Dove Soft appeals ₹125.57 lakh demand over alleged LTCG

Dove Soft Limited is appealing a ₹125.57 lakh income-tax demand for Assessment Year 2018-19 after the assessing office added ₹100 lakh as unexplained cash credit and ₹2 lakh as unexplained expenditure. The order and demand notice are dated March 19, 2024, while penalty proceedings have also been initiated and no appeal hearing date has been assigned.

Why is Dove Soft appealing the ₹125.57 lakh alleged LTCG tax demand?

Dove Soft is appealing because the assessing office rejected its response and added a combined ₹102 lakh to its returned income for Assessment Year 2018-19. The assessment order was passed under Section 147 of the Income Tax Act, 1961 on March 19, 2024, and the demand notice for ₹125.57 lakh was served on the same date.

The ₹102 lakh addition comprises ₹100 lakh treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and ₹2 lakh treated as unexplained expenditure. Section 68 addresses cash credits for which an explanation is not accepted. The prospectus does not provide a separate calculation of the ₹125.57 lakh demand between tax, interest or any other component.

The reassessment was initiated on the Income Tax office's allegation that income chargeable to tax had escaped assessment. Dove Soft had filed its return under Section 139 of the Income Tax Act, 1961, but the assessing office used Section 147 to reopen the matter and make the additions in its March 2024 order.

How did the alleged LTCG accommodation-entry network lead to the demand?

The Income Tax office linked the Assessment Year 2018-19 matter to a Section 132 search involving Jignesh S. Shah and Sanjay Shah. According to the disclosed account of the authority, the search resulted in seizure of unaccounted cash related to accommodation entries and commissions, as well as digital and documentary evidence.

The authority said a secret Tally data file named “123” was impounded during a Section 133A survey at Sanjay Shah's business premises. The disclosed allegation is that the coded file recorded movement and delivery of cash, including through angadiyas, against share transactions on the BSE, or Bombay Stock Exchange, platform. It also allegedly recorded cash commissions under the heading “LTCG COMMISSION,” where LTCG means long-term capital gains.

The Income Tax office alleged that synchronised trading in shares of listed companies enabled accommodation entries for bogus LTCG. In the authority's stated mechanism, sellers received an entry for long-term capital gains against cash, while buyers received cash against a predetermined purchase of shares. These are allegations and findings attributed to the Income Tax office in the prospectus, rather than admissions by Dove Soft.

Dove Soft was alleged to have received ₹100 lakh on different dates through Pranatpal Trade Link Private Limited and Tarul Palver Projects Private Limited. The Income Tax authority alleged that the two companies were paper companies controlled by Jignesh S. Shah, and treated the alleged receipts as unexplained cash credit under Section 68.

What is the status of Dove Soft's appeal and penalty proceeding?

Dove Soft has filed an appeal with the Commissioner of Income Tax (Appeals) against the March 19, 2024 assessment order. The disclosed stage is “Hearing of Appeal,” but no date of hearing had been assigned as of the prospectus disclosure.

Dove Soft submitted written responses during the assessment, but the assessing office found the response unacceptable before making the ₹100 lakh and ₹2 lakh additions. The prospectus does not disclose the grounds of the appeal, a stay on collection of the ₹125.57 lakh demand, or a timetable for the Commissioner of Income Tax (Appeals) to decide the case.

Penalty proceedings under Section 271AAC(1) of the Income Tax Act, 1961 have also been initiated in connection with the Assessment Year 2018-19 matter. The prospectus does not disclose an imposed penalty amount or a penalty order, so ₹125.57 lakh is the disclosed assessment demand and not a combined assessment-and-penalty figure.

How does the ₹125.57 lakh demand compare with Dove Soft's other tax disclosures?

The ₹125.57 lakh Assessment Year 2018-19 demand exceeds the other quantified company-level tax demands disclosed in the supplied litigation section. The next-largest stated amount is a ₹9.25 lakh demand arising from a Centralized Processing Center, or CPC, intimation for Assessment Year 2024-25, largely attributed to differences between tax deducted at source claims and credits reflected in Form 26AS.

For Assessment Year 2021-22, Dove Soft disclosed a ₹2.37 lakh equalisation-levy demand but said it had paid the levy and that the demand was nil pending an update to the income-tax website. For Assessment Year 2022-23, it similarly said a ₹2.14 lakh equalisation-levy demand was nil because the levy had been paid, although the website had not updated the payment.

Dove Soft states that no proceeding against it was considered material under its policy framed under Regulation 30 of the Securities and Exchange Board of India Listing Regulations. The board adopted the threshold on March 31, 2026 as the lower of 2% of turnover, 2% of net worth, or 5% of average absolute profit or loss after tax across the prior three annual consolidated financial statements. That reporting classification does not determine the outcome of the ₹125.57 lakh appeal.

Conclusion

The disclosed ₹125.57 lakh demand results from the assessing office's March 19, 2024 reassessment for Assessment Year 2018-19, including a ₹100 lakh Section 68 cash-credit addition and a ₹2 lakh unexplained-expenditure addition. Its scale is materially different from the smaller CPC and equalisation-levy items because it is tied to allegations of receipts through two purported paper companies in an alleged LTCG accommodation-entry network.

The next disclosed development is a hearing before the Commissioner of Income Tax (Appeals), although no hearing date has been assigned. The outcome will depend on appellate consideration of the March 2024 additions, while the separately initiated Section 271AAC(1) penalty proceeding remains unresolved and has no disclosed monetary amount.