of investment in Kushal Tradelink Ltd. The Hon’ble Supreme Court in Suman Poddar v. Income Tax Officer [2019] 112 taxmann.com 330 (SC)/[2020] 268 Taxman 320 (SC) dismissed the SLP against the findings of the Delhi High Court and ITAT that share transactions involving penny stock companies were bogus and that the purported long-term capital gains were to be treated as unexplained income. The Hon’ble Apex Court thereby affirmed that findings based on appreciation of evidence and human probabilities in such cases are pure findings of fact that require no interference.

The above legal principles have been consistently followed by various judicial authorities, including Kaushik Chandravadan Parikh v. ACIT [2025] 172 taxmann.com 694 (Mumbai - Trib.), Income-tax Officer v. Neetaben Snehalkumar Patel [2024] 167 taxmann.com 660 (Ahmedabad - Trib.), Shailesh K. Patel HUF v. ITO [2024] 164 taxmann.com 669 (Ahmedabad - Trib.), and Smt. Paramadevi Tekriwal v. ITO [2025] 172 taxmann.com 430 (Ahmedabad - Trib.), wherein it has been categorically held that long-term capital gains arising from manipulated penny stock transactions, supported only by paper documentation, cannot be treated as genuine.

We note that the assessee contended that the transactions were genuine and duly supported by documentary evidence such as demat statements, Gitaben Dineshbhai Patel vs. ITO Asst.Year –2017-18 - 10– contract notes, and bank records. The assessee also placed reliance on the order of the ITAT Ahmedabad Bench in ITO v. Deval Pranav Patel (L/H of Late Shri Pranav Mahendrabhai Patel), dated 17.12.2024, where the Tribunal had deleted a similar addition relating to the same scrip, M/s. Kushal Tradelink Ltd., and held that the transactions were genuine. However, it is well-settled law that judicial precedents are to be applied in the context of their specific facts and circumstances. Each case must rest upon its own factual matrix, and no decision can be treated as a binding precedent for a proposition divorced from the context in which it was rendered. The Hon’ble Supreme Court in Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442 (SC)/[1992] 198 ITR 297 (SC)/[1992] 107 CTR 209 (SC) has clearly laid down that “it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration, and treat it to be the complete law declared by the Court.” The Court further observed that “a judgment must be read as a whole, and the true ratio must be understood in light of the questions that were before the Court; a decision takes its colour from the facts of the case in which it was rendered.”

The principle enunciated by the Hon’ble Supreme Court in Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) is also squarely applicable here, wherein it was held that the test of human probabilities and surrounding circumstances must prevail over mere documentary evidence while determining genuineness of income transactions. The pattern of conduct of the assessee in the instant case, the absence of commercial rationale, and the artificially inflated share prices of Kushal Tradelink Ltd. clearly demonstrate

In light of the above discussion and judicial precedents, we hold that the Assessing Officer has rightly invoked the provisions of section 68 and treated the so-called Long-Term Capital Gain as unexplained income, since the assessee failed to establish the genuineness of the transactions or to discharge the onus placed upon her under the statute. The findings of the Assessing Officer are consistent with the principles laid down by the Hon’ble Calcutta High Court in Swati Bajaj (supra), Usha Devi Modi (supra), and the Hon’ble Supreme Court in Suman Poddar (supra) and Sumati Dayal (supra).

Accordingly, the appeal filed by the assessee is, therefore, dismissed.

In the result, the appeal filed by the assessee is dismissed. This Order pronounced in Open Court on 04/11/2025