ITAT Ahmedabad Quashes Rs. 1.27 Crore Bogus LTCG Addition; No Proof of Accommodation Entries
ITAT Ahmedabad Quashes Rs. 1.27 Crore Bogus LTCG Addition; No Proof of Accommodation Entries
The appeal has been filed by a taxpayer named Krunal Ashokkumar Jethva, against the ITO, Ward-1(2)(3) Ahmedabad, in the Income Tax Appellate Tribunal (ITAT) “C” Bench, Ahmedabad, before Ms Suchitra R. Kamble (Judicial Member) and Makarand V. Mahadeokar (Accountant Member). The assessee challenged an order dated May 19, 2025, passed by the CIT(A), NFAC, Delhi, for the assessment year 2013-14.
The assessee did not file his income tax return (ITR) for the previous year relevant to the assessment year 2013-14. The original assessment was reopened by the Income Tax Department because the system (insight portal) flagged information suggesting that during the financial year 2012-13, the assessee may have received bogus long-term capital gains (LTCG) through a penny stock company named Frontline Business Solutions Private Limited to the extent of Rs.1.25 crore, and it was also discovered that he also received another suspicious credit of Rs. 1.53 lakh, through persons associated with a well-known accommodation entry racket allegedly run by individuals named Jignesh Shah and Sanjay Shah.
On September 11, 2018, the assessment officer (AO) conducted a search under Section 132 in the cases of Shri Jignesh Shah and Shri Sanjay Shah at Ahmedabad. The search concluded in the seizure of unaccounted cash worth Rs. 19.37 crores, along with incriminating documents, secret Tally data and other digital records allegedly evidencing the business of providing bogus LTCG, STCL and other accommodation entries through various listed penny stock scripts.
SEBI had also taken action against the same penny stock for price rigging, artificial trades, and abnormal price movements. Based on this investigation material, the AO concluded that Mr Jethva was also one of the beneficiaries of such fake LTCG entries.
The assessee, along with not filing his income tax return for the original, also did not respond to the several notices passed by the assessing officer. After multiple attempts to contact the assessee, the AO passed the final ex parte assessment order under section 144 and treated Rs. 1,25,79,787 and Rs. 1,53,633 as unexplained income under section 68, applying the higher rate of tax under section 115BBE.
The aggrieved assessment, then filed an appeal before the CIT(A). The assessee claimed that he had never entered into any LTCG transactions at all and that he was only doing intraday trading in various shares, including this scrip, which resulted in a small speculative loss of only Rs. 12,060. He further argued that he had never received any credit reflecting the alleged Rs. 1.25 Crore or Rs. 1.53 lakh in his bank account. Hence, he challenged the additions made by the assessing officer and also claimed that the assessment was invalid because no notice under section 143(2) was issued in his name after he filed the return in response to section 148.
However, the CIT(A) disagreed with the arguments served by the assessee and upheld the assessment. The CIT(A) said that the assessee had sent multiple reminders. However, the assessee did not comply with the notices; hence, the AO was correct in making the best judgment assessment. The CIT(A) also held that the assessee did not sufficiently prove the genuineness of the share transactions, and therefore, the additions were correctly made.
The assessee thereafter approached the tribunal. The tribunal analysed the arguments of both sides and observed that the income tax return was filed by the assessee only on March 17, 2022, which is really late as per the reassessment. When noticing noncompliance for so long, the AO completed the assessment under section 144. The requirement for issuing a section 143(2) notice does not apply in the same manner as it would for a normal scrutiny assessment. Therefore, the Tribunal rejected the legal ground and held the reassessment to be valid.
When the tribunal examined the case on merits, it found that detailed records showing only intraday trades and no delivery-based transactions were submitted by the assessee. Also noted, neither the AO nor the CIT(A) had examined the bank deposits properly, nor did they enquire whether the alleged suspicious credits actually existed. The tribunal additionally observed that the AO made additions completely by referring to generic investigation reports and failed to link the alleged bogus entries to the assessee’s actual bank accounts or trading accounts.
The Tribunal concluded that the key additions were not properly supported by evidence. It held that purchases in speculative trades cannot automatically be treated as unexplained income unless the AO proves actual receipt of accommodation entries. As no such enquiry or factual verification was done, the Tribunal found the additions unsustainable.