MAHESH HEMRAJ MEHTA,MUMBAI vs. ITO WARD 22(2)(1), PIRAMAL CHAMBER,MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H(SMC)” BENCH MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 627/Mum/2026 (Assessment Year: 2012-13) Mahesh Hemraj Mehta, ITO Ward 22(2)(1) B-13 I/I Dharavi, Piramal Chambers, Mumbai, Vs. Mumbai, Maharashtra-400017 Mumbai-400 021 PAN/GIR No. AHXPJ3725F (Applicant) (Respondent) Assessee by Mr. Ayush Chhajed, CA Revenue by Shri Pravin Salunkhe, Sr. DR Date of Hearing 07.05.2026 Date of Pronouncement 29.06.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: The present appeal has been filed by the assessee against the order passed by the learned Addl./Joint Commissioner of Income-tax (Appeals)-1, Bengaluru [hereinafter referred to as "the CIT(A)"] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]vide order dated 10.11.2025 arising out of the assessment order passed by the Income Tax Officer, Ward-22(2)(6), Mumbai [hereinafter referred to as

2 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta "Assessing Officer"]under section 143(3) read with section 147 of the Act dated 27.11.2019 for Assessment Year 2012-13. 2. Briefly stated, the facts of the case are that the assessee is an individual. The assessee had not filed the original return of income for Assessment Year 2012-13. Subsequently, information was received by the Assessing Officer from the office of the Deputy Director of Income-tax (Investigation), Unit-8(3), Mumbai indicating that the assessee had entered into transactions in the shares of M/s. Nivyah Infrastructure & Telecom Services Ltd. (formerly known as M/s. S.V. Electricals Ltd.), which according to the Investigation Wing was a penny stock company allegedly used for providing accommodation entries in the nature of artificial capital gains and capital losses. On the basis of the said information, the Assessing Officer recorded reasons for reopening the assessment, obtained approval under section 151 of the Act and issued notice under section 148 dated 29.03.2019. 3. In response to the notice issued under section 148, the assessee filed a return of income on 26.04.2019 declaring total income of Rs.1,68,320/- and claiming Short-Term Capital Loss of Rs.63,450/- arising from transactions in shares of M/s. Nivyah Infrastructure & Telecom Services Ltd. Thereafter, notices under sections 143(2) and 142(1) were issued and reassessment proceedings were carried out. 4. During the reassessment proceedings, the Assessing Officer observed that the Investigation Wing had reported that M/s.

3 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta Nivyah Infrastructure & Telecom Services Ltd. was a penny stock company whose share prices had allegedly been manipulated to facilitate accommodation entries. The Assessing Officer noted that the share price of the company had risen abnormally despite there being no corresponding improvement in its business fundamentals. The Investigation Wing had allegedly unearthed a network of operators, brokers and beneficiaries involved in generating artificial Long-Term Capital Gains, Short-Term Capital Gains and capital losses through trading in such penny stock companies. 5. The Assessing Officer further observed that during the relevant previous year the assessee had purchased 5,000 shares of M/s. Nivyah Infrastructure & Telecom Services Ltd. for Rs.3,60,550/- and had claimed Short-Term Capital Loss of Rs.63,450/- on sale thereof. According to the Assessing Officer, the assessee was one of the beneficiaries of the accommodation entry mechanism identified by the Investigation Wing. The Assessing Officer referred to the investigation report, the alleged abnormal movement in the share price of the company, the financial position of the company and the trade data collected during investigation and formed a view that the transactions in the said shares were not genuine commercial transactions but formed part of a pre-arranged arrangement intended to generate artificial capital losses. 6. Before the Assessing Officer, the assessee submitted that the shares had been purchased and sold through recognized

4 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta stock exchange mechanism and registered brokers. It was contended that the investment was made out of disclosed sources, the transactions were duly recorded and the Short-Term Capital Loss claimed was genuine. The assessee also participated in the reassessment proceedings by furnishing details and explanations in response to notices issued by the Assessing Officer. 7. The Assessing Officer, however, was not satisfied with the explanation furnished by the assessee. Relying upon the report of the Investigation Wing and the alleged modus operandi of penny stock operators, the Assessing Officer concluded that the transactions in the shares of M/s. Nivyah Infrastructure & Telecom Services Ltd. lacked genuineness and represented accommodation entries. Accordingly, the Assessing Officer treated the investment of Rs.3,60,550/- in the said shares as unexplained investment under section 69B of the Act and further disallowed the claim of Short-Term Capital Loss of Rs.63,450/-. Consequently, against the returned income of Rs.1,68,320/-, the income of the assessee was assessed at Rs.5,92,320/- under section 143(3) read with section 147 of the Act. 8. Aggrieved by the aforesaid assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the validity of the reassessment proceedings as well as the additions made on merits. The assessee contended that the notice issued under section 148 was invalid as proper approval under section 151 had not been

5 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta obtained. It was further contended that the reasons recorded for reopening had not been supplied despite repeated requests, thereby violating the principles of natural justice. The assessee also submitted that there was no failure on his part to disclose material facts and that the Assessing Officer had relied upon the report of the DDIT (Investigation) without furnishing a copy thereof for rebuttal. 9. On merits, the assessee contended before the learned CIT(A) that the addition of Rs.3,60,550/- under section 69B was unjustified as the investment had been made out of disclosed funds and stood recorded in the books of account. It was further submitted that the purchase and sale of shares had been carried out through a recognised stock exchange and registered brokers and therefore the transactions could not be treated as non- genuine. The assessee also challenged the disallowance of Short- Term Capital Loss of Rs.63,450/- and contended that the loss was genuine and allowable under law. 10. The learned CIT(A), after considering the assessment order and the material available on record, upheld the validity of the reassessment proceedings. The learned CIT(A) recorded that the Assessing Officer had recorded reasons on 27.03.2019 based upon information received from the Investigation Wing, Mumbai and had obtained prior approval under section 151 of the Act on 28.03.2019. The learned CIT(A) held that the information received from the Investigation Wing constituted tangible material

6 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta sufficient to form a belief regarding escapement of income and therefore the reopening under section 147 was valid. 11. The learned CIT(A) also rejected the contention regarding non-furnishing of reasons and violation of principles of natural justice. The learned CIT(A) observed that the reasons recorded for reopening were available on record and that the reassessment proceedings could not be invalidated on account of the alleged procedural lapse. The learned CIT(A) further held that since the assessee had not originally filed any return of income for the relevant assessment year, the contention regarding absence of failure to disclose material facts was devoid of merit. 12. On merits, the learned CIT(A) concurred with the findings of the Assessing Officer. The learned CIT(A) observed that the Investigation Wing had specifically identified M/s. Nivyah Infrastructure & Telecom Services Ltd. as a manipulated penny stock company and had reported abnormal price movement unsupported by business fundamentals. The learned CIT(A) further observed that statements recorded from operators and brokers allegedly established the existence of a price-rigging and accommodation-entry network. 13. The learned CIT(A) noted that although the assessee had contended that the transactions were carried out through banking channels and registered brokers, the Assessing Officer had found various circumstances indicating lack of genuineness, including abnormal price movement in the scrip, alleged absence

7 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta of satisfactory documentary evidence, lack of commercial rationale and linkage of the scrip with entry operators identified by the Investigation Wing. The learned CIT(A) held that the assessee had failed to establish the genuine nature of the investment and accordingly confirmed the addition of Rs.3,60,550/- made under section 69B of the Act. 14. In respect of the disallowance of Short-Term Capital Loss of Rs.63,450/-, the learned CIT(A) held that once the underlying share transactions were found to be non-genuine, the consequential claim of loss could not be recognised for tax purposes. The learned CIT(A) therefore confirmed the disallowance of the Short-Term Capital Loss. The learned CIT(A) further upheld the Assessing Officer's conclusion that the source of investment and the transactions in shares lacked genuineness and accordingly dismissed the appeal of the assessee. 15. Aggrieved by the order of CIT(A), the assessee is in appeal before us and has raised the following grounds of appeal: 1. On the facts and circumstances of the case, the learned assessing officer erred in issuance of notice u/s 148 without recording of appropriate satisfaction as required by provisions of section 151 and therefore, the notice itself is bad in law. 2. On the facts and circumstance of the case, the learned assessing officer erred in passing the assessment order without providing the copy of Reasons Recorded in spite of the repeated reminders for the same and hence the order passed is bad in law, null and void. 3. On the facts and circumstances of the case, the learned assessing officer erred in re-opening the assessment under section 148 without bringing out the failure on part of assessee to disclose fully and truly

8 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta all material facts as required u/s 147 therefore, the notice issued pursuant to the same is bad in law. 4. On the facts and circumstances of the case, the learned Assessing Officer erred in relying upon certain Reports of DDIT (Inv.) unit 8(3), Mumbai without even giving the copy of the same to the appellant for the purpose of rebutting the same and therefore the same could not have been considered for the purpose of concluding addition. 5. On the facts and circumstances of the case, the learned Assessing Officer erred in addition of Rs.3,60,550/- as unexplained investment u/s 69B without appreciating that the said investment in shares is out of the own funds and from the business income and recorded in books of accounts. 6. On the facts and circumstances of the case, the learned Assessing Officer failed to appreciate that the Sale and purchase of the said Shares has been made through a recognized Stock Exchange by registered broker and accordingly making addition u/s 69B is bad in law. 7. On the facts and circumstances of the case, the learned Assessing Officer erred in making addition of Rs. 63,450/- being Short term capital loss on above shares. Without appreciating that the said Short term capital loss is not adjusted against any other head income in current year as well as subsequent years. The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal at the time of hearing. 16. During the course of hearing before us, the learned Authorised Representative (AR) for the assessee invited our attention to pages 27 and 28 of the paper book containing a letter of reply dated 26.04.2019 in response to the notice issued under section 148 of the Act dated 29.03.2019. Referring to the said communication, the learned AR submitted that immediately upon filing the return of income in response to the notice under section 148, the assessee had specifically requested the Assessing Officer to furnish the reasons recorded for reopening the assessment.

9 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta 17. Our attention was drawn to the portion of the said letter wherein the assessee had stated as under: “Reasons for Reopening: We further request your good self to kindly provide us the Reasons Recorded for reopening the assessee's case and it needs to be appreciated that the notice under section 148 has been issued without the copy of the Approval Note sent for the satisfaction of the higher authorities. In view of the above we request you to provide the reasons for reopening." 18. Relying upon the aforesaid communication, the learned AR submitted that the assessee had sought a copy of the reasons recorded at the very inception of the reassessment proceedings and had also requested for the approval note relating to sanction under section 151 of the Act. According to the learned AR, despite such specific request having been made on 26.04.2019, the Assessing Officer neither furnished the reasons recorded nor supplied the approval/satisfaction note before completion of the reassessment proceedings. It was therefore contended that Ground Nos. 1 to 4 raised before the Tribunal are not merely technical grounds but arise from the failure of the Assessing Officer to comply with the settled principles governing reassessment proceedings. 19. The learned AR further submitted that both the Assessing Officer as well as the learned CIT(A) proceeded on the assumption that the assessee had never sought the reasons recorded, whereas the contemporaneous correspondence placed in the

10 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta paper book clearly demonstrates that a specific request for furnishing the reasons recorded and approval note was made immediately after filing the return in response to notice under section 148. It was accordingly argued that the validity of the reassessment proceedings requires examination in the light of the aforesaid factual position emerging from the record. 20. Per contra, the learned Departmental Representative supported the orders passed by the Assessing Officer and the learned CIT(A). 21. We have heard the rival submissions and perused the material available on record. We have also carefully considered the assessment order, the appellate order, the paper book filed by the assessee and the judicial precedents relied upon by both sides. 22. The primary grievance raised by the assessee in Ground Nos. 1 to 4 relates to the validity of the reassessment proceedings. The specific contention of the assessee is that despite a written request made immediately after filing the return in response to notice issued under section 148, the Assessing Officer neither furnished the reasons recorded for reopening nor disposed of the objections by passing a speaking order before proceeding with the reassessment. 23. From pages 27 and 28 of the paper book, we find that the assessee, vide letter dated 26.04.2019 addressed to the Assessing Officer, specifically requested for supply of the reasons recorded

11 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta for reopening. The letter further records the grievance of the assessee that notice under section 148 had been issued without furnishing the approval note and specifically requests the Assessing Officer to provide the reasons for reopening. 24. The aforesaid factual position assumes significance because the learned CIT(A) proceeded on the footing that non-furnishing of reasons was merely a procedural irregularity. However, before examining the effect of such non-compliance, it becomes necessary to ascertain whether the assessee had in fact requested for the reasons recorded. The contemporaneous correspondence dated 26.04.2019 conclusively establishes that such request was indeed made by the assessee at the earliest available opportunity. 25. The law on the subject stands authoritatively laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO reported in 259 ITR 19 (SC). The Hon'ble Supreme Court held as under: "when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order." 26. Thus, the decision of the Hon'ble Supreme Court contemplates a three-stage procedure: i. filing of return in response to notice under section 148;

12 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta ii. furnishing of reasons recorded by the Assessing Officer upon request; iii. disposal of objections by a speaking order before proceeding with reassessment. 27. These safeguards are not empty formalities. They constitute an important facet of the principles of natural justice in reassessment proceedings. 28. In the present case, the first stage admittedly stands complied with since the assessee filed return in response to notice under section 148. However, there is nothing on record to demonstrate that the Assessing Officer furnished the reasons recorded to the assessee pursuant to the request dated 26.04.2019. There is equally no material to show that any objections were invited, considered or disposed of by way of a speaking order before completion of reassessment. 29. The learned CIT(A), while rejecting the assessee's challenge regarding non-furnishing of reasons recorded, placed reliance upon the decision in Home Finders Housing Ltd. v. ITO reported in 404 ITR 611. The learned CIT(A) has referred to the said decision as a judgment of the Hon'ble Supreme Court and proceeded on the premise that non-furnishing of reasons before completion of reassessment constitutes only a procedural irregularity which does not vitiate the reassessment proceedings. At the outset, we find that the reliance placed by the learned CIT(A) suffers from a factual infirmity. Home Finders Housing

13 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta Ltd. v. ITO reported in 404 ITR 611 is not a decision of the Hon'ble Supreme Court but a judgment rendered by the Hon'ble Madras High Court. The ratio of the said judgment, therefore, has to be appreciated in the factual context in which it was rendered. 30. We have carefully perused the decision in Home Finders Housing Ltd. (supra). In that case, the Assessing Officer had admittedly furnished the reasons recorded for reopening to the assessee. Upon receipt of the reasons, the assessee had filed objections challenging the assumption of jurisdiction under section 147. The grievance before the Hon'ble Madras High Court was that although objections had been filed, the Assessing Officer proceeded to complete the reassessment without first disposing of those objections by passing a separate speaking order as mandated by the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO, 259 ITR 19 (SC). 31. It was in the aforesaid factual backdrop that the Hon'ble Madras High Court held that failure to dispose of objections by a speaking order before completion of reassessment constituted a procedural irregularity capable of being cured by restoring the matter to the Assessing Officer. The issue before the Hon'ble High Court was not a case where the reasons recorded were never furnished to the assessee despite a specific request. 32. The facts of the present case stand on a materially different footing. Here, the assessee has placed on record a contemporaneous letter dated 26.04.2019 whereby a specific

14 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta request was made to the Assessing Officer seeking supply of the reasons recorded for reopening. There is nothing available on record to demonstrate that such reasons were ever furnished to the assessee. Consequently, the assessee was deprived of the very opportunity contemplated by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) to raise objections against the assumption of jurisdiction. 33. Therefore, in our considered view, the learned CIT(A) was not justified in applying the ratio of Home Finders Housing Ltd. (supra) without appreciating the distinction between a case where reasons have been furnished but objections have not been separately disposed of, and a case where reasons themselves have not been supplied despite a specific request by the assessee. The latter strikes at the very foundation of the procedural safeguards recognized by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra). 34. The distinction is crucial. Unless reasons are first furnished, the assessee is deprived of the very foundation on which objections are required to be framed. The right to object contemplated in GKN Driveshafts becomes illusory if reasons themselves are withheld. Therefore, the present case stands on a materially different footing from Home Finders Housing Ltd. 35. We further note that neither the assessment order nor the order of the learned CIT(A) records that the reasons recorded were supplied to the assessee. The Revenue has also not produced any

15 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta evidence before us demonstrating that such reasons were ever furnished. The only contemporaneous document available on record is the assessee's letter dated 26.04.2019 requesting the reasons recorded. There is no corresponding communication evidencing compliance by the Assessing Officer. 36. It is well settled that the burden to establish compliance with the mandatory procedural requirements of reassessment rests upon the Revenue. Once the assessee demonstrates that a request for reasons was made, the Revenue must establish that the reasons were furnished and the objections, if any, were disposed of in accordance with law. In the present case, no such material has been brought on record. On the contrary, we find that the first reference to the alleged transactions in the shares of M/s. Nivyah Infrastructure & Telecom Services Ltd. was made only much later in the notice issued under section 142(1) of the Act dated 06.11.2019. Mere reference to the alleged penny stock transactions in a subsequent notice issued during the course of reassessment proceedings cannot be equated with furnishing the reasons recorded for reopening as contemplated by the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO. 37. The learned CIT(A) proceeded to adjudicate the issue by treating the non-furnishing of reasons as a curable irregularity. However, such conclusion overlooks the fact that there is no finding that reasons were ever supplied to the assessee. Consequently, the assessee was deprived of the valuable right

16 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta recognised by the Hon'ble Supreme Court in GKN Driveshafts to raise objections against assumption of jurisdiction under section 147. 38. We are therefore unable to sustain the approach adopted by the learned CIT(A). The jurisdictional challenge raised by the assessee deserves acceptance. We are of the considered view that the action of the Assessing Officer in proceeding with the reassessment without furnishing the reasons recorded, despite a specific request made by the assessee, has resulted in denial of a substantive procedural safeguard recognized by the Hon'ble Supreme Court. Such failure has caused manifest prejudice to the assessee and has rendered the entire reassessment proceedings unsustainable in law. 39. In view of the foregoing discussion, we hold that the reassessment completed under section 143(3) read with section 147 of the Act is liable to be quashed. Accordingly, the assessment order dated 27.11.2019 and the order of the learned CIT(A) affirming the same are set aside. Ground Nos. 1 to 4 raised by the assessee are allowed. 40. Since the reassessment itself has been held to be invalid and has been quashed, the additions made under section 69B amounting to Rs. 3,60,550/- and the disallowance of Short-Term Capital Loss of Rs. 63,450/- do not survive for adjudication. Ground Nos. 5 to 7 have therefore become academic and are not adjudicated upon.

17 ITA No. 627/Mum/2026 Mahesh Hemraj Mehta 41. In the result, the appeal filed by the assessee is allowed.

Order pronounced on 29/06/2026 as per Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

Sd/- Sd/- (KAVITHA RAJAGOPAL) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 29/06/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. संबंधधत आयकर आयुक्त / The CIT(A) 3. आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai