Hetal Vinodchandra Sheth Vs ITO (ITAT Ahmedabad)
Penny Stock Gains: ITAT Upholds ₹2.76 Lakh Addition and ₹85,370 Penalty Despite Stock Exchange Transactions
Banking Trail and Contract Notes Not Conclusive Proof of Genuineness
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an addition of ₹2,76,264 under Section 68 read with Section 115BBE arising from share transactions treated as bogus long-term capital gains. It also sustained the related ₹85,370 penalty under Section 271(1)(c).
The Tribunal held that routing transactions through a recognised stock exchange and receiving consideration through banking channels do not, by themselves, establish genuineness. The investigation findings, market behaviour of the scrip, financial circumstances and assessee’s conduct must also be considered.
Both the quantum appeal and the penalty appeal were dismissed.
Case Details
The decision was delivered in Hetal Vinodchandra Sheth v. ITO, Ward-5(3)(1), Ahmedabad, ITA Nos. 2369 and 2370/Ahd/2025, concerning Assessment Year 2014-15.
The order was pronounced on 16 October 2026 by Vice-President Dr. B.R.R. Kumar, sitting on the Ahmedabad SMC Bench.
The appeals challenged two orders of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, both dated 1 August 2025. One concerned the reassessment addition, while the other concerned the consequential penalty.
Background: Exemption Claimed on Share Gains
The assessee, a salaried employee, filed her return on 12 January 2015, declaring total income of ₹2,74,324.
She disclosed long-term capital gains of ₹2,75,462 and claimed exemption under Section 10(38). Securities transaction tax was stated to have been paid on the transactions.
The dispute concerned shares of Safal Herbs Ltd., formerly Parikh Herbals Ltd., which the investigation authorities identified as a penny-stock scrip allegedly used for providing accommodation entries.
The reassessment originated from information received following a search conducted on 11 September 2018 in the cases of Sanjay Shah and Jignesh Shah, who were allegedly engaged in commission-based accommodation-entry activities.
Reassessment Results in Section 68 Addition
The Assessing Officer issued a notice under Section 148 on 31 March 2021, after obtaining approval from the competent authority.
The assessee filed her return in response on 24 January 2022, declaring the same particulars as in the original return.
Following statutory notices and consideration of her submissions, the Assessing Officer completed the reassessment on 28 March 2022, adding ₹2,76,264 under Section 68 read with Section 115BBE.
The CIT(A) upheld the addition, concluding that the assessment rested on investigation material and a chain of surrounding circumstances rather than merely general allegations about penny stocks.
Abnormal Price Rise and Acquisition Evidence Examined
The CIT(A) noted an appreciation of 342.46% within 15 months in the price of the disputed shares.
It also referred to the absence of comparable investment activity by the assessee and the lack of other share transactions with the broker.
According to the appellate findings reproduced in the order, the investigation information contained particulars specific to the assessee, including her name, PAN and transactions.
The CIT(A) further held that she had not furnished credible evidence establishing the mode, source and particulars of acquisition sufficient to rebut the Revenue’s case.
These circumstances supported its conclusion that the exemption claim was not substantiated.
Assessee Relies on Demat Records and Banking Transactions
Before the Tribunal, the assessee maintained that the transactions were genuine and supported by contract notes, demat statements and banking records.
She argued that purchases and sales had taken place through a recognised stock exchange.
She also contended that the addition relied on investigation material and third-party statements without an effective opportunity to cross-examine the persons concerned. Her grounds additionally raised objections concerning natural justice and compliance with Section 144B.
The Revenue defended the concurrent findings of the Assessing Officer and CIT(A), relying on the investigation results and surrounding circumstances.
Tribunal Finds No Effective Rebuttal
The Tribunal referred to Rameshkumar Karsanbhai Patel v. ITO, ITA No. 669/SRT/2025, decided on 9 April 2026, and other coordinate Bench decisions concerning share transactions and exempt capital gains.
It held that formal transaction records must be examined alongside the scrip’s financial profile, price behaviour and investigation findings.
The assessee had not produced material controverting the specific findings or distinguishing her case from the cited decisions.
Considering the abnormal appreciation and cumulative circumstances, the Tribunal upheld the ₹2,76,264 addition. Its reasoning did not separately develop a detailed determination of the cross-examination objection.
Disclosure in Return Does Not Defeat Penalty on These Facts
The Tribunal separately sustained the ₹85,370 penalty under Section 271(1)(c).
It acknowledged that the share transactions had been disclosed in the return. Nevertheless, they had been found non-genuine and in the nature of accommodation entries.
Since the quantum addition stood confirmed and the factual basis supporting the penalty continued to subsist, the Tribunal found no reason to interfere with the CIT(A)’s penalty order.
The ruling therefore sustained both consequences on the particular evidence and findings concerning the disputed transactions.
Cases Discussed
- Rameshkumar Karsanbhai Patel Vs ITO — ITA No. 669/SRT/2025 (ITAT Surat, 09.04.2026)
- Usha Chandresh Shah Vs ITO — ITA No. 6858/Mum/2011 (ITAT Mumbai)
- Zakrullah Chaudhary Vs DCIT — ITA No. 669/PN/2012 (ITAT Pune)
- Dinesh Kumar Khandelwal HUF Vs ITO — ITA No. 58/Nag/2015 (ITAT Nagpur)
- Napar Drugs Ltd. Vs DCIT — 98 ITD 265 (ITAT Delhi)
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present two appeals have been preferred by the assessee against the orders of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, both dated 01.08.2025, passed for Assessment Year 2014-15. ITA No. 2369/Ahd/2025 arises from the reassessment proceedings under Sections 147 r.ws. 144 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as “the Act”); whereas ITA No.2370/Ahd/2025 arises from the penalty imposed under Section 271(1)(c) of the Act.
2. The assessee has taken following grounds of appeal in ITA No.2369/Ahd/2025:-
“1.1 The order passed u/s. 250 on 01.08.2025 for A.Y.2014-15 by NFAC Delhi treating long term capital gain on sale of shares claimed exempt u/s 10(38) as bogus and thereby making addition of Rs.2,76,264/-as unexplained cash credit u/s68 r.w.s. 115BBE is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. AO as well as NFAC/CIT(A) has grievously erred in law and or on facts in making impugned assessment without complying to the mandatory provisions of sec. 144B of the Act and therefore, the impugned order is illegal and liable to be quashed.
1.3 The Ld. AO as well as NFAC/CIT(A) has grievously erred in law and or on facts in not providing the material/data/statement before making the impugned adverse assessment is wholly illegal and against the principles of natural justice. The appellant ought to have provided opportunity to cross examine the concerned party and confront the material before using the same against the appellant.
2.1 The Ld. AO NFAC/CIT(A) has grievously erred in law and or on facts in holding that long term capital gain on sale of shares of Parikh Herbals Ltd. (Safal Herbs Ltd.) claimed exempt u/s 10(38) as bogus and thereby making addition of Rs.2,76,264/- as unexplained cash credit u/s68 r.w.s. 115BBE.
2.2 That in the facts and circumstances of the case as well as in law, the Ld. AO has grievously erred in holding that the long term capital gain on sale of shares of Parikh Herbals Ltd. (Safal Herbs Ltd.) claimed exempt u/s 10(38) as bogus and thereby making addition of Rs.2,76,264/- as unexplained cash credit u/s 68 r.w.s. 115BBE.”
3. The brief facts of the case are that the assessee, a salaried employee, filed her return of income for the year under consideration on 12.01.2015, declaring total income of Rs.2,74,324/-. The return reflected long-term capital gain of Rs.2,75,462/- arising from transactions on which securities transaction tax was stated to have been paid, and the same was claimed as exempt under Section 10(38) of the Act. Reassessment proceedings were initiated on the basis of information received from the DDIT (Investigation), Unit-1(3), Ahmedabad, pursuant to a search conducted under Section 132 of the Act on 11.09.2018 in the case of Shri Sanjay Shah and Shri Jignesh Shah, who were allegedly engaged in providing accommodation entries through commission-based transactions. One of the scrips allegedly involved in such activities was M/s Safal Herbs Ltd. (formerly Parikh Herbals Ltd.), stated to be a penny-stock company. On the basis of the information received, it was found that the assessee had undertaken transactions in the shares of Safal Herbs Ltd. during F.Y. 2012-13, relevant to A.Y. 2013-14, through the alleged entry providers. After obtaining the requisite approval from the competent authority, notice under Section 148 of the Act was issued on 31.03.2021. The assessee filed her return of income in response thereto on 24.01.2022, declaring the same particulars as in the original return. Thereafter, statutory notices were issued and the assessee furnished her response and submissions. The assessment was accordingly completed on 28.03.2022, making an addition of Rs.2,76,264/- under Section 68 r.w.s. 115BBE of the Act.
4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who dismissed the appeal. The relevant findings of the Ld. CIT(A) are as under:
“6. Discussion of the addition u/s 68
(i) Upon a careful and comprehensive evaluation of the entire conspectus of facts and circumstances presented, the detailed finding embodied in the assessment order, and the submissions advanced by the appellant, I am unable to find merit in the arguments advanced in support of the claim for u/s Section 10(38).
(ii) The impugned Assessment Order is a reasoned, speaking order rich in documentary evidence, circumstantial indicators, corroborative statements, and judicially sanctified tests, including the doctrine of the preponderance of probability. The Assessing Officer (AO) has not acted merely on third-party depositions but has anchored his conclusions upon a holistic and multi-dimensional analysis encompassing scrutiny of financial records, review of the market behaviour pertaining to the impugned scrip, findings of investigating authorities, and other relevant and important materials.
(iii) Crucially, the addition in question has not been made in a cursory manner; it is predicated on substantive reports of investigative agencies and independent field-verification of the company’s credentials, followed by an incisive inquiry into the live link and nexus of the appellant with the said entity and the transactions in question. As specifically documented in Paragraph 06.1 of the Assessment Order, the AO has explicitly brought on record that the information received in the case of the appellant is specific to her personal details such as name, PAN, transactions, etc., which gives the Assessment Order well-reasoned immunity from being assailed as a generalized or conjectural allegation.
(iv) Tax adjudication, like numerous other civil proceedings, proceeds on the basis of the shifting onus of proof. Upon the AO laying sufficient material on record disclosing a bona fide belief and prima facie case of income having escaped assessment, the evidential burden shifts to the assessee to adduce rebuttal through credible documentation and explanations.
(v) In the instant case, the AO, by way of a comprehensive and analytically robust Assessment Order, has established a chain of circumstantial evidence forming a cogent prima facie case against the appellant. The appellant, despite having been afforded multiple and ample opportunities, has failed to furnish any credible evidence or documentation in support of the mode, source, or particulars of acquisition of the impugned shares. In the absence of substantive rebuttal or explanation, the appellant cannot be said to have discharged the statutory onus cast upon her to counter the Revenue’s case.
(vi) Additionally, the AO’s remarks, particularly as contained in Paragraph 6 of the Assessment Order, warrant careful attention. Despite an extraordinary, exponential increase in the price of the shares of M/s Safal Herbs Ltd. (342.46% appreciation within 15 months), the appellant has not entered into any other share transactions with the broker, nor has (s)he engaged in any similar investments.
(vii) Accordingly, I find no substance in this ground urged by the appellant and the same is hereby dismissed.”
5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before us.
6. At the time of hearing, the Ld. AR reiterated the submissions made before the lower authorities and submitted that the transactions were genuine, having been undertaken through the recognised stock exchange and duly supported by contract notes, demat statements and banking transactions. It was further submitted that the addition was made merely on the basis of investigation material and third-party statements, without affording an effective opportunity to cross-examine the persons concerned.
7. The Ld. DR, on the other hand, relied upon the orders of the lower authorities and submitted that the surrounding circumstances and investigation findings clearly established the impugned transaction as an accommodation entry.
8. Having heard the rival submissions and on perusal of the material available on record, it has been observed that the addition has been made on the basis of investigation conducted in relation to the impugned scrip, wherein the scrip was allegedly found to have been used for providing accommodation entries in the guise of bogus long-term capital gains. The Ld. CIT(A), after considering the investigation material and the surrounding circumstances, upheld the addition. The assessment order, as noted by the Ld. CIT(A), also referred to the abnormal appreciation in the price of the scrip and the absence of any comparable investment activity by the assessee.
9. It is also noticed that the Co-ordinate Bench of this Tribunal in the case of Rameshkumar Karsanbhai Patel Vs. ITO, ITA No.669/SRT/2025, vide order dated 09.04.2026, has considered a similar issue relating to penny-stock transactions and the claim of exempt long-term capital gain. Similar principles have also been considered in the decisions of the Co- ordinate Benches in the cases of :-
a) Usha Chandresh Shah Vs. ITO, ITA No. 6858/Mum/2011, Mumbai
b) Zakrullah Chaudhary Vs. DCIT, ITA No. 669/PN/2012, Pune
c) Dinesh Kumar Khandelwal HUF Vs. ITO, ITA No. 58/Nag/2015, Nagpur
d) Napar Drugs Ltd. Vs. DCIT, 98 ITD 265, Delhi
10. The consistent principle emerging from the aforesaid decisions is that the genuineness of a share transaction cannot be determined merely from the fact that the purchase and sale were routed through the stock exchange and the consideration was received through banking channels. The surrounding circumstances, including the financial profile and market behaviour of the scrip, the findings of the investigation authorities and the conduct of the assessee, are also relevant for determining the true nature of the transaction.
11. In the present case, the assessee has not brought any material on record to controvert the specific investigation findings or to distinguish the facts from those considered in the aforesaid decisions. Having regard to the abnormal appreciation in the impugned scrip, the investigation material and the surrounding circumstances, no reason is found to interfere with the concurrent findings of the Assessing Officer and the Ld. CIT(A). Accordingly, the addition of Rs.2,76,264/- made under section 68 r.w.s. 115BBE of the Act is upheld. The grounds raised by the assessee in ITA No.2369/Ahd/2025 are accordingly dismissed.
12. ITA No.2370/Ahd/2025 relates to the penalty of Rs.85,370/- imposed under Section 271(1)(c) of the Act. The penalty has been levied with reference to the addition of Rs.2,76,264/- made under Section 68 of the Act on account of the alleged bogus long-term capital gain claimed as exempt under Section 10(38) of the Act. Since the said addition has been upheld in the quantum appeal in ITA No.2369/Ahd/2025, after considering the material on record and the surrounding circumstances, the basis of the penalty continues to subsist. Though the assessee had disclosed the impugned share transactions in the return of income, the transactions were found to be non-genuine and in the nature of accommodation entries. Having regard to the totality of the facts and circumstances, no infirmity is found in the order of the Ld. CIT(A) confirming the penalty under section 271(1)(c) of the Act. Accordingly, the grounds raised by the assessee are dismissed.
13. In the result, both the appeals of the assessee are dismissed.
Order pronounced in the open Court on 16.10.2026.
