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Facts
The assessee's appeal challenges an order confirming additions made by the Assessing Officer (AO). The primary issue is the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act.
Held
The Tribunal held that the reassessment proceedings were invalid due to non-application of mind by the Assessing Officer and initiated on the basis of mere suspicion rather than a well-founded belief. The AO erroneously stated that no return was filed, and relied on generalized information without independent verification.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were valid, or if they were based on non-application of mind and suspicion, rendering them invalid.
Sections Cited
147, 68, 69C, 10(38), 139
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 10.06.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds:
1. On the facts and in the circumstances of the case and in law, the assumption of jurisdiction by the Ld. AO was bad in law as the conditions laid down for initiating assessment proceedings u/s 147 of the Income Tax Act, 1961 have not proceedings u/s 147 of the Income Tax Act, 1961 have not proceedings u/s 147 of the Income Tax Act, 1961 have not been fulfilled. been fulfilled.
2. On the facts and circumstances of the case and in law, he facts and circumstances of the case and in law, he facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. the Ld. CIT(A) erred in confirming the addition of Rs. the Ld. CIT(A) erred in confirming the addition of Rs. 55,49,342/- as unexplained cash credits u/s 68 of the Act, as unexplained cash credits u/s 68 of the Act, as unexplained cash credits u/s 68 of the Act, being sale proceeds received through banking channel on being sale proceeds received through banking channel on being sale proceeds received through banking channel on sale of shares of Matra Kaushal Ent sale of shares of Matra Kaushal Enterprises Limited on erprises Limited on recognised recognised recognised stock stock stock exchange, exchange, exchange, disregarding disregarding disregarding the the the ample ample ample documentary evidences furnished by the appellant to prove documentary evidences furnished by the appellant to prove documentary evidences furnished by the appellant to prove the genuineness of the impugned transactions and without the genuineness of the impugned transactions and without the genuineness of the impugned transactions and without appreciating that the addition was made by the Ld. appreciating that the addition was made by the Ld. appreciating that the addition was made by the Ld. Assessing Officer so Assessing Officer solely on the basis of suspicion, lely on the basis of suspicion, conjectures and surmises relying upon general, vague and conjectures and surmises relying upon general, vague and conjectures and surmises relying upon general, vague and non-assessee specific forwarded information received from assessee specific forwarded information received from assessee specific forwarded information received from Investigation Wing. Investigation Wing.
3. On the facts and circumstances of the case and in law, 3. On the facts and circumstances of the case and in law, 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirm the Ld. CIT(A) erred in confirming the addition of ing the addition of Rs.1,10,986/ Rs.1,10,986/- u/s 69C of the Act, being alleged commission u/s 69C of the Act, being alleged commission paid by the appellant at 2% of sale proceeds on sale of paid by the appellant at 2% of sale proceeds on sale of paid by the appellant at 2% of sale proceeds on sale of shares of Matra Kaushal Enterprises Limited, disregarding shares of Matra Kaushal Enterprises Limited, disregarding shares of Matra Kaushal Enterprises Limited, disregarding that that that the the the appellant appellant appellant has has has not not not taken taken taken any any any alleged alleged alleged accommodation entr accommodation entry and without appreciating that the y and without appreciating that the addition was made by the Ld. Assessing Officer solely on addition was made by the Ld. Assessing Officer solely on addition was made by the Ld. Assessing Officer solely on the basis of estimation and conjectures. the basis of estimation and conjectures.
4. On the facts and circumstances of the case and in law, 4. On the facts and circumstances of the case and in law, 4. On the facts and circumstances of the case and in law, the Ld. Assessing Officer erred in making the additions of the Ld. Assessing Officer erred in making the additions of the Ld. Assessing Officer erred in making the additions of Rs. 55,49,342/ 55,49,342/- u/s 68 of the Act and of Rs. 1,10,986/ u/s 68 of the Act and of Rs. 1,10,986/- u/s 69C of the Act without providing the appellant a copy of u/s 69C of the Act without providing the appellant a copy of u/s 69C of the Act without providing the appellant a copy of the material and statement relied upon as well as an the material and statement relied upon as well as an the material and statement relied upon as well as an opportunity of cross opportunity of cross-examination of the persons on whose examination of the persons on whose statement reliance was placed, in statement reliance was placed, in gross violation of gross violation of principles principles principles of of of natural natural natural justice, justice, justice, thereby thereby thereby making making making the the the additions unsustainable. unsustainable.
2. Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that ground No. 1 of the appeal might be treated as additional ground ground No. 1 of the appeal might be treated as additional ground ground No. 1 of the appeal might be treated as additional ground and same being legal ground going and same being legal ground going to the root of the matter may be to the root of the matter may be admitted.
We have heard the rival submissions of the parties on the We have heard the rival submissions of the parties on the We have heard the rival submissions of the parties on the issue relating to the admissibility of the additional ground. The issue relating to the admissibility of the additional ground. The issue relating to the admissibility of the additional ground. The assessee has made an oral plea to treat this ground as an assessee has made an oral plea to treat this ground as an assessee has made an oral plea to treat this ground as an additional ground, submitti additional ground, submitting that the same has already been ng that the same has already been incorporated incorporated incorporated in in in Form Form Form No. No. No. 36. 36. 36. The The The learned learned learned Departmental Departmental Departmental Representative (Ld. DR) has not raised any serious objection to the Representative (Ld. DR) has not raised any serious objection to the Representative (Ld. DR) has not raised any serious objection to the admission of this ground. Since the ground challenges the very admission of this ground. Since the ground challenges the very admission of this ground. Since the ground challenges the very validity of the reassessment proceedi validity of the reassessment proceedings and goes to the root of the ngs and goes to the root of the matter, without necessitating any further investigation into facts, matter, without necessitating any further investigation into facts, matter, without necessitating any further investigation into facts, we deem it appropriate to admit the same for adjudication. we deem it appropriate to admit the same for adjudication. we deem it appropriate to admit the same for adjudication.
4. Addressing the additional ground impugning the validity of the Addressing the additional ground impugning the validity of the Addressing the additional ground impugning the validity of the reassessment proceedings, the l reassessment proceedings, the learned counsel for the assessee earned counsel for the assessee drew our attention to the Paper Book filed, comprising pages 1 to drew our attention to the Paper Book filed, comprising pages 1 to drew our attention to the Paper Book filed, comprising pages 1 to 33. He specifically referred to page 8 thereof, containing the reasons 33. He specifically referred to page 8 thereof, containing the reasons 33. He specifically referred to page 8 thereof, containing the reasons recorded by the Assessing Officer for reopening the assessment, recorded by the Assessing Officer for reopening the assessment, recorded by the Assessing Officer for reopening the assessment, which, for the sake of which, for the sake of completeness, are reproduced below: completeness, are reproduced below:
“Reasons for re Reasons for re-opening of the assessment u/s. 147 of the opening of the assessment u/s. 147 of the Income Tax, The assessee has not filed return of income for the year under The assessee has not filed return of income for the year under The assessee has not filed return of income for the year under consideration. consideration.
An information was received in this case from the Directorate 2. An information was received in this case from the Directorate 2. An information was received in this case from the Directorate of Income-tax tax tax (investigation), (investigation), (investigation), Kolkata, Kolkata, Kolkata, stating stating stating that that that the the the investigation carried out by the department had proved that a investigation carried out by the department had proved that a investigation carried out by the department had proved that a scheme was hatched by various players to obtain/provide scheme was hatched by various players to obtain/provide scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of accommodation entry of bogus LTCG through manipulation of accommodation entry of bogus LTCG through manipulation of stock market. Various syndica stock market. Various syndicates had arranged accommodation tes had arranged accommodation entry of bogus long term capital gain, bogus short term capital entry of bogus long term capital gain, bogus short term capital entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss / bogus business loss gains and bogus short term capital loss / bogus business loss gains and bogus short term capital loss / bogus business loss through trading of shares of various penny stock companies. through trading of shares of various penny stock companies. through trading of shares of various penny stock companies.
3. The investigation conducted by the 3. The investigation conducted by the Kolkata Investigation Kolkata Investigation Directorate revealed that the trading in shares of penny stock Directorate revealed that the trading in shares of penny stock Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus companies was a manipulated affair to generate entries of bogus companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG LTCG to convert undisclosed income into tax free income as LTCG LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt earned against sale of shares is an exempt income. Further, the income. Further, the Kolkata Investigation Directorate informed that all such brokers Kolkata Investigation Directorate informed that all such brokers Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that through whom such transaction were carried out, admitted that through whom such transaction were carried out, admitted that they charged commission on the amount involved in these they charged commission on the amount involved in these they charged commission on the amount involved in these transactions. It was also informed that the assesse transactions. It was also informed that the assesse had traded in had traded in the shares of penny stock companies to generate bogus LTCG the shares of penny stock companies to generate bogus LTCG the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed Income into tax free income and thereby converted undisclosed Income into tax free income and thereby converted undisclosed Income into tax free income without paying taxes. income without paying taxes.
4. As per the information available on record, the assesse sold 4. As per the information available on record, the assesse sold 4. As per the information available on record, the assesse sold shares of the penny stock co shares of the penny stock companies "MKEL" for total mpanies "MKEL" for total consideration of Rs.55,63,257/ consideration of Rs.55,63,257/- and has not declared any long and has not declared any long term capital gains against the sale of above penny stock shares. term capital gains against the sale of above penny stock shares. term capital gains against the sale of above penny stock shares. Through Through Through the the the said said said transaction, transaction, transaction, the the the assessee assessee assessee converted converted converted undisclosed income into tax undisclosed income into tax-free income by not offering LTCG In ring LTCG In his Return of of Income. 4.1 The learned counsel for the assessee thereafter invited The learned counsel for the assessee thereafter invited The learned counsel for the assessee thereafter invited attention to page 1 of the Paper Book, which is a copy of the return attention to page 1 of the Paper Book, which is a copy of the return attention to page 1 of the Paper Book, which is a copy of the return of income filed on 30.03.2016 in the regular course. He submitted of income filed on 30.03.2016 in the regular course. He submitted of income filed on 30.03.2016 in the regular course. He submitted that despite the return ha that despite the return having been duly filed, the Assessing Officer, ving been duly filed, the Assessing Officer, while recording reasons for reopening, erroneously stated that no while recording reasons for reopening, erroneously stated that no while recording reasons for reopening, erroneously stated that no return of income had been filed return of income had been filed — a manifest instance of non a manifest instance of non- application of mind. It was further contended that the reasons application of mind. It was further contended that the reasons application of mind. It was further contended that the reasons recorded are founded recorded are founded purely on suspicion, as is evident from purely on suspicion, as is evident from paragraph 5 of the assessment order, where the Assessing Officer paragraph 5 of the assessment order, where the Assessing Officer paragraph 5 of the assessment order, where the Assessing Officer described the LTCG claim as “suspicious” and proposed to conduct described the LTCG claim as “suspicious” and proposed to conduct described the LTCG claim as “suspicious” and proposed to conduct “detailed investigation.” “detailed investigation.”
4.2 The learned counsel further placed reliance upon the dec The learned counsel further placed reliance upon the dec The learned counsel further placed reliance upon the decision of the Co-ordinate Bench of the Tribunal in ordinate Bench of the Tribunal in Ashok Jasraj Jain (HUF) Ashok Jasraj Jain (HUF) for Assessment Year 2014 in for Assessment Year 2014–15, in for Assessment Year 2014 wherein, in identical circumstances, the reassessment proceedings wherein, in identical circumstances, the reassessment proceedings wherein, in identical circumstances, the reassessment proceedings were held to be invalid for want of application of mind and absence were held to be invalid for want of application of mind were held to be invalid for want of application of mind of “reason to believe.” The relevant findings of the Tribunal in that of “reason to believe.” The relevant findings of the Tribunal in that of “reason to believe.” The relevant findings of the Tribunal in that case demonstrates that the Assessing Officer therein had also case demonstrates that the Assessing Officer therein had also case demonstrates that the Assessing Officer therein had also proceeded on incorrect assumptions that no return had been filed proceeded on incorrect assumptions that no return had been filed proceeded on incorrect assumptions that no return had been filed and had reopened the assessment based merely on suspicion and had reopened the assessment based merely o and had reopened the assessment based merely o arising from information received from the Investigation Wing. The arising from information received from the Investigation Wing. arising from information received from the Investigation Wing. relevant finding in the case of Ashok Jasraj Jain HUF (supra) is relevant finding in the case of Ashok Jasraj Jain HUF relevant finding in the case of Ashok Jasraj Jain HUF reproduced as under: reproduced as under:
“8. We have heard rival submission of the parties on the issue in dispute and We have heard rival submission of the parties on the issue in dispute and We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee has assailed the elevant material on record. The assessee has assailed the elevant material on record. The assessee has assailed the validity of reassessment proceeding in view of defects in reasons recorded. validity of reassessment proceeding in view of defects in reasons recorded. validity of reassessment proceeding in view of defects in reasons recorded. Therefore, it is relevant to reproduce the reasons recorded by the Therefore, it is relevant to reproduce the reasons recorded by the Therefore, it is relevant to reproduce the reasons recorded by the Assessing Officer, which are available on page 10 and 1 Assessing Officer, which are available on page 10 and 11 of the paperbook 1 of the paperbook -2, as under:
1.
An information was received in this case from the Directorate Income An information was received in this case from the Directorate Income-tax An information was received in this case from the Directorate Income (Investigation), Kolkata, stating that the investigation comes out by the (Investigation), Kolkata, stating that the investigation comes out by the (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to department had proved that a scheme was hatched by various players to department had proved that a scheme was hatched by various players to obtain/provide obtain/provide obtain/provide accommodation accommodation accommodation entry entry entry of of of bogus bogus bogus LTCG LTCG LTCG through through through manipulation of stock market. Various syndicates had arranged manipulation of stock market. Various syndicates had arranged manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term accommodation entry of bogus long term capital gain, bogus short term accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss through capital gain and bogus short term capital loss/bogus business loss capital gain and bogus short term capital loss/bogus business loss trading of shares of various penny stock companies. trading of shares of various penny stock companies.
2. The investigation conducted by the Kolkata Investigation Directorate The investigation conducted by the Kolkata Investigation Directorate The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a revealed that the trading in shares of penny stock companies was a revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert manipulated affair to generate entries of bogus LTCG to conv manipulated affair to generate entries of bogus LTCG to conv undisclosed income into tax free income as LTCG earned against sale of undisclosed income into tax free income as LTCG earned against sale of undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate shares is an exempt income. Further, the Kolkata Investigation Directorate shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were informed that all such brokers through whom such transaction were informed that all such brokers through whom such transaction were carried out, admitted that they charged carried out, admitted that they charged commission on the amount commission on the amount involved in these transactions. It was also informed that the assessee has involved in these transactions. It was also informed that the assessee has involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG traded in the shares of penny stock companies to generate bogus LTCG traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed income into tax free income income and thereby converted undisclosed income into tax free income income and thereby converted undisclosed income into tax free income without paying tax without paying taxes. Information was received that the SEBI has es. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent suspended trading in shares of several penny stock companies consequent suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata had carried search to its investigation. The Investigation Wing Kolkata had carried search to its investigation. The Investigation Wing Kolkata had carried search action u/s 132 and survey action u/s 133A of the I.T. Act on various action u/s 132 and survey action u/s 133A of the I.T. Act on vari action u/s 132 and survey action u/s 133A of the I.T. Act on vari operators who were indulging in trading in shares of penny stock operators who were indulging in trading in shares of penny stock operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator companies. It was found during the search and survey that the operator companies. It was found during the search and survey that the operator were artificially rigging the prices of several such companies for the were artificially rigging the prices of several such companies for the were artificially rigging the prices of several such companies for the purpose of giving accommodation entries in th purpose of giving accommodation entries in the form of long term capital e form of long term capital gains against equivalent amount of cash after deducting their commission. gains against equivalent amount of cash after deducting their commission. gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra The list of such companies included the penny stock company M/s Matra The list of such companies included the penny stock company M/s Matra Kaushal Enterprises Ltd. (MKEL). Kaushal Enterprises Ltd. (MKEL).
3. As per the information available on record, the ass As per the information available on record, the assessee sold shares the essee sold shares the penny stock company M/s MKEL penny stock company M/s MKEL ₹1,67,70,454/-. The assesesse has not . The assesesse has not disclosed the receipt and has not filed the return of income. disclosed the receipt and has not filed the return of income.
The company M/s MKEL had losses for the year ending 2011, 2012 and The company M/s MKEL had losses for the year ending 2011, 2012 and The company M/s MKEL had losses for the year ending 2011, 2012 and 2013. Thus its performance did not co 2013. Thus its performance did not command any substantial increase in mmand any substantial increase in prices short period. In view of all the above facts, the amount received by prices short period. In view of all the above facts, the amount received by prices short period. In view of all the above facts, the amount received by the assessee is unexplained. the assessee is unexplained.
5. On the basis of the aforesaid information available with me and after duly On the basis of the aforesaid information available with me and after duly On the basis of the aforesaid information available with me and after duly applying my mind, I have reasons to belie applying my mind, I have reasons to believe that income chargeable to tax ve that income chargeable to tax of ₹1,67,70,454/- - has escaped assessment for AY 2014-15 within the 15 within the meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is reopened u/s 147 of the I.T. Act, 1961 for AY 2014 reopened u/s 147 of the I.T. Act, 1961 for AY 2014-15. 8.1 Firstly, the assessee has challenged the validity of the reassessment Firstly, the assessee has challenged the validity of the reassessment Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the mind by the Assessing proceeding on the ground of nonapplication of the mind by the Assessing proceeding on the ground of nonapplication of the mind by the Assessing Officer while recording reasons to believe that income escaped assessment. Officer while recording reasons to believe that income escaped assessment. Officer while recording reasons to believe that income escaped assessment. We find that the Assessing Officer in P We find that the Assessing Officer in Para 3 of the reasons recorded has ara 3 of the reasons recorded has noted that the assessee has not disclosed the receipt of noted that the assessee has not disclosed the receipt of ₹1,67,70,454/ 1,67,70,454/- and has not filed the return of income, whereas before us the assessee has filed has not filed the return of income, whereas before us the assessee has filed has not filed the return of income, whereas before us the assessee has filed a copy of return of income filed under provision of section 139 of the Act. a copy of return of income filed under provision of section 139 of th a copy of return of income filed under provision of section 139 of th The Assessing Officer in the assessment order has also recorded the fact of The Assessing Officer in the assessment order has also recorded the fact of The Assessing Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the filing of regular return of income by the assessee on 23/03/2016. In the filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the said return of income, the assessee has declared the receipt on sale of the said return of income, the assessee has declared the receipt on sale of the shares amounting to shares amounting to ₹1,67,45,253/- under the head long- -term capital gain and claimed the same as exempt. Therefore, the Assessing Officer has gain and claimed the same as exempt. Therefore, the Assessing Officer has gain and claimed the same as exempt. Therefore, the Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of recorded reasons to believe based on incorrect facts merely on the basis of recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from the record the information received and without verifying the same from t the information received and without verifying the same from t available with him. available with him. It makes clear that there is a total non-application of application of mind on the part of the AO while recording the reasons for reopening of mind on the part of the AO while recording the reasons for reopening of mind on the part of the AO while recording the reasons for reopening of the assessment. In the case of In the case of CIT v. G & G Pharma (2015) 384 ITR 147 CIT v. G & G Pharma (2015) 384 ITR 147 (Del), the Hon’ble Delhi Hig , the Hon’ble Delhi High Court held that the AO should apply his mind h Court held that the AO should apply his mind
in order to form reasons to believe that income has escaped assessment, is in order to form reasons to believe that income has escaped assessment, is in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 of the Act. one of the basic requirement of section 147 of the Act. 8.2 Secondly, we find that the Assessing Officer has referred to suspension Secondly, we find that the Assessing Officer has referred to suspension Secondly, we find that the Assessing Officer has referred to suspension of trading in some shares by the Security and Exchange Board of India f trading in some shares by the Security and Exchange Board of India f trading in some shares by the Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the (SEBI), but nowhere pointed out whether any trading in the shares of the (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in the shares other than MKEL was ever suspended. Suspension of trading in the shares other than MKEL was ever suspended. Suspension of trading in the shares other than MKEL is not relevant for making belief tha MKEL is not relevant for making belief that income escaped assessment in t income escaped assessment in the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the stage of issue of notice, the question is whether there was relevant stage of issue of notice, the question is whether there was relevant stage of issue of notice, the question is whether there was relevant material on which a reasonable person could have formed a requisite on which a reasonable person could have formed a requisite on which a reasonable person could have formed a requisite belief that income escaped assessment. But, in the present case the belief that income escaped assessment. But, in the present case the belief that income escaped assessment. But, in the present case the information referred that SEBI suspended trading in some penny stock information referred that SEBI suspended trading in some penny stock information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arisin shares is not relevant for forming belief that income arising from sale of g from sale of shares of MKEL has escaped assessment. shares of MKEL has escaped assessment. 8.3 Thirdly, the Assessing Officer in assessment order has recorded that Thirdly, the Assessing Officer in assessment order has recorded that Thirdly, the Assessing Officer in assessment order has recorded that case was reopened in view of the suspicion that income escaped case was reopened in view of the suspicion that income escaped case was reopened in view of the suspicion that income escaped assessment and therefore wanted detailed investigation. The relevant assessment and therefore wanted detailed investigation. The relev assessment and therefore wanted detailed investigation. The relev finding of the Assessing Officer is reproduced as under: finding of the Assessing Officer is reproduced as under: “5. Suspicion of Revenue Suspicion of Revenue 5.1 The assessee earned long term capital gain in the current year and 5.1 The assessee earned long term capital gain in the current year and 5.1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long claimed it as exempt u/s 10(38) of the act. This quantum of huge long claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found s term capital gainwas found suspicious and detailed investigation of this uspicious and detailed investigation of this issue was undertaken. Various tools available were examined including issue was undertaken. Various tools available were examined including issue was undertaken. Various tools available were examined including ITD data, BSE data, money control website, taxman, court rulings, internet ITD data, BSE data, money control website, taxman, court rulings, internet ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI.” as well as investigation wing report and findings of the SEBI.” as well as investigation wing report and findings of the SEBI.” 8.4 It is evident that the Assessing Officer is referring to the reasons It is evident that the Assessing Officer is referring to the reasons It is evident that the Assessing Officer is referring to the reasons recorded where he found the long recorded where he found the long-term capital gain as suspicious and term capital gain as suspicious and thereafter he is referring to the detailed investigation undertaken by him, thereafter he is referring to the detailed investigation undertaken by him, thereafter he is referring to the detailed investigation undertaken by him, where he has referred to various tools i where he has referred to various tools including Income-tax Department tax Department data, BSE data, money control website, taxman, court rulings Internet as data, BSE data, money control website, taxman, court rulings Internet as data, BSE data, money control website, taxman, court rulings Internet as well as investigation wing report and finding of the SEBI. Thus, the well as investigation wing report and finding of the SEBI. Thus, the well as investigation wing report and finding of the SEBI. Thus, the contention of the Ld. DR that Assessing Officer has referred to the contention of the Ld. DR that Assessing Officer has referred to the contention of the Ld. DR that Assessing Officer has referred to the suspicion before carrying out investigation by the Investigation Wing, is e carrying out investigation by the Investigation Wing, is e carrying out investigation by the Investigation Wing, is not borne out of above factual position and therefore same is rejected. not borne out of above factual position and therefore same is rejected. not borne out of above factual position and therefore same is rejected. 8.5 The Ld. Counsel relied on the decision of the Hon’ble Bombay High The Ld. Counsel relied on the decision of the Hon’ble Bombay High The Ld. Counsel relied on the decision of the Hon’ble Bombay High Court in the case of Coronation Agro industries Ltd (s Court in the case of Coronation Agro industries Ltd (supra), wherein upra), wherein Hon’ble High Court has held that reassessment proceeding based on Hon’ble High Court has held that reassessment proceeding based on Hon’ble High Court has held that reassessment proceeding based on reason to suspect cannot be valid. The relevant finding of the Hon’ble High reason to suspect cannot be valid. The relevant finding of the Hon’ble High reason to suspect cannot be valid. The relevant finding of the Hon’ble High Court is reproduced as under: Court is reproduced as under: “4. We note that the reasons in support of the impugned notice accept the “4. We note that the reasons in support of the impugned notice accept “4. We note that the reasons in support of the impugned notice accept fact that as a matter of regular business practice, a broker in the stock fact that as a matter of regular business practice, a broker in the stock fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase exchange makes modifications in the client code on sale and/ or purchase exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which of any securities, after the trading is over so as to rectify any error which of any securities, after the trading is over so as to rectify any error which may have occurred while pu may have occurred while punching the orders. The reasons do not indicate nching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the the basis for the Assessing Officer to come to reasons do not indicate the the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has basis for the Assessing Officer to come to reasonable belief that there has basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done been any escapement of income on the ground that the modif been any escapement of income on the ground that the modif in the client code was not on account of a genuine error, originally in the client code was not on account of a genuine error, originally in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is occurred while punching the trade. The material available is that there is occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no a client code modification done by the Assessee's broker but there is no a client code modification done by the Assessee's broker but there is no link from there to conclu link from there to conclude that it was done to escape assessment of a part de that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect of its income. Prima facie, this appears to be a case of reason to suspect of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped and not reason to believe that income chargeable to tax has escaped and not reason to believe that income chargeable to tax has escaped assessment.
In the above view, prima facie, we are of the v 5. In the above view, prima facie, we are of the view that the impugned iew that the impugned notice is without jurisdiction as it lacks reason to believe that income notice is without jurisdiction as it lacks reason to believe that income notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment." chargeable to tax has escaped assessment." 8.6 Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the case of Dove Consultants Pvt. Ltd. Vs DCITITA case of Dove Consultants Pvt. Ltd. Vs DCITITA No. 1197/Del/2019 for No. 1197/Del/2019 for Assessment Year 2009 Assessment Year 2009-10 held that reopening has to be based on the 10 held that reopening has to be based on the reliable material and not on the basis of reason to suspect, accordingly, reliable material and not on the basis of reason to suspect, accordingly, reliable material and not on the basis of reason to suspect, accordingly, the Tribunal quashed the reassessment proceeding. the Tribunal quashed the reassessment proceeding. 8.7 Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003-04 held Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003 Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003 that reassessment proceeding cannot be initiated b that reassessment proceeding cannot be initiated based on suspicious ased on suspicious transactions in the bank account of Mahasagar Securities Ltd. transactions in the bank account of Mahasagar Securities Ltd. transactions in the bank account of Mahasagar Securities Ltd. 8.8 In the instant case also according to the Assessing Officer he found the In the instant case also according to the Assessing Officer he found the In the instant case also according to the Assessing Officer he found the long term capital gain declared by the assessee as suspicious transactions long term capital gain declared by the assessee as suspicious transactions long term capital gain declared by the assessee as suspicious transactions and not as reliable in and not as reliable information and for ascertaining, he needed the formation and for ascertaining, he needed the investigation. In our opinion, in view of the decision of the Hon’ble Bombay investigation. In our opinion, in view of the decision of the Hon’ble Bombay investigation. In our opinion, in view of the decision of the Hon’ble Bombay High Court in the case of Shodiman Investments P. Ltd. (supra) cited High Court in the case of Shodiman Investments P. Ltd. (supra) cited High Court in the case of Shodiman Investments P. Ltd. (supra) cited above, the Assessing Officer is not permitted to reopen assessment based above, the Assessing Officer is not permitted to reopen assessme above, the Assessing Officer is not permitted to reopen assessme on the reason to suspicion. on the reason to suspicion.
8.9 In view of above discussion, the reassessment proceedings completed in In view of above discussion, the reassessment proceedings completed in In view of above discussion, the reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are the case of the assessee are held to be invalid and accordingly same are the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the assessee is allowed.” quashed. The additional ground raised by the assessee is allowed. quashed. The additional ground raised by the assessee is allowed.
5. We have carefully considered the rival submissions, perused We have carefully considered the rival submissions, perused We have carefully considered the rival submissions, perused the material placed on record, and duly examined the findings of the material placed on record, and duly examined the findings of the material placed on record, and duly examined the findings of the authorities below in the light of the settled legal position. The the authorities below in the light of the settled legal position. The the authorities below in the light of the settled legal position. The additional ground raised by the assessee challenges the very additional ground raised by the assessee challenges the very additional ground raised by the assessee challenges the very foundation foundation foundation and and and jurisdictional jurisdictional jurisdictional validity validity validity of of of the the the reassessment reassessment reassessment proceedings initiated under section 147 of the Act. proceedings initiated under section 147 of the Act.
5.1 Upon a meticulous examination of the reasons recorded by the Upon a meticulous examination of the reasons recorded by the Upon a meticulous examination of the reasons recorded by the Assessing Officer for reopening the assessment, we find that they Assessing Officer for reopening the assessment, we find that they Assessing Officer for reopening the assessment, we find that they are couched in terms virtually identical to those considered by the terms virtually identical to those considered by the terms virtually identical to those considered by the Coordinate Bench of this Tribunal in the case of Coordinate Bench of this Tribunal in the case of Ashok Jasraj Jain Ashok Jasraj Jain (HUF) v. ITO (ITA No. 5609/Mum/2019, A.Y. 2014 (ITA No. 5609/Mum/2019, A.Y. 2014–15). In both (ITA No. 5609/Mum/2019, A.Y. 2014 instances, the Assessing Officer proceeded on the erroneous instances, the Assessing Officer proceeded on the erroneous instances, the Assessing Officer proceeded on the erroneous premise that the assessee had not filed a return of income for the e assessee had not filed a return of income for the e assessee had not filed a return of income for the relevant assessment year, whereas the record unmistakably relevant assessment year, whereas the record unmistakably relevant assessment year, whereas the record unmistakably evidences that the return had indeed been filed in the regular evidences that the return had indeed been filed in the regular evidences that the return had indeed been filed in the regular course under section 139 of the Act. This fundamental factual error course under section 139 of the Act. This fundamental factual error course under section 139 of the Act. This fundamental factual error strikes at the very root of the "reasons to believe" recorded by the very root of the "reasons to believe" recorded by the very root of the "reasons to believe" recorded by the Assessing Officer and is indicative of a complete non-application of Assessing Officer and is indicative of a complete non Assessing Officer and is indicative of a complete non mind.
5.2 Further, in both instances, the Assessing Officer proceeded on Further, in both instances, the Assessing Officer proceeded on Further, in both instances, the Assessing Officer proceeded on mere suspicion regarding the genuineness of long-term capital mere suspicion regarding the genuineness of long mere suspicion regarding the genuineness of long gains and sought to reopen the assessment to undertake a “detailed gains and sought to reopen the assessment to undertake a “detailed gains and sought to reopen the assessment to undertake a “detailed investigation,” which is impermissible under law. investigation,” which is impermissible under law.
5.3 In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of the assessment order, the Assessing Officer mentioned that the assessment order, the Assessing Officer mentioned that the assessment order, the Assessing Officer mentioned that quantum of long term capital gain was found to be suspicious and g term capital gain was found to be suspicious and g term capital gain was found to be suspicious and detailed investigation was intended to be undertaken by way of detailed investigation was intended to be undertaken by way of detailed investigation was intended to be undertaken by way of reopening of the assessment. reopening of the assessment.
5.4 Further, the reasons recorded, read in their entirety, reveal Further, the reasons recorded, read in their entirety, reveal Further, the reasons recorded, read in their entirety, reveal that the reopening was founded merely on generalized information that the reopening was founded merely on generalized information that the reopening was founded merely on generalized information received from the Investigation Wing, alleging accommodation received from the Investigation Wing, alleging accommodation received from the Investigation Wing, alleging accommodation entries in penny stock transactions. The Assessing Officer, instead entries in penny stock transactions. The Assessing Officer, instead entries in penny stock transactions. The Assessing Officer, instead of forming an independent belief based on tangible material linking of forming an independent belief based on tangible material linking of forming an independent belief based on tangible material linking the assessee with such alleged transactions, merely reproduced the the assessee with such alleged transactions, merely reproduced the the assessee with such alleged transactions, merely reproduced the contents of the information and expressed contents of the information and expressed suspicion suspicion regarding the genuineness of the long genuineness of the long-term capital gains, proposing t term capital gains, proposing to undertake a “detailed investigation.” It is trite law that the power to reopen an a “detailed investigation.” It is trite law that the power to reopen an a “detailed investigation.” It is trite law that the power to reopen an assessment cannot be exercised on the basis of a assessment cannot be exercised on the basis of a reason to suspect reason to suspect or for the purpose of making roving or fishing inquiries. or for the purpose of making roving or fishing inquiries. or for the purpose of making roving or fishing inquiries.
5.5 The Hon’ble Bombay High Court in The Hon’ble Bombay High Court in Precision Holdings Ltd. v. Holdings Ltd. v. DCIT (2019) 412 ITR 43 (Bom) has categorically held that where the (2019) 412 ITR 43 (Bom) has categorically held that where the (2019) 412 ITR 43 (Bom) has categorically held that where the Assessing Officer seeks to reopen an assessment merely to verify Assessing Officer seeks to reopen an assessment merely to verify Assessing Officer seeks to reopen an assessment merely to verify facts or conduct further inquiries, such reopening is without facts or conduct further inquiries, such reopening is without facts or conduct further inquiries, such reopening is without jurisdiction. Similarly, in jurisdiction. Similarly, in Coronation Agro Industries Ltd. v. DCIT ndustries Ltd. v. DCIT (2017) 390 ITR 464 (Bom) and (2017) 390 ITR 464 (Bom) and PCIT v. Shodiman Investments (P) Ltd. PCIT v. Shodiman Investments (P) Ltd. (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has been held that reassessment proceedings initiated on the basis of been held that reassessment proceedings initiated on the basis of been held that reassessment proceedings initiated on the basis of reason to suspect rather than rather than reason to believe are invalid in law. are invalid in law.
5.6 The Coordinate Bench in The Coordinate Bench in Ashok Jasraj Jain (HUF) Ashok Jasraj Jain (HUF) (supra), on identical facts, quashed the reassessment proceedings holding that identical facts, quashed the reassessment proceedings holding that identical facts, quashed the reassessment proceedings holding that the assumption of jurisdiction under section 147, based on the assumption of jurisdiction under section 147, based on the assumption of jurisdiction under section 147, based on incorrect factual premises and w incorrect factual premises and without independent application of ithout independent application of mind, renders the proceedings void mind, renders the proceedings void ab initio. The principle laid . The principle laid down therein squarely applies to the facts of the present case. down therein squarely applies to the facts of the present case. down therein squarely applies to the facts of the present case.
5.7 Applying the ratio of the aforesaid judicial precedents, and Applying the ratio of the aforesaid judicial precedents, and Applying the ratio of the aforesaid judicial precedents, and having regard to the indisti having regard to the indistinguishable factual matrix obtaining nguishable factual matrix obtaining herein, we are of the considered opinion that the reasons recorded herein, we are of the considered opinion that the reasons recorded herein, we are of the considered opinion that the reasons recorded by the Assessing Officer suffer from the same incurable defect of by the Assessing Officer suffer from the same incurable defect of by the Assessing Officer suffer from the same incurable defect of non-application of mind and absence of any live nexus between the application of mind and absence of any live nexus between the application of mind and absence of any live nexus between the material relied upon material relied upon and the alleged escapement of income. The and the alleged escapement of income. The reopening of assessment, being based on mere suspicion and reopening of assessment, being based on mere suspicion and reopening of assessment, being based on mere suspicion and factual inaccuracies, is thus devoid of jurisdictional foundation. factual inaccuracies, is thus devoid of jurisdictional foundation. factual inaccuracies, is thus devoid of jurisdictional foundation.
5.8 Accordingly, following the binding precedents of the Hon’ble Accordingly, following the binding precedents of the Hon’ble Accordingly, following the binding precedents of the Hon’ble jurisdictional High Cou jurisdictional High Court and the Coordinate Bench decision in rt and the Coordinate Bench decision in Ashok Jasraj Jain (HUF) Ashok Jasraj Jain (HUF) (supra), we hold that the reassessment (supra), we hold that the reassessment proceedings initiated under section 147 of the Act are invalid and proceedings initiated under section 147 of the Act are invalid and proceedings initiated under section 147 of the Act are invalid and without jurisdiction. The same are hereby quashed. without jurisdiction. The same are hereby quashed.
5.9 The additional ground raised by The additional ground raised by the assessee is accordingly the assessee is accordingly allowed.
Since we have already quashed the reassessment proceedings Since we have already quashed the reassessment proceedings Since we have already quashed the reassessment proceedings arguments raised by the parties on the merit of the addition are arguments raised by the parties on the merit of the addition arguments raised by the parties on the merit of the addition rendered academic and therefore, we are not adjudicating the same. rendered academic and therefore, we are not adjudicating the same. rendered academic and therefore, we are not adjudicating the same.
In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed.