DEPUTY COMMISSIONER OF INCOME -TAX CENTRAL CIRCLE-1(1), AHMEDABAD, AHMEDABAD, GUJARAT vs. BHAVESHKUMAR GIRISHBHAI BHANDARI, AHMEDABAD, GUJARAT

The Department is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. The Ld. DR placed reliance on the observations made by the Assessing Officer in the assessment order. In response, the ld. counsel for the assessee primarily reiterated the observations made by CIT(Appeals) in the appellate order. The ld. counsel for the assessee also placed reliance on the decision of order of the CIT(A), NFAC in Pranav Mahendrabhai Patel v. ITO (ITA No. NFAC/2016- 17/10118737, order dated 12.12.2023), where on identical facts involving the same scrip Kushal Tradelink Ltd., the addition made under section 68 of the Act was deleted. The said order was subsequently affirmed by the ITAT Ahmedabad Bench in ITA No. 182/Ahd/2024, dated 17.12.2024. 6. We have heard the rival contentions and perused the material on record. The core issue in the present appeal pertains to the genuineness of the Long-Term Capital Gain claimed by the assessee arising from the sale of 13,000 shares of M/s. Kushal Tradelink Ltd., which was claimed as exempt under section 10(38) of the Act. The Assessing Officer, on the basis of the investigation report received from the Investigation Wing, Ahmedabad, as well as incriminating evidences gathered during the search and survey operations conducted in the Kushal Group of cases, found that Kushal Tradelink Ltd. was one of the penny stock companies used for providing accommodation entries of bogus Long-Term Capital Gains and Short-Term Capital Gains. The Assessing Officer observed that the price of the scrip had abnormally risen from Rs. 2 to Rs. 469 within a short span of time without any corresponding improvement in the financials of the company, which demonstrated that the scrip was artificially rigged.

Despite repeated opportunities, the assessee failed to provide any convincing explanation or rationale as to why he purchased such a large number of shares of a company having no financial fundamentals or business worthiness to justify such astronomical appreciation in value. The assessee's mere reliance on contract notes, demat statements, and bank records does not, by itself, establish the genuineness of the transactions, particularly when the surrounding circumstances clearly indicate that the transactions were pre-arranged and formed part of a larger accommodation entry scheme.

The Hon'ble Calcutta High Court in the case of Principal Commissioner of Income-tax v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta)/[2022] 446 ITR 56 (Calcutta) has categorically held that where there is an unreasonable and unexplained rise in the price of shares of penny stock companies within a short period of time, the onus lies upon the assessee to prove the genuineness of such steep rise, as mandated under section 68 of the Act. In the absence of satisfactory explanation, the Assessing Officer is justified in treating the transactions as unexplained cash credits. Similarly, in Principal Commissioner of Income-tax v. Smt. Usha Devi Modi [2023] 151 taxmann.com 119 (Calcutta), the High Court reaffirmed that where the assessee failed to prove the genuineness of the claim of Long-Term Capital Gains and the identity and creditworthiness of the parties involved, particularly when there was a sudden and steep rise in the share prices of penny stock companies, the Assessing Officer was justified in invoking section 68 and denying exemption under section 10(38). Further, the Hon'ble Supreme Court in Suman Poddar v. Income Tax Officer [2019] 112 taxmann.com 330 (SC)/[2020] 268 Taxman 320 (SC) upheld the orders of the lower authorities denying exemption under section 10(38) in respect of similar penny stock transactions and dismissing the assessee's appeal on the ground that such transactions were found to be sham and bogus. The Supreme Court categorically held that the findings of the Tribunal and High Court that the company involved was a penny stock and that the entire transaction was not genuine, were findings of fact not requiring interference. Applying the ratio of the above decisions to the facts of the present case, we find that the assessee has failed to discharge the onus cast upon him under section 68 of the Act. The purchase and sale of shares of Kushal Tradelink Ltd. exhibit all the characteristics of a pre-meditated and artificially structured accommodation entry. The pattern of trading, abnormal price rise without any financial backing, and involvement of known operators such as Shri Ashish Panalal Shah, clearly demonstrate that the transactions were fictitious and designed to convert unaccounted income into tax-free Long- Term Capital Gains.

We also draw support from the decisions of the Coordinate Benches of the Tribunal in 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 on identical facts it was held that the so-called gains from penny stock scrips were not genuine but represented unaccounted money in the guise of exempt capital gains, and additions made by the Assessing Officer under section 68 were accordingly upheld.

The principle laid down by the Hon'ble Supreme Court in Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) that transactions must be tested on the touchstone of human probability and surrounding circumstances rather than on mere paper documentation, squarely applies to the present case. The CIT(Appeals) erred in deleting the addition merely by relying on documentary evidence without appreciating the abnormality and implausibility of the transactions in light of the settled judicial principles.

We note that the assessee contended that the transactions were genuine and duly supported by documentary evidence such as demat statements, contract notes, and bank records. The assessee also placed strong reliance on the order of the ITAT Ahmedabad Bench in ITO v. Deval Pranav Patel (L/H of Late Shri Pranav Mahendrabhai Patel), ITA No. 182/Ahd/2024, 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."

Accordingly, considering the totality of facts, material available on record, and binding judicial precedents discussed above, we are of the considered view that the Assessing Officer was justified in treating the alleged Long-Term Capital Gain arising from the sale of shares of Kushal Tradelink Ltd. as unexplained cash credit under section 68 of the Act and denying exemption under section 10(38). The order of the CIT(Appeals) deleting the addition is therefore unsustainable in law and on facts.

In the result, the appeal of the Department is allowed and the order of the Assessing Officer is restored. Further, we note that the facts and issues for consideration in all cases are similar in the case of ITA 977/Ahd/2025. Accordingly, Department's appeal is allowed in ITA 978/Ahd/2025 and ITA 978/Ahd/2025 as well.

In the combined result, all appeals filed by the Department are allowed. Order pronounced in the Open Court on 04/11/2025 at Ahmedabad. (DR. BRR KUMAR) VICE PRESIDENT अहमदाबाद/Ahmedabad, दिनांक/Dated 04/11/2025 टी.सी. नायर, व.नि.स./T.C. NAIR, Sr. PS (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER आदेश की प्रतिलिपि अग्रेषित/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. संबंधित आयकर आयुक्त / Concerned CIT 4. आयकर आयुक्त (अपील) / The CIT(A)– 11, Ahmedabad 5. विभागीय प्रतिनिधि, आयकर अपीलीय अधिकरण, राजोकट/DR, ITAT, Ahmedabad, 6. गार्ड फाईल / Guard file. सत्यापित प्रति //// आदेशानुसार / BY ORDER, सहायक पंजीकार (Asstt.