Vineet Arya Vs DCIT (ITAT Ahmedabad)
Insight Portal Information May Justify Reopening, but Penny-Stock LTCG Cannot Be Taxed Without Evidence Linking Assessee to Price Rigging: Ahmedabad ITAT
Summary: The Ahmedabad ITAT has deleted an addition of ₹15,93,499 made by treating long-term capital gains from shares of Oasis Tradelink Ltd. as a bogus accommodation entry. The Tribunal held that general findings of the Investigation Wing, suspicion surrounding a scrip and possible manipulation by brokers cannot substitute evidence connecting the particular assessee with the alleged arrangement. At the same time, the Tribunal upheld the reopening under Section 147, observing that information appearing on the Insight Portal can validly initiate an enquiry where the Assessing Officer confronts the material to the assessee, considers his response and thereafter passes a conscious order under Section 148A(d).
Background
The assessee filed his original return for Assessment Year 2018-19 declaring total income of approximately ₹3.17 crore.
The Assessing Officer subsequently received information that the assessee had allegedly obtained an accommodation entry in the form of exempt long-term capital gains through transactions in shares of Oasis Tradelink Ltd.
A notice under Section 148A(b) was issued on March 9, 2022. After considering the assessee’s response, the AO passed an order under Section 148A(d) on March 23, 2022 and issued a reassessment notice under Section 148 on April 4, 2022.
In the reassessment completed under Section 147 read with Section 144B, the AO treated the sale consideration of ₹15,93,499 as unexplained money under Section 69A. The corresponding exemption under Section 10(38) was denied, and the income was sought to be taxed under Section 115BBE.
The NFAC dismissed the assessee’s appeal. The matter was then carried to the Tribunal.
Validity of Reopening
The assessee argued that the proceedings had been initiated merely on the basis of information flagged on the Insight Portal. According to him, the AO had acted on borrowed satisfaction without undertaking any independent enquiry.
The Tribunal rejected this challenge.
It noted that the AO had issued a notice under Section 148A(b), disclosed the information to the assessee and considered his reply before passing the order under Section 148A(d). The notice under Section 148 was issued only thereafter.
The Tribunal held that information received through an internal departmental system can constitute a valid starting point for enquiry. The mere fact that the information originated from the Insight Portal does not render the proceedings invalid.
What is material is whether the AO acted mechanically or applied his mind after following the procedure prescribed under Section 148A. Since the record showed consideration of the assessee’s reply and a conscious decision before issuing the notice, the plea of borrowed satisfaction was rejected.
The reopening was accordingly upheld.
Assessee’s Explanation of Share Transactions
On merits, the assessee submitted that he was a regular investor and trader in shares. The Oasis Tradelink transaction was not an isolated investment undertaken solely to generate exempt income.
The assessee produced:
- contract notes issued by the recognised broker;
- bank statements evidencing payments and receipts;
- demat holding and transaction statements;
- proof of sale through the recognised stock exchange; and
- evidence of payment of Securities Transaction Tax.
The demat account also reflected transactions in shares and securities of several other companies and institutions, including AVI Polymers Ltd., HUDCO, IFCI, IRFC, IREDA, NHAI, Nayara Energy and NTPC.
The assessee contended that the AO had not produced any evidence showing payment of cash, communication with an entry operator or participation in manipulation of the share price.
Tribunal’s Findings on LTCG
The Tribunal found that the purchase and sale of Oasis Tradelink shares through a recognised broker and their reflection in the assessee’s demat account were undisputed.
The documentary evidence submitted by the assessee was neither disproved nor shown to be fabricated. No material established that cash had moved from the assessee to any broker, purchaser or alleged entry provider.
The AO had essentially relied upon the Investigation Wing’s findings without conducting any independent investigation into the assessee’s specific transaction. No live nexus was demonstrated between the assessee and the persons allegedly involved in providing accommodation entries.
The Tribunal observed that even if certain brokers had manipulated the scrip, their conduct could not automatically be attributed to the assessee. Transactions executed through the anonymous online stock-exchange mechanism do not ordinarily disclose the identity of the counterparty to the seller.
The shares were transferred in dematerialised form through the exchange clearing mechanism, sale proceeds were received through banking channels and STT was paid. Unless a connection between the assessee and the alleged price-rigging group was established, the genuine-looking documentary trail could not be discarded merely on suspicion.
Relying upon the Supreme Court’s decision in Omar Salay Mohamed Sait v. CIT, the Tribunal reiterated that suspicion, however strong, cannot assume the character of legal evidence.
The Tribunal also followed the Gujarat High Court’s decision in Sanjaykumar Damjibhai Gangani, where an LTCG claim supported by contract notes, demat records and other evidence was held not to be disallowable merely by alleging that the assessee was a beneficiary of a penny-stock arrangement without adverse evidence against him.
Accordingly, the addition of ₹15,93,499 under Section 69A was deleted, and the appeal was partly allowed.
Author’s Comments
The most significant aspect of this ruling is the distinction between the evidentiary standards required at the reopening stage and the assessment stage.
Insight Portal information may be sufficient to trigger an enquiry and initiate proceedings under Section 148A. But the same generic information, without further investigation, may not be sufficient to sustain an addition in the completed assessment.
Once the assessee produces contract notes, demat statements, bank records and stock-exchange details, the Revenue must bring transaction-specific evidence to rebut them. This may include proof of cash circulation, communication with entry operators, common control over buyer accounts, pre-arranged trades or financial links with persons manipulating the scrip.
The decision does not hold that every stock-exchange transaction is automatically genuine. It holds that an assessee cannot be taxed merely because the scrip or broker is suspected. The Revenue must connect the assessee to the alleged accommodation-entry mechanism.
Thus, the ruling neatly establishes that information may justify investigation, but evidence alone can justify addition.
Cases Discussed
- Omar Salay Mohamed Sait v. CIT – (1959) 37 ITR 151 (SC)
- Sanjaykumar Damjibhai Gangani – [2025] 178 taxmann.com 276 (Gujarat)
- Jagat Pravinbhai Sarabhai – Gujarat High Court
- Divyaben Prafulchandra Parmar – Gujarat High Court
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AHMEDABAD
This appeal has been filed by the Assessee against order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 26.08.2025 for the Assessment Years (A.Y.) 2018-19 in the proceeding u/s 147 r.w.s 144B of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed his original return of income for A. Y 2018-19 on 19.7.2018 declaring total income of Rs 3,17,53,990/-. The case of the assessee was reopened on the basis of information received by the AO that assessee had obtained accommodation entry in the form of bogus long-term capital gain by trading in the scrip of M/s. Oasis Tradelink Ltd. Accordingly, a notice u/s. 148A(b) of the Act was issued and after considering the reply of the assessee, the AO had passed an order u/s. 148A(d) of the Act and issued notice u/s. 148 of the Act on 04.04.2022. In the course of assessment, the AO had made an addition of Rs15,93,499/- in respect of sale consideration of shares of M/s. Oasis Tradelink Ltd. The assessment was completed u/s. 147 r.w.s. 144B of the Act on 29.02.2024 at total income of Rs 3,33,47,489/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority which was decided by Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee in second appeal before us. The following grounds have been taken in this appeal:
1. The Ld. CIT(A) has erred in law and on facts of the case in upholding reopening of assessment u/s. 147 of the Act which is bad in law and without jurisdiction.
2. The Ld. CIT(A) erred in law and on facts in confirming disallowance of exempted long-term capital gain of Rs. 15,93,499/- u/s 10(38) of the Act arising from sale of shares of M/s Oasis Tradelink Ltd. and adding it back to the total income u/s 69A of the Act.
3. The Ld. CIT(A) and Ld. AO have erred in law and on facts in not appreciating that the shares of M/s Oasis Tradelink Ltd. have been purchased from and sold on the recognised stock exchange.
4. The Ld. CIT(A) erred in law and on facts in confirming action of the Ld. AO in invoking section 69A of the Act.
5. The learned CIT(A) has erred in law and on facts of the case in confirming invoking of provisions of Section 115BBE of the Act.
6. The learned CIT(A) and Ld. AO have passed the order without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. Their action is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C/D & 244A of the Act wherever applicable.
8. The learned CIT(A) has erred in law and on facts in confirming action of Ld.AO in initiating penalty
9. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
5. The first ground pertains to reopening of the case. Shri Tushar P Hemani, the Ld. Sr. Counsel appearing for the assessee submitted that the case of the assessee was reopened on the basis of information flagged on Insight Portal, which cannot be basis to form a belief of escapement of income. He submitted that the AO had merely relied upon the information available on Insight portal without any independent application of mind and, thus, the case was reopened on borrowed satisfaction
6. Per contra, Shri Amit Pratap Singh, the Ld. SR-DR submitted that as per the revised procedure for issue of notice u/s. 148 of the Act, the AO is required to first provide an opportunity of being heard to the assessee and thereafter pass an order considering the reply of the assessee, before issue of notice u/s. 148 of the Act. He submitted that the AO had duly followed the procedure in the present case and the notice u/s. 148 of the Act as issued by the AO was proper.
7. We have considered the rival submissions and perused the material available on record and examined the sequence of events in the present case. It is noted that the AO had issued notice under section 148A(b) of the Act on 09.03.2022, whereby the information available with him was duly confronted to the assessee. Thereafter, after considering the response furnished by the assessee, the AO had passed an order u/s 148A(d) of the Act on 23.03.2022. Subsequently, notice u/s 148 of the Act was issued on 04.04.2022. Thus, the material on record demonstrates that the information available with the AO was not acted upon mechanically without affording an opportunity to the assessee. The assessee was confronted with the information, his reply was taken into consideration and a conscious decision was thereafter taken by the AO u/s 148A(d) of the Act before issuance of the notice under section 148 of the Act. The mere fact that the information leading to initiation of proceedings was available on the Insight Portal does not, by itself, render the subsequent proceedings invalid. Information received through an internal departmental information system can constitute the starting point for an enquiry. In the present case, the sequence of proceedings, as noted above, shows that the AO had proceeded in accordance with the statutory mechanism prescribed under section 148A of the Act and considered the assessee’s response before taking the decision to issue notice u/s 148 of the Act. The contention regarding “borrowed satisfaction”, therefore, cannot be accepted merely on the basis that the information was flagged on the Insight Portal. The material placed before us does not establish that the AO had acted merely at the behest of another authority or that he had mechanically reproduced information without consideration of the facts of the case. Rather, the record demonstrates compliance with the procedure prescribed under section 148A of the Act. Therefore, we don’t find any infirmity in the initiation of reassessment proceeding and the challenge to the validity of the reassessment proceedings is rejected. The ground taken by the assessee against the reopening of the case, is dismissed.
8. The next ground pertains to addition of Rs. 15,93,499/- in respect of disallowance of exempt LTCG. Shri Tushar Hemani, Ld. Sr. Counsel of the assessee submitted that assessee is a regular trader in shares and the evidences for purchase and sale of a scrip of M/s. Oasis Tradelink Ltd. was duly brought on record. He explained that the shares were purchased as well as sold on the floor of stock exchange in de-mat form on which STT was paid. The entire transaction of purchase and sale was duly reflected in the de-mat account and the payments were made through banking channel. The assessee was not involved in the rigging of sale prices or any other sort of wrong doing as alleged by the Revenue. He further submitted that no evidence was brought on record by the AO that the assessee had entered into any accommodation entry by sale of shares of M/s. Oasis Tradelink Ltd. There was no evidence to establish any live nexus between the assessee and the entry provider. Under the circumstances, the AO was not correct in treating the sale proceeds of shares as accommodation entry and making addition u/s. 69A of the Act.
9. Per contra Shri Amit Pratap Singh, the LD. SR-DR strongly supported the order of the lower authorities.
10. We have considered the rival submissions. The fact that the assessee had purchased and sold the shares of M/s. Oasis Tradlink Ltd. through recognized broker and were duly reflected in de-mat account of the assessee is not under dispute. From the copy of de-mat account brought on record in the paper book, it is found that the assessee was a regular investor in shares and had dealt in the shares of AVI Polymers limited, Housing and Urban Development Corporation Limited, IFCI Limited, Indian Railway Finance Corporation Limited, Indian Renewable Energy development Agency Limited, National Highway Authorities Limited, Nayara Energy Limited, NTPC Limited etc. Thus, the trading by the assessee in the shares of M/s. Oasis Tradelink Ltd. was not one-off transaction. The assessee had brought on record the copy of contract notes, bank statement, de-mat holding and transaction statement. No evidence has been brought on record by the AO that any cash was exchanged by the assessee at the time of purchase or sale of these shares. Under the circumstances, the finding of the AO that LTCG derived by the assessee in the shares of M/s. Oasis Tradelink Ltd. was bogus is found to be based on mere presumption and not on any material evidence. The assessee had duly explained these transactions through the evidences and there was no basis to treat the sale proceeds in the shares of M/s. Oasis Tradelink Ltd., as unexplained
11. The Assessing Officer had merely relied upon the findings of Investigation Wing without carrying out any independent investigation of his own. Nothing was brought on record that would establish that the assessee was beneficiary of alleged accommodation entries. No corroborative evidences to support the allegations of AO are found available on record. The documentary evidences submitted by the assessee were neither proved contrary nor proved fabricated. Assuming that the brokers may have done some manipulation; the assessee cannot be held liable for the act of the brokers when the entire transactions have been done through banking channel duly recorded in the de-mat account with a depository and traded on the stock exchange. The sale transactions took place through recognized stock exchange and statutory Securities Transaction Tax (STT) was paid on sale transactions. In the online platform, the identity of the seller as well as purchaser would not be known. The shares were delivered in de-mat form through clearing mechanism of the stock exchange. Therefore, unless any link is established, the assessee could not be held to be part of the group indulging into rigging of share prices of the scrip. The sale proceeds were realized through banking channel and there was no evidence of any cash exchange. The findings as well as conclusion of Assessing Officer are found to be based on mere suspicion and surmises, as against settled proposition of law that suspicion howsoever strong can’t partake the character of legal evidence. The entire case of Assessing Officer was based on mere presumption that the assessee ploughed back his own unaccounted money in the form of bogus LTCG. The presumption needs to be corroborated by some evidence to establish the same. It is trite law that presumption, however, strong, cannot be a substitute, nor can it take place of evidence. For the said proposition, reliance is placed on Hon’ble Supreme Court decision, in the case of Omar Salay Mohamed Sait reported in (1989) 37 ITR 151 (SC) wherein it was held that no addition can be made on the basis of surmise, suspicion and conjectures.
12. Hon’ble Gujarat High Court has held in the case of Sanjaykumar Damjibhai Gangani [2025] 178 taxmann.com 276 (Gujarat) that where assessee-company claimed LTCG under section 10(38) arising out of sale of shares of S and had furnished complete evidence including contract note of shares, de-mat details, detail of bonus shares, since no adverse evidence was brought against said evidences, Assessing Officer was not justified in making addition under section 68 merely on allegation that assessee was a beneficiary of penny stock scrip. The findings of the Hon’ble Court are reproduced below:
[16] Considering the contentions raised on behalf of the Revenue, the Tribunal has arrived at a finding of fact that shares of Sunrise Asian Ltd. sold by the assessee cannot be doubted as bogus and exemption under Section 10(38) of the Act was rightly availed by the assessee. The Tribunal has also concluded that the presumption drawn by the Assessing Officer was not corroborated by any evidence to establish the alleged non-genuine transaction by the assessee. It was, therefore, rightly held by the Tribunal that the claim of the assessee for exemption of Long Term Capital Gains under Section 10(38) of the Act cannot be held to be bogus on the basis of presumption in absence of any evidence brought on record by the assessee with regard to shares of Sunrise Asian Ltd, which is not even found to be rigged by the SEBI also. The Tribunal has also considered that the assessee held the shares for two and half years and after holding the shares for a long period, the same were sold by the assessee and therefore, reliance was placed on the decision of this Court in the case of Jagat Pravinbhai Sarabhai (supra), wherein this Court has held as under:
“5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span.
6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed.
6.1 On the facts of case, no question of law much less substantial question of law arises.
7. Resultantly, appeal is dismissed.”
[17] In view of the above, we are of the opinion that no question of law much less any substantial question of law arises from the impugned order passed by the Tribunal. The appeal, being devoid of any merit, is, accordingly, dismissed.
4. Considering the above dictum of law in case of Divyaben Prafulchandra Parmar (supra) and applying the same to the facts of the case, we are of the opinion that no question of law much-less any substantial question of law arises from the impugned order of the Tribunal on the same reasoning as assigned by this Court in the said case.
13. In view of the above facts and legal position, the addition of Rs. 15,93,499/- on account of unexplained money in the form of accommodation entry is deleted and the ground taken by the assessee is allowed.
14. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 11/09/2026 at Ahmedabad.
