KISHORE KRISHN PATKI,MUMBAI vs. DCIT, CIRCLE 2(1)(1), MUMBAI

PER SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, Order No. ITBA/NFAC/S/250/2025-26/1078618517(1) dated 17.07.2025 passed against reassessment order u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short ‘the Act’), dated 28.11.2019 for Assessment Year 2012-13.

3.1. The premise for present reopening is based on reliance placed on the information received by the Ld. A.O. from DDIT (INV), Unit - 1(3) Ahmedabad and ACIT Circle-2 (1)(1), Surat. The moot points contested by the assessee are two folds, one relating to impugned reassessment proceeding initiated on the basis that a protective assessment needs to be made in the hands of the assessee. Second, the reasons to believe recorded for the impugned reopening are not valid as they are recorded based on incorrect fact.

3.2. For the above, it is important to refer to the reasons to believe recorded by the Ld. A.O. for which the relevant extract is reproduced in the impugned reassessment order in para 2. The same is extracted below for our ready reference;

"For the year under consideration information has been received from Deputy Director of Income tax (Inv)-Unit-1(3), Ahmedabad that a search u/s.132 was launched on 11.09.2018 in the case of Jignesh Shah, an accommodation entry provider of Ahmedabad. The search resulted into seizure of unaccounted cash of Rs.19.3 crores (related to accommodation entries and commission earned thereon) from residential premises of Jignesh Shah along with incriminating digital as well as documentary evidences. It was found during investigation that Jignesh S. Shah is managing and controlling multiple companies and concerns, which are not carrying out any genuine business activity. These concerns are involved into activity of providing accommodation entries of various kinds such as unsecured loans, share premium, bogus gains, contrived losses etc. The concerns were found to be non-existent at their address. The directors of companies/persons in whose names concerns are registered, admitted by way of filing affidavits that the companies/concerns are not carrying out genuine business activities and engaged into providing accommodation entries through Jignesh S. Shah. Jignesh Shah admitted the evidences and also admitted on running multiple concerns for providing accommodation entries when confronted. Furthermore, concerns run in the name of Harshad M. Patel such as Amar Textile was also found to be used for providing accommodation entries. Further on verification of the data received from the Investigation Wing, in the details of beneficiaries of this accommodation entry network, it is seen that Shri Kishore K. Patki is one such beneficiary who has taken accommodation entry to the tune of Rs. 17,50,000/- from Amar Textile during the F.Y.2011-12, the details of which are as under:

On verification of case records, it is seen that no such information of the above transaction was available with the AO during assessment proceedings and thus the above information was not verified by the A.O. as the same was not made available by the assessee either in its return of income or during the course of assessment proceedings. Thus on the basis of information received from the DDIT(Inv)-Unit-1(3), Ahmadabad and on verification of case records it is seen that the transaction of Rs.17,50,000/- is not accounted for in the books of accounts and hence the same needs to be added to the total income of the assessee u/s.69 of the Act as unexplained investment. Subsequently intimation for initiation of protective assessment in the case of Shri Kishore Krishn Patki for A.Y.2012-13 was received from the ACIT, Circle- 2(1)(1), Surat vide letter No.SRT/ACIT/Cir-2(1)(1)/RKIPL/Protect asstt./2015- 16 dtd. 15.04.2015 wherein it is stated that during course of assessment in the case of R.K. Infratel Ltd. for A.Y.2012-13, it was seen that the company has issued 21,20,000 shares on which it has received share capital and share premium from 9 individual and HUF. Out of the total shares issued, Shri Kishore Krishn Patki has invested in 2,00,000 nos. of share at the face value of Rs. 10/- and premium of Rs.40/- per share in the following manner:- Sr.No. Name and PAN No. Of Share Share address PAN of Shares Capital in Premium the share holder (Rs.) in (Rs.) 1 Kishore Krishn ADCPP5754B 100000 10,00,000 40,00,000 Patki 100000 10,00,000 40,00,000 Total amount invested in share capital and share premium During the course of assessment proceedings of M/s. R.K. Infratel Ltd., no details except a copy of ROI and part bank statement has been provided of Mr. Kishore Kumar Patki, and the investors were not produced for verification. Thus, Mr. Kishore Kumar Patki has been used as a layer to infuse unaccounted money in the R.K. Infratel Ltd. In the absence of substantial details of the investor, the genuineness of transaction and the capacity and creditworthiness of the investors to invest remain unexplained. Hence funds claimed to be received towards share capital and premium thereupon are just ploy to plough unaccounted money through these individuals and HUF. Since addition has been made on substantive basis in the case of R.K. Infratel Ltd. as it is the final beneficiary, the source and nature of these payments remains unverified in the case of Mr. Kishore Kumar Patki. Hence, the amount so received in the form of unsecured loan in the case of Mr. Kishore Kumar Patki has to be added on protective basis. The said information as mentioned above was earlier not available with the Assessing Officer and taking into consideration this new information and the data in the Return of Income, the data from the assessment records, it is clear that the assessee had not disclosed the full and true particulars of his income for the assessment year under consideration. Therefore, on the basis of above information and having duly applied my mind to it, I am of the considered view that prima facie Rs.1,00,00,000/- has escaped assessment for A.Y. 2012-13 due to reasons attributable to the assessee for failure to disclose fully and truly all material facts necessary for his assessment for that year." 3.3. From the above reasons to believe as recorded by the learned AO, it is noted that a search action under section 132 had taken place on 11.09.2018 in the case of one Shri Jignesh Shah, who is alleged to be an accommodation entry provider at Ahmedabad. Ld. AO noted that Shri Jignesh Shah had admitted the evidences and also made an admission on running multiple concerns for providing accommodation entries. He further records about concerns run in the name of Harshad M. Patel including one Amar Textiles from where it is alleged that the assessee is a beneficiary of accommodation entry. Ld. AO records that assessee is one such beneficiary who has taken accommodation entry of Rs. 17,50,000/- from one such concern, that is, Amar Textiles, during the year. He further goes on to record upon verification of the case records that transaction of Rs. 17,50,000/- is not accounted for in the books of accounts and therefore, needs to be added to the total income of the assessee under section 69 as unexplained investment. Thus, from the reasons to believe so recorded on this issue, learned AO notes that assessee has made an investment in the concern Amar Textiles of Rs. 17,50,000/- which he proposed to make addition under section 69 alleging it as escapement of income from assessment, treating it as unexplained investment.

3.4. In the course of impugned reassessment proceedings, upon confrontation of these details to the assessee, explanations were furnished along with details and documentary evidence whereby it was demonstrated by the assessee that it is not a case of assessee making investment in the concern Amar Textiles, but a case of receipt of money by the assessee from the said concern. Upon receipt of these explanations, learned AO, while concluding the impugned reassessment, changed the allegation as recorded in the reasons to believe to receipt of money by the assessee and made the addition under section 68 by treating it as unexplained cash credit. It is strongly contested before us that learned AO has proceeded on an absolutely incorrect basis while initiating the reassessment and completed the same by taking a different stance, which demonstrates non-application of mind.

4.1. In this regard, it is also noted that there is no live link established and evidently demonstrated to exist between the information and formation of belief, since in the reasons to believe, it is stated that a search action was initiated against one Shri Jignesh Shah; however, the allegation by the learned AO is with regard to a transaction with one concern Amar Textiles run by Shri Harshad M. Patel. Thus, in this regard, there is no connection or nexus established between Shri Jignesh Shah and Shri Harshad M. Patel to allege that assessee has made investment by way of an accommodation entry with Amar Textiles, which later on has been treated as unexplained cash credit under section 68.

4.2. The second aspect strongly contested is with regard to initiation of impugned reassessment proceeding for making a protective assessment in the hands of the assessee. In this regard, from the perusal of the reasons to believe as extracted above, it is noted that learned AO had received intimation for initiation of protective assessment vide letter dated 15.04.2015 from ACIT, Circle-2(1)(1), Surat. It is important to note the chronology, since notice under section 148 in the present case is dated 31.03.2019 and one reassessment order had already been passed under section 147 dated 30.11.2018, by accepting the returned income of the assessee at Rs. 9,25,400/-. This clearly demonstrates that what was intimated vide letter dated 15.04.2015 by the ACIT, Circle-2(1)(1), Surat was already available with the learned AO at the time of completing the first reassessment vide order dated 30.11.2018.

4.3. The reason given by the ld. Assessing Officer for initiation of protective assessment in the case of the assessee is in regard to assessee making investment in share capital of one company R.K. Infratel Limited of 2,00,000 shares having face value of Rs. 10/- and premium of Rs. 40/- per share, resulting into total amount of investment in share capital and share premium of Rs. 1,00,00,000/-. Ld. AO records in the reasons to believe in respect of this transaction that since addition has been made on substantive basis in the case of R.K. Infratel Limited and that the source and nature of these payments remain unverified in the case of the assessee, the amount so received in the form of unsecured loan in the case of assessee has to be added on protective basis.

4.4. At the outset, it is strongly submitted before us by the learned Counsel of the assessee that initiation of reopening proceedings for making a protective assessment is contrary to the provisions of the Act. It is judicially well settled that proceedings under section 147 cannot be invoked for the purpose of making protective addition and therefore, the entire reassessment completed by the learned AO is bad in law and liable to be quashed ab initio.

7.1. We note that reopening of an assessment under section 148 cannot be justified on the basis adopted by the learned AO. There has to be a reason to believe that income has escaped assessment. For the purpose of having a recourse to section 148, learned AO is required to fulfill the jurisdictional requirement of having reason to believe that income has escaped assessment. The phrase "has escaped assessment" indicates an event which has already taken place. It in no way indicates to substitute and read it as "may escape assessment". The basis of reopening in the present case demonstrates a hypothesis whereby a substantive addition has been made in the hands of R.K. Infratel Limited and in case the addition so made on substantive basis does not survive at a later stage in appellate proceedings, then protective addition sought to be made by way of reopening the assessment by exercising powers conferred under section 148 postulates that reopening is based on a contingency.

7.2. In the given set of facts and circumstances as discussed above, we note that for the Assessing Officer to have a recourse to section 148, he must have reasons to believe that income chargeable to tax has escaped assessment. Learned AO is required to disclose the reasons to believe arrived at by him to the assessee in respect of the income which according to him has escaped assessment. The reasons recorded by him are in the present, when he is required to apply his mind to arrive at a reason to believe that income has escaped assessment. It cannot be on a hypothesis of what would be the position in future, contingent upon certain development of future actions.

7.3. In the present case before us, learned AO has not formed a reason to believe that income has escaped assessment as it is contingent upon the outcome of substantive addition made in the hands of R.K. Infratel Limited. Act does not contemplate reopening of an assessment under section 148 on such a hypothesis or a contingency which may emerge in the future. It is important to note in the present context that a protective assessment is an assessment which is made “ex abundanti cautela” where the department has a “doubt” as to the person who is or will be deemed to be in receipt of the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether, particularly in cases where revenue has to be protected against the bar of limitation. But such an exercise is permissible in case of a regular assessment. To resort to such a practice, revenue has to necessarily yield to the rigors of statutory provision contained in section 148 r.w.s. 147, where the reason to believe to be arrived at by the learned AO is with regard to income which has escaped assessment. Thus, on the elaborate consideration of the factual matrix and the position of law, we find that the reopening proceeding undertaken by the learned AO on this count also fails to meet the requirement of the law.

7.4. In this regard, we find force from the decision of Hon'ble Supreme Court in the case of Lalji Haridas vs. ITO [1961] 43 ITR 387 (SC), wherein Hon'ble Court observed as under:

"In case where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie, it appears that the income may have been received either by 'A' or 'B' or by both together. It would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both the assessee.

But, in the instant case, the revenue held that such undisclosed income belonged to Shri GP. Goyal and assessment was made in the hands of Shri G.P. Goyal on substantive basis. The case of the assessee-company was not reopened during the pendency of proceedings in the case of Shri Goyal. Had the revenue made protective assessment in the case of Shri G.P. Goyal, then it could have taken action against the assessee-company. Thus the basic requirement for reopening the assessment is that the Assessing Officer should have reason to believe that income has escaped assessment, is not satisfied in this case. Hence, we are satisfied that the learned CIT(A) was justified in holding that assessment cannot be reopened for making protective addition" 7.5. Furthermore, force of binding nature is also drawn from the decision of Hon'ble jurisdictional High Court of Bombay in the case of DHFL Venture Capital Fund vs. ITO [2013] 358 ITR 471 (Bom). In this decision, Hon'ble Court dealt with similar issue to hold that recourse to section 148 cannot be founded in law on a hypothesis as to what would be position in future, if appeal before appellate authority, being Tribunal or High Court, results in a particular outcome. Relevant para from this judgment is extracted below for ready reference:

A protective assessment as the learned author indicates (Vol. 1 page 272) is regarded as being protective because it is an assessment which is made ex abundanti cautela where the department has a "doubt as to the person who is or will be deemed to be in receipt of the income". A departmental practice, which has gained judicial recognition, has emerged where it appears to the Assessing Officer that income has been received during the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed. However, such an exercise which is permissible in the case of a regular assessment must necessarily yield to the discipline of the statute where recourse is sought to be taken to the provisions of Section 148. Protective assessments have emerged as a matter of departmental practice which has found judicial recognition. Any practice has to necessarily yield to the rigour of a statutory provision. Hence, when recourse is sought to be taken to the provisions of Section 148, there has necessarily to be the fulfillment of the jurisdictional requirement that the Assessing Officer must have reason to believe that income has escaped assessment. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the Assessing Officer is of the opinion that a contingency may arise in future resulting an escapement of income. That would, in our view, be wholly impermissible and would amount to a rewriting of the statutory provision. Moreover, the reliance which is sought to be placed on the provisions of Explanation 2(a) to Section 147 is misconceived. Explanation 2 provides a deeming definition of cases where income chargeable to tax has escaped assessment and clause (a) includes a case where no return of income has been furnished by the assessee although his income or the income of any other person in respect of which he is assessable exceeds the maximum amount which is not chargeable to tax. As the reasons which have been disclosed to the assessee would indicate, this is not a case where an assessee has not filed a return of income simplicitor. The whole basis of the reopening is on the hypothesis that if the provisions of Sections 61 to 63 are attracted as has been claimed by the assessee, and the income of Rs.32.83 Crores which has been claimed by the assessee to be exempt is treated as exempt, in that event an alternate basis for taxing the income in the hands of the AOP of the contributories is sought to be set up. For the reasons already indicated, the entire exercise is only contingent on a future event and a consequence that may enure upon the decision of the Tribunal, that again if the Tribunal were to hold against the Revenue. A reopening of an assessment under Section 148 cannot be justified on such a basis. There has to be a reason to believe that income has escaped assessment. 'Has escaped assessment' indicates an event which has taken place. Tax legislation cannot be rewritten by the Revenue or the Court by substituting the words 'may escape assessment' in future. Writing legislation is a constitutional function entrusted to the legislature. 8. Keeping the above elaborate discussion on the two fold contentions made by the learned counsel in juxtaposition, we hold that the impugned reassessment proceedings initiated by the learned AO are bad in law and therefore, the resultant reassessment order so passed is also vitiated, liable to be quashed ab initio. We hold so accordingly.

8.1. Accordingly, grounds raised by the assessee on the jurisdictional aspect are allowed. As regards grounds raised on merits of the case, we find that having already granted relief to the assessee on the jurisdictional grounds by quashing the impugned reassessment order, the same are rendered academic and therefore, needs no separate adjudication.

Sd/- Sd/- AMIT SHUKLA GIRISH AGRAWAL JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai Dated: 08.09.2026 Kunal Kr. P.S.

Copy to: KISHORE KRISHN PATKI, 503, ANKITA APARTMENT OPP. GYMKHANA 1 NAVGHAR ROAD, MULUND, MUMBAI-400081, MAHARASHTRA

DCIT, CIRCLE 2(1)(1), 2 AAYAKAR BHAVAN, M.K ROAD,, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAIBENCH 5 GUARD FILE