ITAT Ahmedabad Quashes Reassessment Where AO Changed Basis from Bogus Loans to Penny Stock Gains

April 7, 2026 : The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has set aside reassessment proceedings under Section 147 of the Income Tax Act, holding that the Assessing Officer (AO) cannot sustain additions on a ground entirely different from the reasons originally recorded for reopening.

The Bench comprising Vice-President Dr. B.R.R. Kumar and Judicial Member Suchitra R. Kamble was deciding an appeal filed by Pinkal Rajeshbhai Patel for Assessment Year 2015–16.

Background

The reassessment was initiated based on information from the Investigation Wing following a search conducted on alleged entry operators, including Jignesh Shah and Sanjay Shah. The AO recorded reasons alleging that the assessee had received accommodation entries in the form of fictitious loans amounting to approximately ₹49.74 lakh.

However, during reassessment, the AO shifted the basis entirely. Instead of examining alleged bogus loans, the AO treated ₹49.19 lakh received as sale proceeds from shares of Naisargik Agritech (India) Ltd. as unexplained cash credit under Section 68, alleging bogus long-term capital gains through penny stock transactions.

Assessee’s Contention

The assessee argued that such a shift in the foundation of the proceedings rendered the reassessment invalid. It was submitted that the AO cannot reopen an assessment on one ground and make additions on another unrelated ground.

Tribunal’s Findings

The Tribunal agreed with the assessee and held that:

• The reasons recorded for reopening were based on alleged fictitious loan entries.
• The addition ultimately made was based on alleged bogus LTCG from penny stock transactions.
• There was a complete disconnect between the recorded reasons and the final addition.

The Bench observed that this inconsistency strikes at the root of jurisdiction under Section 147, making the reassessment legally unsustainable.

Ruling

Holding the reassessment to be invalid in law, the Tribunal:

• Quashed the reassessment order dated 30.03.2022
• Declined to examine the merits of the addition under Section 68

The appeal of the assessee was accordingly allowed.

Cause Title: Pinkal Rajeshbhai Patel v. ITO
Case No.: ITA No. 99/Ahd/2025 (AY 2015–16)
Coram: Dr. B.R.R. Kumar (VP), Suchitra R. Kamble (JM)