SURIL GAJENDRA DOSHI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 32(1),MUMBAI, MUMBAI

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ITA 1827/MUM/2025Status: DisposedITAT Mumbai29 April 202612 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the CIT(A) had not adjudicated on the merits of the addition or the additional legal grounds raised. Therefore, the Tribunal set aside the appellate order and remanded the matter back to the CIT(A) for a fresh adjudication.

What were the facts?

The assessee's case was reopened under Section 147 based on information from 'Project Falcon' alleging manipulation in stock option trading. The Assessing Officer (AO) initially believed the assessee incurred losses but later treated profits of Rs. 74,61,900/- as fictitious and added them under Section 68.

What were the issues?

The primary issues involved the legality of the reopening of the assessment under Section 147, the validity of the notice issued under Section 148, and the correctness of the addition made under Section 68 on account of alleged fictitious profits.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 144B,Section 68,Section 148A

AI-generated summary — verify with the full judgment below

Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR

For Appellant: Shri Dharan Gandhi, AR
For Respondent: Shri Surendra Mohan (Sr. DR)
Hearing: 13.02.2026Pronounced: 29.04.2026

PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 14.02.2025 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 27.05.2023 for the Assessment Year [A.Y.] 2014-15. P a g e | 2 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai

2.

The grounds of appeal are as under:

1.

Under the facts and in law, the learned A.O. erred in reopening the appellant’s case u/s 147 of the Income Tax Act, 1961 (‘the Act’). The notice issued u/s 148 of the Act is bad in law.

1.

1 The learned CIT(A) National Faceless Appeal Centre (hereinafter referred to as ‘CIT(A)’) erred in upholding the reopening of the case under Section 147 of the Income Tax Act solely on the basis of an investigation report under the Project Falcon.

1.

2 The learned CIT(A) failed to consider the fact that notice u/s 148 of the Act is bad in law as much as the same is time barred as the notice has been issued beyond the time limit prescribed under the provisions of the Act.

2.

Under the facts and in law, the learned CIT(A), erred in upholding the addition of Rs. 74,61,900/-on account of fictitious profits as unexplained cash credit u/s 68 of the Act. Additional grounds

1.

Notice u/s 148 of the Act dated 28.07.2022 is invalid and bad in law as the same has been issued without a DIN.

2.

The notice u/s 148 is bad in law and without jurisdiction as the jurisdictional requirement of section 147 to 151A of the Act are not complied with.

3.

The Assessment order dated 27.05.2023 passed u/s 147 r.w.s 144B of the Act is bad in law. Therefore, liable to be set aside. The said ground is purely legal in nature and all the facts pertaining to the same are already on record. Reliance in this regard is placed on the judgment of the Hon’ble Supreme Court in case of NTPC vs. CIT (229 ITR 383)

3.

The assessee, an individual engaged in the business of Derivative trading and Commission & brokerage filed return of income for the year declaring total income of Rs.7,75,170/- and the assessment order u/s143(3) of the Act was passed on 30.11.2016 determining total income of Rs.8,29,950/-. Subsequently, as per the Information in „Project Falcon‟ regarding coordinated and premeditated trading on BSE

P a g e | 3 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai by certainconcerns including the brokers engaged in reversal trades in illiquid stock options resulting in non-genuine business loss/gain to certain beneficiaries. The assessee was also found to be a party to such manipulation. From the data available with the AO, it was seen that the assessee had earned fictitious profit of Rs. 74,61,900/-. Both buy and sell had been executed through the same broker M/s Trade bulls Securities Pvt. Ltd. The assessee had claimed this bogus profit in the return of income for the year under consideration. The saidreport has been narrated in detail in the assessment order showing tax evasion through coordinated premeditated trading in illiquid stock options on the Bombay Stock Exchange. During the investigation ofthe claim of fictitious losses,it was noticed that there were several instances/internal alerts wherein a set of entities were consistently seen incurring trading loss by executing Reversal of trades in options on individual stocks (“stock options”) in EquityDerivative Segment. The expired trades all showed a pattern of transactions where the options were purchased but not exercised. This resulted in a loss for every expired trade. The transactions facilitated by these brokers showed that most of the clients had taken upoptions but had not sold them consistently. This showed that they had entered into these trades only to generate losses. The assessee claimed to have filed all details relating to Futures & Options

P a g e | 4 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai had been duly taken into consideration while filing of Return under the head „Income from Business & Profession‟. The assessee has traded in F &O stock options at exchanges like BSE and NSE during the said year. The trading was done by the assessee through recognized stock broker during its normal course of business and the same was carried out every year. All the transactions were carried-out online through sophisticated on-line surveillance software and in case of Screen based Trading, Automated System itself matched the orders on a price time priority basis and hence, it was not possible for anybody to have access over identity of the counter party. Since counter party identity was not displaced one can never have any choice with whom it wants to deal or not to deal. The assessee sold and then purchased the same items, but would not be knowing names of the parties because Stock Exchange was conducting the transactions through screen based electronic trading in which it was not possible to choose the counter-parties for trades. Thus, nothing was proved against the assessee. Regarding the allegation that assessee company had done reversal trades in illiquid stocks, it was stated that illiquid stocks were those that could not be sold easily because they saw limited trading. These stocks posed higher risks to investors because it was difficult to find buyers for them as compared to frequently traded shares. However, assessee had done trading in options

P a g e | 5 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai having underlying scripts like Apollo Tyres , yes Bank , Axis Bank, Dish TV, , HDFC Bank ., ICICI Bank, JSW Steel, Hindustan Unilever, Maruti , M&M, SBIN etc. which were well known and frequentlytraded on the exchange; such scripts were not thinly traded and cannot be termed as illiquid stocks as per SEBI Guidelines. The buy and sale price of such well known and frequently traded scripts did not vary significantly and hence, the profits earned by the assessee traded in its normal course of business was genuine. The assessee used to do business in NSE, BSE, Commodity exchanges through futures segment as hedging /trading tools as per requirement of the business. He dealt in F&O through exchanges since number of years. Therefore, it was not an isolated year where assessee had done the transaction in future and option stocks. All such transactions are recorded in the books of account. Profit and Loss earned/incurred from trade in such Exchanges were also part of the financial statements. The assessee paid Security Transaction Tax (STT) on all the transactions. All the transactions were supported by contract notes in respect of the impugned amount of derivative trading. Bank statements of the assessee reflected payment of requisitesettlement amount to exchange and were also reflected in the books of account.

3.

1 The AO, however, did not accept the contentions of the assessee stating that just making the transaction through banking

P a g e | 6 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai channel could not be considered as a genuine transaction was not acceptable. It could be seen that the assessee was continuously booking Profits while other three parties who were booking losses continuously. It meant that assessee is selling the various illiquid derivatives mostly on the day when it was supposed to be expired and then letting it expire. No reverse sauda was happening here. This is happening for all the trades executed by the assessee company. All the three counterparties, belonged to one single share broker situated in another city. This counterparty share broker had been already marked by SEBI for manipulative trade practices, earlier. Securities and Exchange Board of India (SEBI) found that there were several entities who consistently made significantloss and others who consistently made significant profit by executing reversal trades instock options on the BSE. According to SEBI, the trading pattern of both loss-making and profit-making entities in these cases fails to justify any of the normal strategies of hedging, speculation andarbitrage. These large number of organised syndicates had set up „shops‟ to convert blackmoney into legitimate-looking funds through the stock market platform. The loss-makingentities were deliberately making repeated loss through their reversal trades in stockoptions which did not make any economic sense, and the profit- making entities werefacilitating them by becoming their counter-parties

P a g e | 7 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai and were acting in concert with acommon object of intended execution of these suspicious and non-genuine trades. Hence, the assessment was completed by considering the profit of Rs.74,61,900/- being bogus in nature, as unexplained credit u/s 68 of the Act 4. In the subsequent appeal filed the assessee inter alia contested the validity of the notice u/s 148A(b) of the Act as also on the merit of the case. The ld.CIT(A) observed that written submissions along with additional evidences filed before him were forwarded to the AO who was asked to submit the copy of the notice issued u/s 148A(b) of the Act along with annexure if any containing the reasons communicated to the assessee as mandated in section 148A of the Act. However, he did not respond to this notice. Hence, the records of the assessment proceedings available in CPC 2.0 were examined to verify the claim of the appellant. It was noticed from the records that, the claim of the appellant was not acceptable. In this case, notice u/s 148A(b) of the IT Act was issued on 24.05.2022 and the assessee filed adjournment letter to the AO on 09.06.2022. Later, the AO passed order u/s 148A(d) of the IT Act on 28.07.2022 and also issued notice u/s 148 of the Act on the same day. In response to the notice, the appellant filed the return of income on 27.08.2022. The AO later issued notice u/s 143(2) & 142(1) of the IT Act. As per the assessment records, the appellant did not respond

P a g e | 8 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai to the notices issued. In view of the above, he was asked to submit ground wise written submission vide notice dated: 02.09.2024, 19.09.2024, 08.11.2024, 22.11.2024, 20.12.2024 and 03.01.2025. On every occasion, he filed adjournment letter and only uploaded grounds of appeal and statement of facts. In the present case, the assessment was reopened on account of specific input received by the AO under the captioned subject “Project Falcon” regarding coordinated and pre- mediated trading on BSE by engaging in reversal trading in the illiquid stock options. Such transaction resulted into non-genuine business loss/gain. The assessee was one of the parties for such manipulation. The entire modus operandi has been discussed elaborately in the assessment order. It is for this reason, he appellant did not respond to the notices issued by the AO during the course of assessment proceedings. Further, he also remained non- compliant throughout the course of appeal proceedings. As the facts were recorded elaborately in the assessment order and the assessee was not able to controvert the facts recorded, the addition made by the AO was upheld.

5.

Before us, the assessee has filed several additional grounds of appeal as stated above inter alia challenging the notice u/s 148 of the Act on the issues of DIN which however, has been denied by the AO in the P a g e | 9 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai report submitted through the ld.DR .The assessee has also contested the legality of the orders on the basis of jurisdictional issue involving JAO/FAO. It is submitted that a show cause notice u/s 148A(b) of the Act dated 24.05.2022 was issued by the AO. The said show cause notice was not accompanied by any material or information.

5.

1 On merits, it is claimed that the assessee had not suffered any loss on the contrary had earned a profit which was offered to tax. Thus, the entire proceeding went on a fundamentally incorrect fact and therefore, the very basis for reopening is without jurisdiction. All notices issued, and even in the show cause notice, all throughout the case of the AO was of the view that the assessee has suffered bogus loss. However, in the final order, after considering the submission filed, he has changed the stand and he taxed the gain on the transactions to tax. This itself showed that the information with him was incorrect and flawed and that based on such information, mechanically and without application of mind, the notice u/s 148 was issued. Such a mechanical approach is not permissible u/s 148 of the Act. In the assessment order, finally the profits of Rs. 74,61,900/-was treated as bogus. The same had already been offered to tax. Therefore, when an income had been offered to tax, there is no question of income escaping assessment. Therefore, the P a g e | 10 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai notice u/s 148 is bad in law and therefore, liable to be quashed and set aside.

5.

2 It is submitted that various details and replies were submitted during assessment proceedings which were not considered by the AO. Moreover, no adverse material has been brought on record by the AO to controvert the explanation offered by the assessee. The addition has been made merely on assumptions and surmises, without pointing out any specific defect in the books of account or the evidences produced. As per the settled legal position, once the assessee discharges the primary onus cast upon it, the burden shifts to the department to proveotherwise. In the present case, he fully discharged such onus, and therefore the impugned addition is not sustainable in law.Without prejudice, it is submitted that since the assessee had himself offered the said sum of tax of Rs. 74,61,900/- there cannot be any double taxation of the same amount. In ground no. 4, it submitted that the assessment order dated 24.03.2022 passed under section 147 r.w.s 144B of the Act was bad in law as the same has been passed without granting sufficient opportunity of being heard.

6.

We have carefully considered the above facts. The assessee has filed several additional grounds of legal on the legality of the notice

P a g e | 11 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai issued u/s 148 of the Act for the first time before the Bench with a request to admit the same. On careful consideration, we find that these ground are legal in nature and therefore are admitted.

6.

1 However, as stated in the preceding paras, the ld.CIT(A) has categorically stated that there was no compliance before him despite several notices issued by him from time to time. Accordingly, based on the materials on record, he decided the appeal and dismissed that same. The ld.AR did not elaborate the reasons for such non compliance. Evidently, the ld.CIT(A) could not adjudicate on the merits of the addition made as also the additional grounds being raised for the first time before us. Considering all such facts, we are of the considered view that entire matter requires revisit by the ld.CIT(A) both on legal aspects as also the merits of the case. Accordingly, we set aside the appellate order and remand the issues in hand to the file of the appellate authority with a direction to allow adequate opportunity of hearing to the assessee who would be at liberty to raise any additional ground or file additional evidences, if any before him for just and fair appreciation and consequent decision on the issues involved and narratedabove.

7.

In the result, appeal of the assessee is allowed for statistical purposes.

P a g e | 12 A.Y. 2014-15 Suril Gajendra Doshi, Mumbai Order pronounced in the open court on 29/04/2026. SANDEEP GOSAIN PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai ददनाुंक /Date. 29.04.2026 Lubhna Shaikh / Steno

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.

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