ITAT Rejects Bogus LTCG Claim, Upholds Tax Reopening
The Income Tax Appellate Tribunal (ITAT) has recently rejected the Long-Term Capital Gain (LTCG) Claim by an assessee from the sale of shares of a company, which was alleged to have engaged in price manipulation and accommodation entries.
The assessee, Gitaben Dineshbhai Patel, filed her income tax return (ITR) for the AY 2017-18, declaring a total income of Rs 13,74,880. The case was reopened, based on information from the Investigation Wing and SEBI’s order, which showed that the assessee had claimed bogus LTCG on the sale of shares of Kushal Tradelink Ltd., a company that was accused of having engaged in providing accommodation entries. The assessing officer, during the reassessment proceedings, made an addition of Rs 93,92,789 under section 8 of the Income Tax Act, 1961, treating the LTCG as unexplained income.
The assessee initially appealed before the CIT(A) to challenge the validity of the reassessment proceedings and the additions. However, the CIT(A) upheld the AO’s decision and dismissed the appeal. Therefore, the assessee filed an appeal before the ITAT, Ahmedabad.
The assessee contended that the reassessment was issued mechanically and without any application of mind by the assessing officer. The assessee further argued that such reopening of assessment is invalid and was a case of borrowed satisfaction, as it was based on the information received from the investigation wing, and the AO did not do his own investigation. The assessee cited various judgements to support her view, including CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi), CIT v. Atul Jain [2008] 299 ITR 383 (Delhi), Kamdhenu Steel & Alloys Ltd. v. CIT [2008] 248 CTR 33 (Delhi), Varshaben Sanatbhai Patel v. ITO (Gujarat High Court, ITA No. 12873 of 2014, dated 13.10.2015), and Meenakshi Overseas (P.) Ltd. v. Pr. CIT [2017] 82 taxmann.com 300 (Delhi).
The assessee also submitted that all the transactions of the purchase and sale of shares were genuine and there was documentary evidence, such as contract notes, demat account statements, and bank statements, proving the payment mode through the banking channels.
The ITAT agreed with the decision of the CIT(A) and said that the AO had received credible and tangible material from the investigation wing after conducting a search and seizure operation in the Kushal Group of Ahmedabad. Therefore, the assessing officer reviewed the material and did the required investigation and recorded satisfaction that the taxable income had escaped assessment. The tribunal cited the decision of the Gujarat High Court in Backbone Projects Ltd. v. ITO [2021] 131 taxmann.com 80 (Gujarat), where it was held that if an assessing officer gets tangible material from the investigation wing and he believes the income has escaped after doing the enquiries, then such reopening of reassessment under section 147 is valid.
The ITAT further observed that the assessee had not submitted any satisfactory explanation as to why she purchased the shares of a company that did not have any financial credentials, business performance or market fundamentals, nor did she justify the sudden rise in its share price within a short period of time.
Therefore, the Tribunal upheld the addition made by the assessing officer under section 68, treating the LTCG claim as unexplained income.
Case Citation: Gitaben Dineshbhai Patel Vs income Tax Officer (ITAT Ahmedabad); I.T.A. No.717/Ahd/2025; 04.11.2025; 2017-18
Download Order
