NISHANT ASHISH GUPTA,MUMBAI vs. ITO WARD 31(1)(1), MUMBAI

आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM:

These two appeals by the same assessee for Assessment Year 2016-17 are directed against two separate orders, both dated 30.10.2025, passed by the National Faceless Appeal Centre, Delhi, under section 250 of the Income-tax Act, 1961

2 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta (“the Act”). The first appeal, being ITA No.7501/Mum/2025, arises from the order, whereby the reassessment completed under section 147 read with section 144B of the Act was upheld. The second appeal, being ITA No.7500/Mum/2025, arises from the order bearing DIN ITBA/NFAC/S/250/2025- 26/1082150956(1), whereby the penalty under section 271B of the Act was confirmed. Since both appeals pertain to the same assessee, the same assessment year and interconnected facts, they were heard together and are being disposed of by this common order. 2. In the quantum appeal, the substantive controversy concerns the validity of the reassessment proceedings on the ground that approval under section 151 was obtained from the Principal Commissioner of Income Tax under section 151(i), whereas, according to the assessee, approval was required to be obtained from the Principal Chief Commissioner of Income Tax under section 151(ii). 3. In the penalty appeal, the substantive controversy is whether penalty under section 271B could have been levied by relying upon the aggregate figure of Rs.5,26,08,859/- mentioned in the order under section 148A(d), without reconciling that figure with the assessee’s actual transactions. The assessee has contended that he was not carrying on any business, had disclosed the share transactions under the head “Capital Gains”

3 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta and was, therefore, neither required to maintain books of account under section 44AA nor to obtain an audit under section 44AB. 4. The assessee has also challenged the action of the AO and the CIT(A) in treating the share transactions as business activity merely on the basis of their alleged magnitude. According to the assessee, the transactions represented investments, no futures and options transactions had been undertaken, and neither the returned treatment of the transactions as capital gains was rejected nor was any income from such transactions assessed under the head “Profits and gains of business or profession”. It has accordingly been contended that the transactions could not be regarded as business turnover solely for imposing penalty under section 271B. 5. The assessee has further disputed the finding that supporting evidence was not furnished. According to him, the computation of income, working of long-term and short-term capital gains, and copies of the contract notes were furnished through the letter dated 08.06.2022. The appeal also raises the question whether the assessee’s consistent treatment of the shares as investments and the resultant income as capital gains constituted a reasonable cause within the meaning of section 273B for not obtaining an audit under section 44AB. Ground No. 1 is general in nature, while the concluding ground seeking permission to add, alter, amend or delete the grounds is residuary.

4 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta 6. Facts of the Case 6.1. The assessee is an individual. He filed his original return of income for Assessment Year 2016-17 on 20.06.2016, declaring total income of Rs.3,16,340/-. The assessment order records that the assessee disclosed short-term capital gains of Rs.3,16,336/- and income from other sources of Rs.7,042/- and claimed deduction under Chapter VI-A amounting to Rs.7,042/-. The CIT(A) has further recorded that the assessee disclosed exempt income of Rs.84,13,337/-. The return was initially processed under section 143(1), accepting the returned income. 6.2. Subsequently, information was received through the Insight Portal alleging that the assessee had earned bogus long- term capital gains through transactions in the shares of M/s Greencrest Financial Services Limited. The information initially referred to long-term capital gains of Rs.85,73,055/-. On the basis of such information, a notice under section 148 dated 14.06.2021 was issued under the erstwhile reassessment provisions. 6.3. Following the judgment of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal, the notice dated 14.06.2021 was treated as a notice under section 148A(b) of the substituted provisions. The record placed before us states that a notice under section 148A(b) was issued on 27.05.2022, in response to which the assessee furnished his reply on 08.06.2022. Thereafter, an order under section 148A(d) was

5 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta passed on 28.07.2022 and a notice under section 148 was issued on 28.07.2022/29.07.2022. The assessment order records the date of notice under section 148 as 29.07.2022, whereas the grounds before us state that the notice was issued on 28.07.2022.

6.4. In response to the notice under section 148, the assessee filed his return of income on 10.08.2022, declaring the same total income of Rs.3,16,340/-. Notice under section 143(2) was issued on 24.01.2023. A notice under section 142(1) was thereafter issued on 01.02.2023, in response to which the assessee furnished his reply on 03.02.2023. The AO subsequently issued a final show-cause notice dated 25.04.2023. The assessee sought an adjournment on 01.05.2023 and furnished a further reply on 03.05.2023. A personal hearing through video conference was afforded on 04.05.2023.

6.5. The dispute on merits concerns the purchase and sale of 1,34,000 shares of Greencrest Financial Services Limited. The transaction particulars recorded by the AO are as follows:

Particular Details Purchase year Financial Year 2011-12 Quantity purchased 1,34,000 shares Purchase value recorded by the AO Rs.1,34,000/- Sale year Financial Year 2015-16

6 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta Quantity sold 1,34,000 shares Sale value recorded by the AO Rs.75,47,337/- Long-term capital gains recorded by the AO Rs.84,13,337/- Exemption claimed Section 10(38) of the Act

6.6. Before the AO, the assessee submitted that the shares had been purchased through Octopus InfotelPvt. Ltd., dematerialised in 2013 and split in 2014. The shares were thereafter sold on the Bombay Stock Exchange through HEM Securities, a SEBI-registered broker, and Securities Transaction Tax was paid. The assessee relied upon contract notes, demat statements, bank statements and the broker’s ledger to establish the transactions. It was contended that the statutory conditions prescribed under section 10(38) had been fulfilled. 6.7. The assessee further contended that a transaction carried out through the recognised stock exchange, supported by contract notes and demat records, and for which payment was received through normal banking channels, could not be treated as bogus merely on the basis of suspicion or third-party investigation. The assessee denied any collusion or communication with the counterparty or any entry operator and submitted that there was no evidence connecting him with any alleged arrangement for introducing unaccounted money. 6.8. The reassessment was principally based upon the material gathered during a search and seizure action conducted

7 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta at Ahmedabad and the statement of Shri Sushil Parakh, a director of Greencrest Financial Services Limited, recorded under section 132(4) on 04.01.2019. According to the AO, Shri Sushil Parakh admitted that Greencrest Financial Services Limited was controlled and managed by him and was used as a penny-stock company for providing accommodation entries in the form of long-term capital gains. The AO also referred to the alleged manipulation of the market price of the scrip without corresponding financial justification. 6.9. The assessee sought cross-examination of Shri Sushil Parakh through letters dated 03.02.2023 and 03.05.2023. The AO rejected the request, inter alia, observing that the strict rules of evidence did not apply to income-tax proceedings and that the relevant portions of the statement and the alleged modus operandi had been communicated to the assessee. The assessee also challenged the reassessment on the grounds of limitation, validity of sanction under section 151, overlapping reassessment proceedings and initiation of the inquiry by the jurisdictional AO instead of through the faceless mechanism. 6.10. The AO ultimately held that Greencrest Financial Services Limited was a penny-stock company used for providing accommodation entries. The exemption claimed under section 10(38) was withdrawn and long-term capital gains of Rs.84,13,337/- were treated as income of the assessee under section 69A.

8 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta 7. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A), by order dated 30.10.2025, rejected the assessee’s challenge to the reassessment proceedings. The CIT(A) held that the original notice dated 14.06.2021 stood converted into a notice under section 148A(b) pursuant to the judgment in Ashish Agarwal and that the subsequent order under section 148A(d) and notice under section 148 represented a continuation of the same proceeding rather than two independent or parallel reassessment proceedings. 8. On the question of sanction, the assessee contended that more than three years had elapsed from the end of Assessment Year 2016-17 and that approval ought to have been obtained from the authority specified in section 151(ii), rather than from the Principal Commissioner under section 151(i). The CIT(A), relying upon the decision of the Hon’ble Gujarat High Court in Dhanraj Govindram Kella, held that, in the transitional situation governed by TOLA and the directions of the Hon’ble Supreme Court, approval obtained from the Principal Commissioner was sufficient. The objections regarding non-mention of the approval reference number, non-supply of the approval and alleged mechanical grant of sanction were also rejected. 9. The CIT(A) further upheld the AO’s decision to deny cross- examination, observing that the addition was not founded solely or primarily upon the statement of Shri Sushil Parakh but also upon the investigation material, the price movement of the scrip,

9 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta its financial position and the surrounding circumstances. On merits, the CIT(A) confirmed the addition of Rs.84,13,337/- made under section 69A. 10. Penalty Proceedings 10.1. During the course of the reassessment proceedings, the AO noticed from the order passed under section 148A(d) that the assessee had allegedly entered into share and derivative transactions aggregating to Rs.5,26,08,859/-. The AO took the view that the said transactions constituted substantial share- trading activity and that the assessee was required to obtain audit of his accounts under section 44AB. Since no audit report had been furnished, penalty proceedings under section 271B were initiated. 10.2. Show-cause notices under section 271B were issued on 09.05.2023 and 16.08.2023. The assessee filed replies on 21.06.2023 and 21.08.2023 respectively. In his replies, the assessee submitted that he was not carrying on any business or profession and had not declared any income under the head “Profits and gains of business or profession”. The return had been filed in ITR-2 and the income arising from the share transactions had been disclosed under the head “Capital Gains”. It was, therefore, contended that the assessee was neither required to maintain books of account under section 44AA nor to obtain an audit under section 44AB.

10 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta 10.3. The assessee further submitted that the addition made under section 69A could not be regarded as turnover from business. It was contended that the figure of Rs.5,26,08,859/- had been taken from the order under section 148A(d) without matching or reconciling it with the assessee’s actual transactions. According to the assessee, he had specifically clarified through his reply dated 08.06.2022 that he had not undertaken any futures and options transactions and that his actual share transactions were substantially lower than the figure alleged. 10.4. The assessee also contended that the purchase value of shares could not constitute turnover for the purpose of section 44AB. In relation to futures and options transactions, it was submitted that only the aggregate of the absolute values of profit and loss could be considered for determining turnover and not the gross contractual value. It was further pointed out that no addition was made in the reassessment order with reference to the alleged transactions of Rs.5,26,08,859/- and that the only substantive addition was of Rs.84,13,337/- under section 69A in relation to the alleged bogus long-term capital gains. 10.5. The AO rejected the assessee’s explanation. The AO observed that significant share-trading activity, including day trading or regular transactions in futures and options, was ordinarily classified as business activity. According to the AO, the assessee failed to substantiate with evidence that he was not engaged in day trading. The aggregate amount of

11 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta Rs.5,26,08,859/- was accordingly treated as turnover exceeding the limit prescribed under section 44AB. 10.6. The AO computed 0.5% of Rs.5,26,08,859/- at Rs.2,63,044/- and, since the amount exceeded Rs.1,50,000/-, levied penalty of Rs.1,50,000/- under section 271B by order dated 16.03.2024. The penalty order was stated to have been passed after obtaining prior approval under section 274(2). 11. Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A) held that adequate opportunity had been provided through the show-cause notices and that the assessee’s replies had been duly considered. The challenge based upon an alleged violation of natural justice was, therefore, rejected. 12. The CIT(A) further rejected the contention that the AO had mechanically relied upon the order under section 148A(d). According to the CIT(A), the AO independently considered the nature and volume of the transactions and found that the assessee had failed to furnish evidence establishing that the transactions represented investments rather than systematic trading activity. 13. The CIT(A) observed that merely disclosing income under the head “Capital Gains” was not conclusive of the nature of the transactions. According to the CIT(A), the distinction between investment and business depended upon the frequency, volume, holding period and intention associated with the transactions.

12 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta The aggregate amount of Rs.5,26,08,859/- was considered indicative of substantial trading activity. 14. While accepting that the purchase value alone could not constitute turnover, the CIT(A) held that the magnitude of purchases and sales indicated the scale of trading activity. The assessee’s denial of futures and options transactions was treated as an unsupported assertion. The CIT(A) also held that the obligation to obtain audit under section 44AB was independent of the additions ultimately made in the reassessment order. 15. The CIT(A) consequently held that the assessee had failed to establish any reasonable cause for not obtaining an audit. By the impugned order dated 30.10.2025, all the grounds were dismissed and the penalty of Rs.1,50,000/- levied under section 271B was confirmed. 16. The assessee is, therefore, in further appeal before us. 17. Before us the learned Authorised Representative (AR), with the help of detailed grounds, submitted that the reassessment proceedings were without valid sanction under section 151 of the Act. He submitted that the notice under section 148 was issued on 28.07.2022 for Assessment Year 2016-17, by which time more than three years had elapsed from the end of the relevant assessment year. Therefore, according to him, the specified authority competent to grant approval was the Principal Chief Commissioner of Income Tax under section 151(ii) and not the

13 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta Principal Commissioner of Income Tax under section 151(i). He contended that the approval obtained from the Principal Commissioner of Income Tax-17, Mumbai, was contrary to the statutory requirement and, consequently, the notice issued under section 148 and the reassessment proceedings founded thereon were invalid and liable to be quashed.

Sr. Particulars Remarks No. 1 Assessment Year under consideration Assessment Year 2016-17 2 Amount of income alleged to have escaped Rs.84,13,337/- assessment 3 Last date for issuing notice under section 148, 24.06.2022 according to the assessee, having regard to the decision in Union of India v. Rajeev Bansal and the extended time under the fourth proviso to section 149(1) 4 Date of notice issued under section 148 28.07.2022 5 Authority whose approval was obtained under section Principal 151 Commissioner of Income Tax-17, Mumbai 6 Authority whose approval was required, according to Principal Chief the assessee Commissioner of Income Tax

14 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta approval had not been obtained from the authority specified under section 151(ii), the defect went to the root of the jurisdiction and could not be treated as a mere procedural irregularity.

Sr. Particulars Amount No. 1 Sale of equity shares, settled by actual delivery or transfer, Rs.1,41,54,055/- through a recognised stock exchange 2 Rs.7,37,950/- Purchase of equity shares through a recognised stock exchange 3 Purchase of equity shares through a recognised stock Rs.79,11,690/- exchange 5 Sale of futures or derivatives through a recognised stock Rs.2,91,90,106/- exchange 6 Sale of equity shares, settled by actual delivery or transfer, Rs.4,89,014/- through a recognised stock exchange 7 Purchase of equity shares through a recognised stock Rs.1,26,044/- exchange Aggregate amount described as income escaping Rs.5,26,08,859/- assessment

15 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta 21. The learned AR submitted that the above statement itself included purchases as well as sales and, therefore, the aggregate amount could not automatically be treated as the assessee’s business turnover. He contended that the purchase value of shares did not constitute turnover for the purpose of section 44AB. He further submitted that the statement included an alleged futures or derivatives transaction of Rs.2,91,90,106/-, although the assessee had specifically denied having undertaken any futures and options transactions. According to him, this denial had been made in the reply dated 08.06.2022, but neither the AO nor the CIT(A) identified any contract note, broker statement or other primary evidence establishing that the assessee had undertaken such transactions. 22. The learned AR submitted that the assessee was an individual investor and was not carrying on any business or profession. The return of income was filed in ITR-2, and income from the sale of shares was disclosed under the head “Capital Gains”. No income was offered under the head “Profits and gains of business or profession”. Therefore, according to him, the assessee was not required to maintain books of account under section 44AA or obtain an audit under section 44AB. 23. It was further submitted that neither the returned characterisation of the transactions as capital gains was rejected in the assessment proceedings nor was any part of the share income assessed as business income. The only substantive

16 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta addition made in the reassessment order was of Rs.84,13,337/- under section 69A in respect of the long-term capital gains claimed as exempt under section 10(38). No addition was made with reference to the aggregate figure of Rs.5,26,08,859/- appearing in the order under section 148A(d). The learned AR accordingly contended that transactions which were not assessed as business transactions could not be treated as business turnover solely for levying penalty under section 271B. 24. The learned AR argued that the AO and the CIT(A) proceeded merely on the magnitude of the alleged transactions and assumed that substantial transactions in shares ordinarily represented business activity. He submitted that the nature of an activity could not be determined solely from an unverified aggregate amount. According to him, there was no finding regarding the frequency of transactions, period of holding, use of borrowed funds, maintenance of a trading portfolio, repetition or continuity of activity, or any other material demonstrating that the assessee carried on a systematic business of trading in shares. 25. The learned AR further contended that the AO had effectively placed the burden upon the assessee to prove that he was not engaged in day trading. He submitted that there was no material establishing any intraday trading or futures and options activity in the first place. In the absence of a positive finding supported by the primary record that the assessee carried on

17 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta business and that his turnover exceeded the limit prescribed under section 44AB, penalty under section 271B could not be sustained. 26. The learned AR disputed the finding that the assessee had not furnished supporting evidence. He submitted that, through the letter dated 08.06.2022, the assessee had furnished a copy of the computation of income, the working of long-term and short- term capital gains, and copies of the relevant contract notes. According to him, these documents demonstrated that the transactions had consistently been treated as investments and the resultant income had been disclosed under the head “Capital Gains”. Neither the AO nor the CIT(A) dealt with these documents before treating the transactions as business activity. 27. The learned AR further submitted that the CIT(A) had accepted that the purchase value by itself could not constitute turnover but nevertheless sustained the penalty without determining the correct turnover after excluding purchases and without examining the assessee’s denial of futures and options transactions against the primary evidence. He contended that the statutory condition precedent for applying section 44AB, namely, that the assessee must be carrying on a business whose turnover exceeds the prescribed limit, was not established. 28. Without prejudice, the learned AR submitted that the assessee had consistently and bona fide treated the shares as investments and the resultant income as capital gains. The

18 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta return was filed accordingly, and no business income was declared or ultimately assessed. These circumstances, according to him, constituted a reasonable cause within the meaning of section 273B for the assessee’s belief that he was not required to obtain an audit under section 44AB. He, therefore, prayed that the penalty of Rs.1,50,000/- levied under section 271B and confirmed by the CIT(A) be deleted. 29. The learned Departmental Representative, per contra, relied upon the orders passed by the authorities below. 30. We have examined the jurisdictional objection in the light of the principles laid down by the Hon’ble Supreme Court in Union of India v. Rajeev Bansal, [2024] 167 taxmann.com 70 (SC), reported also in [2024] 469 ITR 46 (SC). The discussion contained in paragraphs 73 to 78 and 113 to 114 of the judgment directly explains the statutory purpose of section 151, the identity of the specified authority, the effect of TOLA upon the time available for granting sanction, and the jurisdictional consequence of obtaining approval from an authority not specified by law. 31. In paragraph 73, the Hon’ble Supreme Court explained that section 151 operates as a check upon the power of the Revenue to reopen completed assessments. The provision places an obligation upon the Revenue to obtain sanction from the specified authority before issuing notice under section 148. The object of this safeguard is to protect an assessee from mechanical or arbitrary reopening. Thus, approval under section 151 is not

19 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta merely an administrative formality but a substantive safeguard which controls the assumption of jurisdiction by the AO. 32. In paragraphs 74 and 75, the Hon’ble Supreme Court compared the sanction requirements under the earlier and substituted reassessment regimes. The Court explained that, under the substituted regime, the identity of the specified authority is directly linked to the period elapsed from the end of the relevant assessment year. Where three years or less have elapsed, the authority specified under section 151(i) is competent to grant approval. Where more than three years have elapsed, approval is required from the higher authority specified under section 151(ii). The Court further explained that, after 01.04.2021, prior approval must be obtained from the appropriate authority specified under section 151 of the substituted regime. 33. Paragraph 76 states the jurisdictional consequence of this requirement in the following terms: “Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under Section 148…” 34. The Hon’ble Supreme Court further explained in the same paragraph that section 151 links the period elapsed from the end of the relevant assessment year with the jurisdiction of the particular authority to grant sanction. Where more than three years have elapsed, section 151(ii) requires approval from a higher-level authority. Non-compliance with this requirement

20 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta affects the jurisdiction of the AO to issue notice under section 148. 35. In paragraph 77, the Hon’ble Supreme Court considered the effect of TOLA upon the period available for obtaining approval under section 151. The Court held that where the period of three years from the end of an assessment year fell between 20.03.2020 and 31.03.2021, the authority specified under section 151(i) was given extended time until 30.06.2021 to grant approval. The effect of TOLA was, therefore, to extend the period during which that authority could grant approval. It did not dispense with the requirement of obtaining approval from the authority specified under section 151, nor did it indefinitely preserve the competence of the authority mentioned in section 151(i) beyond 30.06.2021. 36. Paragraph 78 illustrates the operation of this principle in relation to Assessment Year 2017-18. The three-year period for that assessment year expired on 31.03.2021 and, since that date fell within the period covered by TOLA, the authority specified under section 151(i) could grant approval until 30.06.2021. The illustration clarifies that the extended competence of the authority under section 151(i) came to an end on 30.06.2021. Any statutory action taken thereafter was required to comply with the sanction requirement applicable on the date of such action. 37. The same principle applies with greater force to Assessment Year 2016-17. The period of three years from the end of

21 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta Assessment Year 2016-17 expired on 31.03.2020. Since that date fell within the period covered by TOLA, the authority specified under section 151(i) had extended time until 30.06.2021 to grant approval. However, the order under section 148A(d) and the consequential notice under section 148 in the present case were issued only in July 2022. By then, the extended period available to the authority specified under section 151(i) had already expired. 38. Therefore, on the date on which the order under section 148A(d) was passed and the notice under section 148 was issued, more than three years had elapsed from the end of the relevant assessment year, as also from the extended date of 30.06.2021. Approval was consequently required from the Principal Chief Commissioner, Principal Director General, Chief Commissioner or Director General, as the case may be, being the authorities specified under section 151(ii). Admittedly, the approval was obtained from the Principal Commissioner of Income Tax-17, Mumbai, who was an authority specified under section 151(i). 39. In paragraph 113, the Hon’ble Supreme Court reiterated that, for assuming jurisdiction under section 148, the AO must issue notice within the period prescribed under section 149 and obtain previous approval from the authority specified under section 151. Both conditions operate as jurisdictional preconditions. Failure to comply with either condition renders the notice invalid because it affects the jurisdiction of the AO.

22 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta 40. The CIT(A) proceeded on the footing that, since the reassessment arose during the transition from the earlier regime to the substituted regime, approval from the Principal Commissioner continued to be sufficient. This reasoning overlooks the distinction explained in paragraphs 76 to 78 of Rajeev Bansal. TOLA extended the time available to the authority specified under section 151(i) only until 30.06.2021. It did not extend the jurisdiction of that authority to grant approval in July 2022. The competent authority was required to be identified with reference to the statutory position prevailing when the order under section 148A(d) and notice under section 148 were issued. 41. The requirement of approval from the specified authority is a substantive condition precedent and cannot be treated as a curable procedural irregularity. Approval by an authority other than the authority specified by section 151(ii) cannot amount to substantial compliance. The satisfaction required to be recorded by the higher authority cannot be substituted by the satisfaction of the Principal Commissioner. The defect concerns the very assumption of jurisdiction and is, therefore, beyond the curative scope of section 292B. 42. We, therefore, hold that the order under section 148A(d) and the consequential notice under section 148 were issued without approval from the competent specified authority under section 151(ii). The assumption of jurisdiction under section 147 was consequently invalid. The reassessment order dated 09.05.2023

23 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta and the impugned order of the CIT(A), insofar as it upholds that reassessment, cannot be sustained. 43. Ground No. 2 is accordingly allowed. The reassessment order and the addition of Rs.84,13,337/- made therein are quashed. Since the reassessment itself has been annulled, the remaining jurisdictional grounds and the grounds concerning denial of cross-examination and the addition on merits have become academic and require no separate adjudication. The quantum appeal of the assessee is allowed. 44. We shall now consider the appeal against the penalty of Rs.1,50,000/- imposed under section 271B. The penalty proceedings originated from the reassessment proceedings in which the AO noticed, on the basis of information referred to in the order under section 148A(d), alleged share and derivative transactions aggregating to Rs.5,26,08,859/-. Since we have quashed the reassessment proceedings for want of valid jurisdiction, the very proceedings during which the alleged default was taken up stand annulled. Nevertheless, since proceedings under section 271B concern an alleged independent statutory default, we consider it appropriate to examine the sustainability of the penalty on its own merits as well. 45. Section 44AB applies where a person carries on business and the total sales, turnover or gross receipts of such business exceed the prescribed monetary limit. Thus, before fastening liability under section 271B, the Revenue must establish, firstly,

24 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta that the assessee was carrying on a business; secondly, that the relevant amount represented sales, turnover or gross receipts of that business; and thirdly, that the turnover exceeded the monetary limit prescribed under section 44AB. Unless these foundational conditions are established, the obligation to obtain an audit does not arise. 46. In the present case, the assessee filed his return in ITR-2 and disclosed the income arising from the shares under the head “Capital Gains”. No income was disclosed under the head “Profits and gains of business or profession”. The assessment order did not reject the assessee’s treatment of the regular share transactions as capital gains or assess the aggregate transactions of Rs.5,26,08,859/- as business income. The only substantive addition made in the reassessment order was of Rs.84,13,337/- under section 69A in respect of the long-term capital gains claimed as exempt under section 10(38). 47. The AO did not record any transaction-wise finding in the assessment order that the assessee was carrying on the business of dealing in shares. The penalty order proceeds on the general observation that significant share trading, such as day trading or regular trading in futures and options, is ordinarily treated as business activity. However, the order does not identify any intraday transaction, any contract relating to futures or options, the number or frequency of trades, their holding periods, deployment of borrowed funds, maintenance of a trading portfolio

25 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta or any other feature demonstrating an organised and systematic business activity. 48. The AO observed that the assessee failed to substantiate that he was not engaged in day trading. In our considered view, this reverses the statutory burden. Before calling upon the assessee to explain the absence of a tax audit, the Revenue was required to establish from the primary material that the assessee carried on business and that the turnover of such business exceeded the prescribed limit. A business activity cannot be presumed merely because an aggregate figure appearing in the information database is substantial. 49. The aggregate figure of Rs.5,26,08,859/- combines purchases, delivery-based sales and an alleged gross contractual value of futures or derivative transactions. The CIT(A) himself accepted that purchase value alone could not constitute turnover. Once that position was accepted, it was incumbent upon the CIT(A) to determine the legally relevant turnover after excluding amounts which did not represent turnover. No such exercise was undertaken. 50. The assessee specifically denied having entered into futures and options transactions and stated that this position had already been explained through the reply dated 08.06.2022. Neither the penalty order nor the impugned appellate order identifies the broker, contract note, scrip, date or settlement relating to the alleged futures transaction of Rs.2,91,90,106/-.

26 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta The CIT(A) rejected the denial as unsupported, but no positive material produced by the Revenue to establish the transaction was identified. An unverified item appearing in the section 148A(d) information could not, by itself, be treated as proved business turnover for imposing penalty. 51. The CIT(A) also observed that the volume and frequency of the transactions indicated systematic trading activity. However, while the order refers to the aggregate value, it does not record the number or frequency of the transactions. Volume and frequency are distinct considerations. One cannot infer frequency merely from the aggregate monetary value without examining the actual trades. 52. The assessee stated that the computation of income, working of long-term and short-term capital gains, and copies of the contract notes were furnished through the letter dated 08.06.2022. The authorities below did not identify any defect in these documents or explain why they did not support the assessee’s treatment of the shares as investments. The conclusion that no supporting evidence was furnished is, therefore, not borne out by a specific examination of the documents referred to by the assessee. 53. There is a further infirmity in the reasoning of the CIT(A). The CIT(A) described Rs.1,50,000/- as the “minimum prescribed” penalty. Section 271B, as applicable, provides for a penalty equal to 0.5% of total sales, turnover or gross receipts or Rs.1,50,000/-,

27 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta whichever is less. Therefore, Rs.1,50,000/- is the statutory ceiling and not the statutory minimum. This erroneous characterisation indicates that the discretion inherent in the penalty provision and the reasonable-cause defence under section 273B were not examined in their proper perspective. 54. Section 273B provides that no penalty under section 271B shall be imposable where the assessee proves that there was reasonable cause for the alleged failure. Even assuming, without accepting, that the share transactions were capable of being characterised as business transactions, the assessee had consistently disclosed them as investments and offered the resultant income under the head “Capital Gains”. The return was filed in ITR-2, no business income was declared, and the assessment order did not assess the aggregate transactions as business income. These circumstances furnished a bona fide and reasonable basis for the assessee’s understanding that sections 44AA and 44AB were not applicable. 55. Penalty proceedings are not an automatic consequence of every alleged statutory default. The authority must establish the foundational facts giving rise to the obligation and thereafter consider the assessee’s explanation in the light of section 273B. In the present case, neither the existence of a share-trading business nor the legally computed turnover of such business was established. The aggregate figure adopted by the AO was neither

28 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta reconciled with the primary record nor computed according to the nature of the different transactions included therein.

Order pronounced in the open court on 19.08.2026.

Sd/- Sd/- (CHALLA NAGENDRA (MAKARAND VASANT PRASAD) MAHADEOKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 19.08.2026 ANKIT, PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT

29 ITA No. 7500 and 7501/Mum/2025 Nishant Ashish Gupta धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file.

आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai