CHIRAG BHARAT HUF ,MUMBAI vs. ITO WARD 33(1), MUMBAI

The present appeal preferred by the Assessee is directed against the Order, dated 04/12/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had dismissed the appeal against the Assessment Order, dated 24/12/2019, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], for the Assessment Year 2012-2013. 2. The Assessee has raised following grounds of appeal:

The relevant facts in brief are that the Assessee is a Hindu Undivided Family. For the Assessment Year 2012-2013, Assessee filed its return of income on 08/09/2012 which was revised on 17/09/2013 declaring total loss of INR.5,50,984/-. The income tax return was processed under Section 143(1) of the Act. Thereafter, reassessment proceeding were initiated in the case of the Assessee under Section 147 of the Act. The aforesaid reassessment proceeding culminated into passing of Assessment Order, dated 24/12/2019 under Section 143(3) read with Section 147 of the Act. The Assessing Officer assessed the income of the Assessee at INR.6,08,67,243/- after making following additions under Section 68 of the Act and thereby bringing to tax consideration received by the Assessee from sale of shares of the alleged penny scripts/companies: Particulars INR. INR. Income from Other sources (As per computation of income) 94,581 Add: Unexplained Cash Credit 43,33,294 for a sale trade value of M/s.Nivyah Infrastructure and Telecom Services Ltd. Unexplained Cash Credit 3,13,498 for a sale trade value of M/s.Gemstone Investment Ltd. Unexplained Cash Credit 1,44,91,755 for a sale trade value of M/s.Vas Infrastructure Ltd. Unexplained Cash Credit 1,71,491 for a sale trade value of M/s.Rockon Fintech Unexplained Cash Credit 35,26,277 for a sale trade value of M/s. Exelon Infra Unexplained Cash Credit 3,79,36,347 for a sale trade value of M/s. Diamant Infrastructure Ltd. INR.4,81,199/-, M/s. Scan Steels Ltd. INR.2,60,00,244/-, M/s. Divine Multimedia (India) Ltd. INR.2,37,498/-, M/s. Aagam Capital Ltd. INR.3,76,572/- and VMS Industries Ltd. INR.1,08,40,834/-. Gross Total Income 6,08,67,243 6,08,67,243 Less: Deduction under Section Chapter VI-A (As per NIL computation of income) Total Income 6,08,67,243 Rounded off to. 6,08,67,240

Being aggrieved, the Assessee has preferred the appeal before Learned CIT(A) challenging the validity of reassessment proceedings as well as the additions made by the Assessing Officer on merits. Vide Order, dated 04/12/2025, the Learned CIT(A) dismissed the appeal.

The Assessee has now preferred the present appeal before this Tribunal on the grounds reproduced in Paragraph 2 above.

When the appeal was taken up for hearing the Learned Authorized Representative for the Assessee advanced submissions on admission of additional ground raised by the Assessee vide Letter, dated 15/04/2026 challenging the validity of reassessment proceedings. The Learned Departmental Representative opposed the admission of additional ground. On perusal of the ground raised by the Assessee, we are of the view that the Assessee had taken legal ground which can be adjudicated without inquiring into fresh facts and on the basis of material on record. We further we note that even before the Learned CIT(A), the Assessee has challenged the validity of reassessment proceedings. Therefore, the ground raised by the Assessee is in the nature of additional legal plea. Accordingly, we admit the additional ground raised by the Assessee and proceeded to adjudicate the same as it travels to the root of the matter.

The contention of the Assessee is that the reasons recorded by the Assessee for initiation of the reassessment proceedings under Section 147 of the Act are bad in law. It was submitted by the Learned Authorized Representative for the Assessee that the Assessee was engaged in the business of regular trading of shares and securities, including equity, derivatives and commodities and had undertaken trades in multiple strips during the relevant previous year. While the Assessing Officer had recorded that the Assessee had claimed exemption under Section 10(38) of the Act, no such exemption was claimed by the Assessee. Further, the reassessment proceedings were been initiated only for the purpose of verification. It was also contended that the Assessing Officer had proceeded to pass the Assessment Order before the expiry of 4 weeks from the date of the order disposing objections filed by the Assessee. The aforesaid action of the Assessing Officer was in violation of the judgment of the Hon’ble Commissioner of Income-tax [2008] 296 ITR 90 (Bombay) [29/01/2007]. Therefore, the reassessment proceedings stood vitiated.

Per contra, Learned Departmental Representative supported the initiation of reassessment proceedings and submitted that Assessing Officer had creditable information that the Assessee had engaged in trade of penny stocks scripts during the relevant previous year. It was further submitted that the Assessee had not denied this fact in the objection raised and had merely stated that no exemption under Section 10(38) of the Act was claimed. The Learned Departmental Representative further pointed out that in the case of Assessee no regular scrutiny assessment was framed under 143(3) of the Act and therefore, the information relating to the alleged trades in penny stock scripts was not available with the Assessing Officer. Therefore, the Assessing Officer was justified in forming of belief that income escaped assessment by invoking the deeming fiction contained in Clause (b) of Explanation 2 to Section 147 of the Act. It was further submitted that the Assessing Officer was constrained to pass the Assessment Order on 24/12/2019 since the Assessee had filed objections against the reasons recorded for reopening the assessment belatedly and the assessment proceedings were getting time barred on 24/12/2019. Further, the Assessee had failed to file return of income in response to the notice issued under Section 148 of the Act and for the said reason also the benefit of judgment of Hon’ble Bombay High Court in the case of Asian Paints Ltd. (Supra) was not available to the Assessee.

We have given the thoughtful considerations to the rival considerations and have perused the material on record.

We note that the notice under Section 148 of the Act was issued on 26/03/2019 requiring the Assessee to file return of income. The Assessee did not file return of income in response to the notice under Section 148 of the Act. In the case of GKN Driveshaft (India) Ltd. v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19 it was held by the Hon’ble Supreme Court that when a notice under Section 148 of the Act is issued, the proper course of action for the assessee is to file return and to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the assessee 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. In the present case the Assessee did not file return of income and was therefore, not entitled to the benefit of the aforesaid judgment of the Hon’ble Supreme Court. The Assessee filed a revised return of 08/11/2019 much after the time of 30 days to file return of income granted in the notice issued under Section 148 had expired. Though the Assessee had not complied with the judgment of the Hon’ble Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra), the reasons recorded for re-opening the assessment were provided to the Assessee on 20/11/2019. The Assessee filed objections challenging initiation of reassessment proceedings on 23/11/2019. No explanation was offered by the Assessee for not filing return of income in response to notice issued under Section 148 of the Act. The objections filed by the Assessee on 20/11/2019 were disposed off on 23/11/2019. Since the Assessment proceedings were getting time barred, the Assessing Officer was constrained to pass the Assessment Order on 29/11/2019. The contention of the Assessee is that the Assessing Officer should have waited till the last day of limitation for passing the assessment order. In case the aforesaid contention of the Assessee is accepted the same would amount to granting benefit to the Assessee in a case where the Assessee has not followed the mandate of judgment of the Hon’ble Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra). It is the not the case of the Assessee that the Assessment Order was passed by the Assessing Officer to frustrate the right of the Assessee to challenge order disposing off objections by way of writ petition. It has not even been averred that the Assessee intended to challenge the initiation of reassessment proceedings by way of writ petition. Given the aforesaid, we are of the view, that the reliance placed by the Learned Authorised Representative for the Assessee on the judgment of the Hon’ble Bombay High Court in the case of Asian Paints Ltd. (supra) was clearly misplaced.

We note that the Assessing Officer had recorded the following reasons for reopening the assessment:

It is clear that the Assessee has not claimed any Long Term Capital Gains exemption. The Profits/Losses related to the transactions have been disclosed in the financials and in the return of income. The Learned CIT(A) has recorded Assessee contention that the Assessee had traded in as many as 1,257 scripts during the relevant previous year. It not under dispute that the Assessee had placed on record Financial Statements, Contract Notes, Demat Account Statements, bank statements. The aforesaid documents/information support the contention of the Assessee that the transaction under consideration were undertaken by the Assessee during the normal course of business through stock exchange only. It is not disputed that the Assessee is engaged in trading of shares and offered to tax income as business income. Verification of record shows that no Long Term Capital Gains exemption under Section 10(38) of the Act has been claimed by the Assessee. Therefore, we are of the view that the Assessee had discharged the initial burden cast upon the Assessee under Section 68 of the Act. In our view, the belief formed by the Assessing Officer to the effect that the Assessee had incorrectly claimed benefit of Section 10(38) of the Act though sufficient for initiation of the re-assessment proceedings under Section 147 of the Act, was not sufficient to make addition in the hands of the Assessee since the Assessee had placed on record material to establish that no such capital gains exemption was claimed. Thus, the onus shifted back upon the Revenue. It was up to the Assessing Officer to bring on record material to support the case of Revenue. Since, the Assessing Officer failed to do so, we hold that the addition made by the Assessing Officer bringing to tax entire sale consideration arising from sale of shares under consideration INR.6,08,67,243/- invoking the provisions of Section 68 of the Act cannot be sustained. Further, we note that the Assessing Officer has given details of the price manipulation carried out in the scripts traded by the Assessee during the relevant period. However, in our view, that is not sufficient to make additions in the hands of the Assessee under Section 68 of the Act in the present case. The Assessee before us is a regular trader and has carried out trades in more than 1000 scripts (as per the script wise register placed on record) out of which transactions in 10 scripts are under scrutiny. The Assessee had made in aggregate (a) Short Term Gains of INR.39,325/-(b) Short Term Loss of INR.1,501/- and (c) Speculation Gains of INR.71,637/-. Given the aforesaid, we are of the view that the preponderance of possibility is favor of the Assessee having undertaken the trades under consideration in the normal course of business. Our aforesaid view draws strength from the judgment of the Hon’ble Bombay High Court in the case of Commission of Income Tax Vs. Shyam Pawar: 54 Taxmann.com 108 (Bombay) cited on behalf of the Assessee.

In view of the above addition of INR.6,08,67,243/- made by the Assessing Officer invoking the provisions of Section 68 of the Act is deleted and Ground No. 4, 5, 6, and 7 raised by the Assessee are allowed.

Ground No. 8 relating to levy of interest is disposed off as being consequential in nature.

In result, the present appeal preferred by the Assessee is partly allowed.

"धान आयकर आयु" / Pr.CIT 4. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण ,मुंबई / DR, ITAT,

Mumbai गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.