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

ITA Nos.977/Ahd/2025, 978/Ahd/2025 & 979/Ahd/2025 The Dy.CIT vs. Bhaveshkumar Amratlal Bhandari HUF & Bhaveshkumar Girishbhai Bhandari (2 appeals) Asst. Years: 2018-19, 2016-17 & 2018-19 respectively 1 (AYs) 2018-19 and 2016-17 & 2018-19 respectively, passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). Since the facts and issues for consideration are common in all these three appeals, these were heard together and are being disposed of by this consolidated order for the sake of convenience. 2. The Revenue has raised the following common grounds of appeal (extracted from ITA No.977/Ahd/2025): 1) “In the facts and on the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition of Rs.28,68,849/- [ in the case of Girishkumar Amratlal Bhandari, HUF for AY 2018-19], Rs.66,73,078/- [ in the case of Bhaveshkumar Girishbhai Bhandari for AY 2016-17] and Rs.14,63,004/- [ in the case of Bhaveshkumar Girishbhai Bhandari for AY 2018-19] u/s.68 of the Act being bogus LTCG incurred due to share transaction in penny scrip without considering the incriminating documents found & seized during search and without appreciating the meticulous findings of the AO”. 2)“The Revenue craves leave to add/alter/amend and/or substitute any or all of the grounds of appeal.” 3. The brief facts of the case are that the assessee, Shri Bhaveshkumar Girishbhai Bhandari, filed his original return of income for the Assessment Year (A.Y.) 2018-19 on 08.02.2019, declaring total income of Rs. 35,95,080/- which was initially processed under section 143(1) of the Act accepting the returned income. Subsequently, the case was selected for scrutiny assessment under CASS, and assessment was completed under section 143(3) read with section 144B of the Act on 16.09.2021, determining total income at Rs. 5,48,37,350/-. This included an addition of Rs. 4,86,42,214/- under section 68 of the Act for unexplained cash credits and an addition of Rs. 21,36,579/- for disallowance of certain expenses under section 37(1) of the Act. Later, a report from the Investigation Wing, Ahmedabad was received by the Assessing Officer (AO), which contained information regarding accommodation entries and manipulation of penny stock transactions allegedly carried out by the Kushal Group of Companies. Based on this information, the AO noted that the assessee was one of the beneficiaries of such accommodation entries in the shares of M/s. Kushal Tradelink Ltd., identified as a "penny stock" company. Relying upon this report, the AO initiated re-assessment proceedings under section 147 of the Act In response, the assessee filed a return of income on 11.04.2022, again declaring total income of Rs. 35,95,080/-. During the reassessment proceedings, the Assessing Officer analyzed the information emanating from search and survey operations conducted on 05.02.2019 under section 132 of the Act, in the Kushal Group cases. The search revealed incriminating evidence such as digital data, loose papers, and electronic devices indicating that the Kushal Group was engaged in price rigging and providing bogus accommodation entries in the form of Long-Term Capital Gains (LTCG), Short-Term Capital Gains (STCG), and losses to various beneficiaries. The seized digital data contained structured excel sheets and tally backups reflecting unaccounted cash transactions, which, according to the AO, established that Kushal Group entities were systematically manipulating share prices to provide tax-free capital gains to beneficiaries in exchange for cash payments. On verification of the trading data of Kushal Tradelink Ltd., the AO observed that the share price had artificially risen from Rs. 2 on 03.09.2015 to Rs. 469 on 13.02.2017, an abnormal increase of over 23,000% without any corresponding improvement in the company's financials. The AO noted that the company's turnover and profitability during this period did not justify such a meteoric rise, and that the pattern of price movements did not correlate with general market indices like the BSE Sensex. Further, investigations showed that certain individuals and entry operators, including Shri Ashish Panalal Shah, were involved in synchronized trading and price manipulation in the scrip of Kushal Tradelink Ltd. to generate fictitious LTCG and STCL for various beneficiaries, including the assessee. The Assessing Officer recorded Statements under sections 132(4) and 131 of the Act from key persons such as Shri Ashish Panalal Shah, Shri Shaileshbhai Jayantilal Shah, and Shri Narendrabhai Shivbhai Parmar which revealed that the demat accounts used for share trading were not genuinely owned or operated by these individuals, but were instead controlled by Ashish Panalal Shah, who admitted to manipulating share prices and providing bogus LTCG accommodation entries in exchange for commission. The AO held that the scrip of Kushal Tradelink Ltd. was artificially manipulated and that the assessee's gains were part of a larger racket involving cash payments to entry operators for generating exempt LTCG through colorable transactions. The AO observed that the assessee had sold 13,000 shares of Kushal Tradelink Ltd., resulting in a Long-Term Capital Gain of Rs. 14,63,004/-, which was claimed as exempt under section 10(38) of the Act. The AO asked the assessee to explain why the LTCG should not be treated as bogus. In response, the assessee filed a reply dated 13.03.2023 and subsequently another reply on 16.03.2023, contending that the notice was short-timed and that he had already furnished all relevant documents such as purchase bills, demat account statements, and contract notes. The AO, however, rejected these submissions, stating that the contentions were repetitive and that the assessee had been provided with all relevant information earlier. In the assessment order, the AO held that the assessee's explanation was not acceptable, as the evidence gathered during the search clearly showed that the Kushal Group was engaged in providing bogus LTCG entries through manipulated share trades. The AO held that the assessee's gains from Kushal Tradelink Ltd. were not genuine and constituted unexplained credits within the meaning of section 68 of the Act. The Assessing Officer relied upon various judicial precedents, including Suman Poddar v. ITO [2019] 112 taxmann.com 330 (SC), CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), Sumati Dayal v. CIT [1995] 214 ITR 801 (SC), and the principle of human probability, the AO held that the transactions were part of a colorable device to convert unaccounted income into tax-free gains. The AO held that despite receiving payments by cheque and executing trades through a recognized broker, the overall pattern of transactions, abnormal profits, lack of financial strength of Kushal Tradelink Ltd., and its connection with known operators clearly established that the transactions were pre-arranged and fictitious. Accordingly, the AO treated the amount of Rs. 14,80,500/- as unexplained income under section 68 of the Act, taxed the same under section 115BBE, and initiated penalty proceedings under section 271AAC. The AO determined the total assessed income at Rs. 5,63,17,850/- and issued demand and penalty notices accordingly. 4. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and contended that the reassessment proceedings and the addition made therein were illegal and unsustainable in law. The assessee argued that there was gross violation of the principles of natural justice, as the AO had not supplied the material and statements relied upon nor afforded any opportunity for cross-examination, in defiance of the ratio laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC). The assessee further submitted that all share transactions were carried out through recognized stock exchange platforms and duly supported by contract notes, demat statements, and bank transactions. It was contended that the AO had accepted the short-term capital gain on sale of the same scrip of Kushal Tradelink Ltd. in the preceding year, and therefore, it was contradictory to treat the long-term gain from the same scrip as bogus. The assessee relied on judicial precedents such as CIT v. Rohini Builders [2002] 256 ITR 360 (Guj), Dharmdev Finance (P.) Ltd. v. CIT [2014] 43 taxmann.com 395 (Guj), and PCIT v. Genuine Finance Pvt. Ltd. [Tax Appeal No. 222 of 2023 (Guj)], to argue that once the identity, genuineness, and creditworthiness were established, the burden stood discharged and no addition under section 68 was warranted. The assessee also referred to the 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. The assessee also submitted that his name was not included in the SEBI Adjudication Order dated 22.12.2017, which had dealt with manipulation in Kushal Tradelink Ltd. shares, and that his transactions fell outside the period of SEBI's investigation. Thus, there was no material to link him with any alleged price rigging or scam. After considering the assessment records and the submissions of the assessee, the CIT(Appeals) held that the AO had made the addition solely on the basis of generalized findings of the Investigation Wing without any independent verification or corroborative evidence. It was observed that the AO had not brought on record any material to prove that the assessee had paid cash or received accommodation entries in lieu of share transactions. The CIT(Appeals) noted that the assessee had discharged the onus cast upon him under section 68 by producing documentary evidence, including contract notes, demat statements, and bank statements, establishing the identity of the broker, genuineness of the transaction, and creditworthiness. The CIT(Appeals) further noted that the AO had accepted the short-term capital gain from the same scrip and therefore could not adopt a different view in respect of long-term capital gain arising from identical transactions, in view of the principle of consistency. The CIT(Appeals) also relied on the judgment of the Hon'ble Gujarat High Court in PCIT v. Genuine Finance Pvt. Ltd. (Tax Appeal No. 222 of 2023, dated 13.06.2023), wherein it was held that no addition could be sustained merely on the basis of general information or investigation reports without specific evidence showing the assessee's involvement. The CIT(Appeals) held that the AO's action was based on presumptions and conjectures and that the entire reassessment proceedings lacked fairness and application of mind. It was further observed that the SEBI order relied upon by the AO did not implicate either the assessee or his broker, M/s. ASE Capital Market Ltd., in any price manipulation. In light of the evidences produced and judicial precedents cited, the CIT(Appeals) held that the transactions in the scrip of Kushal Tradelink Ltd. were genuine, the exemption claimed under section 10(38) of the Act was allowable, and the addition of Rs. 14,80,500/- made under section 68 of the Act was unsustainable. Accordingly, the CIT(Appeals) directed the AO to delete the addition and to accept the genui Assessees by : Shri Anil Kshatriya, AR & Shri Alay Anil Kshatriya, AR Revenue by : Shri Abhijit Sr.DR सुनवाई की तारीख /Date of Hearing : 13/08/2025 घोषणा की तारीख / Date of Pronouncement: 04/11/2025