Case Law Details
Raju Bababhai Desai Vs ITO (ITAT Ahmedabad)
Penny Stock & Accommodation Entry Addition of ₹9.16 Crore Remanded — ITAT Directs Verification Whether Income Already Taxed in Entry Operator’s Hands
Ahmedabad Bench of the ITAT condoned the delay and dealt with an appeal arising from an ex-parte assessment under section 144, wherein a massive addition of ₹9.16 crore was made under section 68 on account of alleged penny stock transactions and accommodation entries routed through Tamil Nadu Mercantile Bank.
The assessee contended that he was merely a conduit and that the entire bank transactions had already been owned up and taxed in the hands of the alleged entry operator, Shri Sanjay Shah, including through proceedings under section 153A and a settlement order under section 245D(4). It was further argued that the CIT(A) failed to adjudicate multiple grounds, denied effective opportunity of hearing, and ignored documentary evidence already placed on record.
The ITAT observed that if the same income arising from the impugned bank transactions has already been assessed in the hands of the entry operator, no addition can be sustained again in the assessee’s hands. Since this crucial factual verification was not properly carried out by the AO or CIT(A), the Tribunal remanded the matter back to the Assessing Officer with a direction to examine the assessment records of Shri Sanjay Shah and verify whether the amounts were already brought to tax elsewhere.
Accordingly, the entire issue was restored to the AO for fresh examination, and the appeal was allowed for statistical purposes
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)” for short) dated 20.09.2024, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2013-14.
2. The assessee has raised following grounds:-
“I. Assessment u/s 144 of the Act and Non-Granting of adequate opportunity of hearing by the Assessing Officer.
1. The learned CIT(A) has erred in law and on facts in observing that there is only one issue in all the grounds of appeal raised by the appellant l.e. addition u/s. 68 of the Act at Rs.9,16,14,31/- In spite of the fact that the appellant has raised as many as 3 grounds in the ‘Grounds of Appeal” out of which 2 Grounds have not ben dealt by the CIT(A) of the NFAC in his appellate order.
2. The learned CIT(A) has erred in law and on facts in not adjudicating the grounds raised by the appellant in relation to completion of assessment u/s. 144 of the Act, not carrying out the cross enquiries as requested by the appellant, non-furnishing of details for which the additions have been made in the assessment order and non-granting of further personal hearing by the AO through Video Conferencing which cannot took place due to technical glitches.
П. Addition on account of transaction in penny stock Rs. 4,41,52,811/-and accommodation entry through Tamilnadu Mercantile Bank Ltd – Rs. 4,74,61,580/- as unexplained cash credit u/s. 68 of the Act aggerating to Rs.9,16,14,391/-
1. The learned CIT(A) has grievously erred in law and on facts in confirming the addition on account of transaction in Penny stock at Rs.4,41,52,811/- and accommodation entry through Tamilnadu Mercantile Bank at Rs.4,74,61,850/-i.e. both source of funds and its application as unexplained cash credit u/s. 68 of the Act without proper consideration and appreciation of the facts of the case. In view of facts of the case, the impugned addition requires to be deleted.
2. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 9,16,14,391/-. However, in view of the facts and explanations and evidences filed during the course of assessment proceedings, the impugned addition made by AO and confirmed by the learned CIT(A) is wholly unjustified and bad in law and thus requires to be deleted.
3. The learned CIT(A) has grievously erred in law and on facts in confirming the above addition while observing that the “appellant failed to substantiate his claim that Sri Sanjay Shah had offered the income on the impugned transactions of the appellant” in spite of the fact that the appellant has furnished the assessment order of Sri Sanjay Shah passed by the DCIT Central Circle 1(2) Ahmedabad u/s. 153A of the Act in support of his contentions that above Bank A/c and its related transactions are in fact owned up by him and department has assessed income arising from such transactions in the hands of Sanjay Shah. Hence, observation of the learned CIT(A) is factually incorrect and thus addition made by the AO deserves to be deleted.
4. The learned CIT(A) has grievously erred in law and on facts in failing to consider the fact that the above Bank A/cs of the appellant with Tamilnad Mercantile Bank Ltd and transactions carried out through the said Bank A/cs is owned up by Sanjay Shah during the Investigation proceedings and has offered the income arising from such transactions in his settlement application filed before the Hon’ble Settlement Application for which IBS 1 New Delhi has already passed the order u/s. 245D(4) of the Act accepting such facts. Hence the impugned addition in the hands of appellant is bad in law and requires to be quashed.
5. The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that since the DCIT Central Circle 1(2) Ahmedabad, being the AO of Sanjay Shah, while passing the order u/s.153A of the Act assessed the income arising from the above transactions in the hands of Sanjay Shah, the addition made by AO in the hands of appellant is bad in law and requires to be quashed.
In view of the above, the addition of Rs.9,14,16,391/- made by the AO u/s. 68 of the Act and confirmed by the learned CIT(A) as unexplained cash credit in the hands of appellant deserves to be deleted.”
3. The Ld. CIT(A) passed an ex-parte order. The assessment order was also passed based on the information received from the Investigation Wing on account of accommodation entries and penny stock trading. It was submitted that the assessee is one of the conduits of the penny stock and accommodation entries along with 47 other persons. It was submitted that the amounts in the bank account of the assessee stands assessed in the hands of Shri Sanjay Shah, the entry operator. In this regard, it was incumbent upon the assessee to produce Shri Sanjay Shah along with his assessment records before the Assessing Officer to discharge the onus. Accordingly, the Assessing Officer is required to examine Shri Sanjay Shah – the entry operator, and verify his assessment records of Shri Sanjay Shah and examine whether the amounts reflecting in the bank accounts in the name of the assessee Raju Bababhai Desai have been assessed in the case of Shri Sanjay Shah or not. If proven to be assessed in the hands of Shri Sanjay Shah, no addition would be called for in the hands of the assessee.
4. The matter stands remanded back to the Assessing Officer. In the result, the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open Court on 07.01.2026
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