ITAT Ahmedabad Cancels Reassessment on Alleged Bogus LTCG from Sawaca Shares

Background of the Appeal

This appeal before the ITAT Ahmedabad arose from an order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 26/12/2025 under Section 250 of the Income Tax Act 1961 for Assessment Year (AY) 2013-2014.

The assessee challenged both:

  • The validity of reopening the completed scrutiny assessment under Section 147, and
  • The additions on merits made under Section 68 and Section 69C on account of alleged bogus Long Term Capital Gain (LTCG) and supposed unexplained expenditure.

Since the jurisdictional issue goes to the root of the matter, the Tribunal first examined the legality of the reassessment proceedings.

Grounds of Appeal

The assessee raised, inter alia, the following key grounds:

  1. The reopening under Section 147 was invalid in law and on facts.
  2. The Assessing Officer (AO) ought to have proceeded, if at all, under Section 153C and not under Section 147 in view of search material in a third-party case.
  3. The addition of Rs. 1,84,87,500/- under Section 68 was unjustified.
  4. The addition of Rs. 3,69,750/- under Section 69C was not sustainable.
  5. No opportunity for cross-examination of persons whose statements were relied upon was granted, and no effective personal hearing was given before sustaining the Section 68 addition.

The Tribunal focused first on whether the AO had validly assumed jurisdiction to reopen a concluded scrutiny assessment beyond four years.

Facts of the Case and Original Scrutiny Assessment

Return Filing and Original Assessment

  • The assessee filed the original return of income for AY 2013-14 on 25/07/2013, declaring total income of Rs. 3,37,840/-.
  • In this return, the assessee reported Long Term Capital Gain (LTCG) of Rs. 1,83,67,048/- claimed as exempt under Section 10(38) in respect of shares of Sawaca Business Machines Ltd.
  • The return was selected for scrutiny, and a regular assessment under Section 143(3) was completed on 30/07/2015.
  • In that order, the AO accepted the LTCG claim as exempt and made only a minor addition of Rs. 10,347/- on account of interest income.

Thus, the issue of exempt LTCG was already before the AO in the original scrutiny and stood accepted.

Subsequent Reopening under Section 147

Later, the AO issued a notice under Section 148 dated 30/03/2021, seeking to reopen the assessment for AY 2013-14 — i.e., after expiry of four years from the end of the relevant assessment year.

The reopening was based on information transmitted by the Investigation Wing relating to a search and survey in the case of Shri Shirish Chandra Shah and his associates, who were alleged to be providing accommodation entries, including bogus LTCG through penny stocks.

According to the Investigation Wing material, the assessee had:

  • Purchased and sold 83,500 shares of Sawaca Business Machines Ltd. (earlier Sawaca Finance Ltd.), and
  • Received pay-in/pay-out aggregating Rs. 1,84,87,500/- in AY 2013-14.

The AO treated the assessee’s exempt LTCG of Rs. 1,83,67,048/- as an accommodation entry.

Reasons Recorded for Reopening

The reasons recorded by the AO (as reproduced in the order) trace the basis of belief of escapement of income. The key elements were: