ITAT Dismisses Appeal Against Addition of ₹14.49 Lakh on Share Transactions with Safal Herbs Ltd

The assessee had shown the purchase of 50 shares of Safal Herbs Ltd. (earlier Parikh Herbals Ltd.) for Rs. 23,452 but reported sale of 4,350 shares for Rs. 15,80,247, with a declared business loss of Rs. 2,58,285. Based on an investigation and a search conducted under Section 132 in the case of an accommodation entry operator, it was found that the scrip was involved in manipulated trading and bogus transactions. The Assessing Officer reopened the assessment under Section 147, issued statutory notices, and added Rs. 14,49,085 as unexplained cash credit.

CIT (A) Held: Aggrieved by the decision of the AO, the assessee company filed an appeal before the Commissioner of Tax (Appeals). The CIT(A) upheld the order of the Assessing Officer.

In appeal, the assessee contended that the share transactions were genuine as sales were through the stock exchange, STT was paid, shares were transferred from a demat account and consideration was received through the bank. It was further argued that there was no nexus with the accommodation entry operator. In the alternative, it was pleaded that the turnover of Rs. 14.49 lakh be recognised and the business loss of Rs. 18.09 lakh allowed. The appellate authority, however, did not accept these submissions and confirmed the addition.

Issue Raised: Whether the addition of Rs. 14,49,085 as unexplained cash credit from transactions in Safal Herbs Ltd. was justified, and whether the alternate plea for business loss could be accepted.

ITAT’s Decision: The Tribunal noted that only 50 shares were purchased, but 4,350 shares were reported as sold. The explanation of the mistake was not substantiated, and genuineness of the transactions was not established before the Assessing Officer or the CIT(A). It was held that routing through banking or demat channels could not validate transactions where the scrip was found to be part of accommodation-entry activity.

Since the main ground was dismissed, the alternate plea on business loss was also rejected. The appeal was dismissed and the addition of Rs. 14,49,085 sustained.

To Read Full Judgment, Download PDF Given Below