INCOME TAX OFFICER WARD-1(1)(1), AHMEDABAD, AAYAKAR BHAVAN NEAR SACHIN TOWER ANAND NAGAR ROAD VEJALPUR AHMEDABAD vs. DHWANI ALPESH SHAH, UGANDA PARK SOC, AHMEDABAD

2.2 The reassessment proceedings were concluded by the Assessing Officer (NFAC), who passed orders under section 147 r.w.s. 144B on 25.03.2022 and 30.03.2022 respectively for A.Ys. 2016–17 and 2017–18, making the following additions:

Assessment Year LTCG Addition Assessed Total Income

2016–17 Rs.1,38,28,376/- Rs.1,48,42,560/-

2017–18 Rs.1,28,65,612/- Rs.1,68,10,042/- 2.3 The additions were made on the ground that the transactions of sale of shares of Kushal Ltd. were nothing but accommodation entries and lacked genuineness. The AO observed that the share price of Kushal Ltd. had risen from Rs.2 to Rs.469 within a short span without any corresponding financial fundamentals, and concluded that the price movement was artificially manipulated. Relying on general observations regarding modus operandi of penny stock companies, the AO held that the capital gains earned by the assessee were unexplained credits assessable under section 69 read with section 115BBE of the Act. Accordingly, penalty proceedings were initiated under section 271(1)(c) for A.Y. 2016–17 and under section 271AAC(1) for A.Y. 2017–18.

2.4 In the appellate proceedings before the learned CIT(A) the assessee challenged the validity of the reassessment proceedings and also contested the addition made by the Assessing Officer treating the long-term capital gains (LTCG) earned from sale of shares of Kushal Tradelink Ltd. as unexplained income under section 69 of the Act. The assessee submitted that the transactions of purchase and sale of shares were carried out through a SEBI-registered broker on recognized stock exchange platforms, and the payments for purchase and receipts from sale were made through normal banking channels. It was contended that the shares were credited to the assessee’s demat account and were held for a period exceeding 25 months prior to their sale, which demonstrates that the gains arose from genuine investment activity and not from any pre-arranged accommodation entry scheme.

2.5 In support of the claim, the assessee furnished extensive documentary evidence including contract notes for purchase and sale, demat account statements reflecting credit and debit of shares, bank statements evidencing payments and receipts, as well as the broker's ledger. These documents, according to the assessee, were duly submitted during the course of assessment proceedings and had not been disputed or disproved by the Assessing Officer. The assessee further submitted details of Kushal Tradelink Ltd., including its market capitalization exceeding Rs. 6,500 crore, dividend payment history, bonus issuance, and wide public shareholding. It was also pointed out that the said company was listed on the BSE and was not a penny stock as generally perceived.

2.6 The assessee also took strong exception to the action of the Assessing Officer in relying upon the Investigation Wing report and drawing adverse inference without confronting the assessee with any adverse material or allowing opportunity of cross-examination of any person relied upon. It was contended that there was no evidence of cash movement, no seizure or recovery of documents indicating collusion, and no inquiry from the brokers or stock exchange authorities to substantiate the allegation of price rigging. The AO, as per the assessee, acted on mere suspicion and generalized findings, without demonstrating any link between the assessee and any alleged operator or entry provider. Further, the assessee also highlighted procedural lapses such as denial of hearing through video conferencing despite a specific request and technical difficulties faced in uploading submissions prior to the closure of the portal.

3.1 In reaching this conclusion, the CIT(A) relied on several judicial precedents, including the decisions of the Hon’ble Gujarat High Court in Parasben Kasturchand Kochar, the Hon’ble Supreme Court in Kishanchand Chellaram and Andaman Timber Industries, as well as coordinate Bench rulings of the Ahmedabad ITAT in Alpesh H. Shah HUF and others, where similar additions based on generic reports and unsubstantiated suspicions were held to be unsustainable. The CIT(A) thus concluded that in the absence of any material disproving the genuineness of the transactions or linking the assessee to any alleged manipulation, the addition made by the Assessing Officer could not be sustained. Accordingly, the CIT(A) deleted the addition of Rs.1,38,28,376/- for A.Y. 2016–17 and Rs.1,28,65,612/- for A.Y. 2017–18, and allowed the appeals in full.

In ITA No. 1817/Ahd/2024

5.1 In response, the learned Authorised Representative (“AR”) appearing on behalf of the assessee relied on the detailed findings recorded by the learned CIT(A) and submitted that the orders passed by the appellate authority were well-reasoned, supported by material evidence, and in accordance with settled judicial principles.

6.1 The addition of Rs.1,38,28,376/- (in A.Y. 2016–17) and Rs.1,28,65,612/- (in A.Y. 2017–18) made by the Assessing Officer under section 69 of the Act pertains to the sale of shares of Kushal Tradelink Ltd., which the Assessing Officer treated as a bogus accommodation entry arising out of penny stock manipulation. The AO relied primarily on a report of the Investigation Wing and general allegations of price rigging without bringing on record any direct nexus between the assessee and any accommodation entry provider. No material evidence, such as a money trail or statement implicating the assessee, was cited by the AO to substantiate the charge of sham transaction.

6.2 The learned CIT(A), after a comprehensive appreciation of the record, has rendered a well-reasoned finding supported by judicial precedents and evidentiary material placed before the AO. The assessee had furnished complete documentation, including contract notes for purchase and sale, demat statements, bank statements evidencing payment for purchase and receipt of sale proceeds, NSDL transaction statement, and broker ledger. The shares were purchased on the stock exchange through a registered broker, held in the demat account for over two years, and sold on the exchange platform with STT duly paid.

6.3 The CIT(A) noted that Kushal Tradelink Ltd. was not a penny stock in the conventional sense. It was a dividend-paying, profit-making company with a turnover of Rs. 1,589.90 crore and net profit of Rs. 105.81 crore as on 31.03.2016. The company had issued bonus shares, had subsidiaries abroad, and the price movement in the shares did not follow a bell-curve pattern. The CIT(A) rightly observed that an investor cannot be faulted merely because the market price of a scrip witnessed an unusual upward trend.

6.4 It was further observed that the AO failed to point out any defect in the documentary evidences furnished, nor did he establish that any cash was involved or routed back to the assessee. The entire addition was made on the basis of surmises and general suspicion, without any investigation specific to the assessee. The assessee’s request for cross-examination of the person(s) whose statements were relied upon was not granted, rendering the assessment vulnerable to violation of the principles of natural justice. The CIT(A) has rightly relied upon the decisions of the Hon’ble Supreme Court in Andaman Timber Industries v. CCE [Civil Appeal No. 4228 of 2006] and the Bombay High Court in CIT v. Mukesh Ratilal Marolia [ITA No. 456 of 2007], where denial of cross-examination was held to vitiate the proceedings.

6.5 The CIT(A) also relied on the judgment of the Hon’ble Bombay High Court in PCIT v. Indravadan Jain HUF (ITA No. 454 of 2018, dated 12.07.2023), and the decisions of the coordinate Benches in Atulbhai Amritlal Mehta v. DCIT [2023 TAXSCAN (ITAT) 709], Manish Kumar Baid v. ACIT [ITA No. 1237/Kol/2017], and Kiran Kothari v. ITO [ITA No. 443/Kol/2017], to support the proposition that once the assessee has discharged the initial onus through documented evidence and the Revenue fails to rebut the same with credible contrary material, the capital gains cannot be treated as bogus merely on the basis of suspicion.

6.6 We find no infirmity in the conclusion drawn by the learned CIT(A) that the AO proceeded merely on presumptions drawn from third-party investigations without making any enquiry or verification specific to the assessee’s case. The explanation of the assessee that her sale prices (ranging from Rs. 71.40 to Rs. 112.86) were much lower than the peak price of Rs.611 per share was not controverted by the AO and negates the theory of a pre-mediated accommodation exit.

6.7 In the totality of facts and circumstances, and considering the documentary evidence on record and the settled legal position that suspicion cannot replace proof, we are in agreement with the findings of the learned CIT(A) that the long-term capital gain earned by the assessee was genuine and cannot be brought to tax under section 69. The Revenue’s appeal, bereft of any fresh material or cogent reasoning, merits no interference.

Order pronounced in the Court on 29th July, 2025 at Ahmedabad.