INCOME TAX OFFICER WARD 20(1)(1), MUMBAI, MUMBAI vs. HEMANT VITHALDAS PAREKH, MUMBAI

The present appeal preferred by the Revenue is directed against the Order, dated passed 12/11/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [for short ‘the Act’] whereby the appeal against the Assessment Order, dated 16/12/2019 passed under Section 143(3) read with Section 147 of the Act for the Assessment Year 2012-2013 was allowed by the Learned CIT(A).

The grounds of appeal raised by the Revenue are as under :

Brief facts of the case are that the Assessee filed his return of income for Assessment Year 2012-2013 on 23/07/2012 declaring total income of INR.13,99,720/-. The case was reopened under Section 147 of the Act after recording reasons and notice under Section 148 of the Act was issued on 18/03/2019. As per the information, the Assessee had traded in the scrip of M/s. Exelon Infrastructure Limited (EIL) which according to the Assessing Officer was a penny stock. On examination of the details filed by the Assessee, the Assessing Officer found that the financials of EIL did not show substantial change so as to support huge rise in the share price. The Assessing Officer, relying upon the report of the Investigation Wing, concluded that there was price rigging and that the Assessee was one of the beneficiaries of predetermined transaction of purchase and sale of share of EIL. Therefore, the Assessing Officer added the sale consideration of INR.35,69,591/- in the hands of the Assessee invoking the provisions contained in Section 68 of the Act.

Being aggrieved, the Assessee preferred appeal before the Learned CIT(A) challenging the validity of the reassessment proceedings as well as the addition made on merits.

The Learned CIT(A) quashed the reassessment proceedings holding has under:

Thereafter, the Ld. Ld. CIT(A) proceeded to allow the grounds raised by the assessee on merits holding as under:

Being aggrieved, the Revenue has now preferred the present appeal before the Tribunal challenging the order passed by the Learned CIT(A).

The first contention raised by the Revenue is that the Learned CIT(A) erred in holding that the assessment proceedings were bad in law. We note that the Assessing Officer had recorded following reasons for reopening of the assessment.

Further, information has been received from the Office of Dy Director of Income Tax (Investigation) Unit 6(2), Mumbai that the assessee has done share trading on BSE in the scrip M/s Exelon Infrastructure Ltd. (Scrip Code 530337) to the tune of Rs.1,32,140/-. As per the Information the M/s Exelon Infrastructure Ltd. (Scrip Code 530337) is a penny stock scrip and has been used to facilitate introduction of unaccounted income of the members of beneficiaries in the form of exempt capital gains or short term capital loss.

The information received has been examined the vis a vis the data of the BSE and return of income filed by the assessee. Further, the balance sheet and profit and loss account of the M/s Exelon Infrastructure Ltd. (Scrip Code 530337) has also been perused. Also the from website of the BSE the trading pattern in the case of M/s Exelon Infrastructure Ltd. (Scrip Code 530337) has also been observed. On verification of the same it is found that the share price of the scrip has been rigged in the FY. 2011-12 (especially in the month of Jan 2011 to July 2011) to provide accommodation entries to the beneficiaries and the assessee is one of them. The financials of the company does not show substantial changes so as to support such huge share price movement and the said price rise in the share price does not supported by fundamentals of the company.

In view of the fact that the said scrip has been identified as penny stock scrip, the transaction done by the assessee in the said scrip needs to be treated as sham transaction done to facilitate Introduction of unaccounted income into the books. This clearly shows that the assessee has failed to disclose fully and truly all the material facts about his true and correct income for the year. Therefore, I have reason to believe that income chargeable to tax has escaped assessment in the hands of the assessee. Therefore, I have reasons to believe that income chargeable to tax of Rs.35,69,591/-has escaped assessment in the hands of the assessee for the year under consideration.

Accordingly, proceedings u/s 147 needs to be initiated to assess the true and correct income of the assessee on the above issue and any other income which will be detected during the course of assessment proceedings. In this case more than four years have lapsed from the end of the assessment year under consideration, hence approval of the Pr. Commissioner of Income Tax-20. Mumbai is solicited u/s. 151(1) to issue notice u/s. 148 of the IT Act. 1961”

On perusal of the reasons recorded, we find that the reassessment proceedings were initiated in the case of the Assessee on the basis of information received from Investigation Wing to the effect that the Assessee had undertaken trades on BSE in the script of EIL to the tune of INR.1,32,140/-. As per the information the aforesaid script was being utilized for facilitating the introduction of unaccounted income in the hands of the beneficiaries either by the way of exempt capital gains or short term capital losses. In the reasons recorded, the Assessing Officer had noted that the Assessing Officer had examined the data from Bombay Stock Exchange (BSE) and the return of income filed by the Assessee and had formed a belief that the Assessee had failed to disclose fully and truly all the above materials facts which were necessary to frame the assessment of the Assessee and income chargeable to tax amounting to INR.35,69,571/- had escaped assessment. We note that the Learned CIT(A) had concluded that the Assessing Officer had recorded the reasons for reopening the assessment on the basis of borrowed satisfaction without any independent application of mind solely on the basis of mismatch in the aggregate amount of share transaction. The CIT(A) has note that initially Assessing Officer had recorded that the Assessee had entered into transaction of purchase/sale of share of EIL to the tune of INR.1,32,140/- whereas in the later part the Assessing Officer has recorded that the income chargeable to the tax of INR.35,69,591/- had escaped assessment. We do not agree with the conclusion drawn by the Learned CIT(A) as well as the reasoning thereof. Bare perusal of the reasons recorded showed that the Assessing Officer had on receipt of information, examined the BSE data and the financial of the Assessee- company and EIL. Therefore, it cannot be concluded that there was no application of mind by the Assessing Officer or that the Assessing Officer had acted mechanically. Accordingly, we overturn the findings returned by the Learned CIT(A) in this regard.

However, having noted as above, we concur with the view of the Learned CIT(A) as regards the merits of the addition is concerned. It is admitted position that the purchase as well as sale transactions were undertaken on the stock-exchange. The Assessee had placed before the Assessing Officer relevant document (in the form of contract notes, ledger accounts, bank statements etc.) to show that the transactions were genuine transactions. The Assessing Officer has failed to be on record any material to controvert the documentary evidence furnished by the Assessee. Further, no independent inquiry has been undertaken after the initiation of reassessment proceedings to establish any nexus/link between the Assessee and the parties involved in price rigging. Even the details of exit providers or the parties involve was not indentified or made available. We have already noted herein above that the Learned CIT(A) had deleted the addition on merits by relying upon the judgment of the Hon’ble Bombay High Court in the case of Principal Commissioner of Income-tax vs. Indravadan Jain, HUF [2023] 156 taxmann.com 605 (Bombay)/[2024] 463 ITR 711 (Bombay)[12-07-2023]. The Revenue has failed to bring on record any material to distinguish the said judgment either on facts or in law. Since the Learned CIT(A) had followed the aforesaid judgment of the jurisdictional High Court we decline to interfere with the order passed by the Learned CIT(A) deleting the addition of INR INR.35,69,591/- made by the Assessing Officer on merits. It has also not been disputed by the Revenue that the Assessee had neither earned exempt capital gains nor claimed short term capital loss. The Assessee had earned short term capital gains aggregating to INR. 9,05,320/-. It was stated that in the return of income the Assessee had incorrectly offered higher short term capital gains on INR.11,36,677/- [as compared to the actual short term capital gains of INR 9,05,320/-].

In view of the above, the Ground No.1 raised by the Revenue is allowed while all the other grounds are dismissed.

"धान आयकर आयु"/ Pr.CIT 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मुंबई/ DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.