INCOME TAX OFFICER - 31, MUMBAI vs. SANJAY D CHAVAN HUF, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE HON'BLE JUSTICE (RETD.) C V BHADANG, PRESIDENT AND SHRI ARUN KHODPIA, AM ITA No. 1692/Mum/2024 (Assessment Year: 2012-13) Sanjay D. Chavan, HUF Income Tax Officer – 31, Mumbai 203, 2nd Floor, Kautilya Bhavan, BKC, Vs. Bandra East, Mumbai – 400051. PAN/GIR No. AAPHS9983R (Appellant) : (Respondent) ITA No. 1690/Mum/2024 (Assessment Year: 2012-13) Income Tax Officer – 31, Mumbai Sanjay D. Chavan , HUF 203, 2nd Floor, Kautilya Bhavan, BKC, Vs. Bandra East, Mumbai – 400051. PAN/GIR No. AAPHS9983R (Appellant) : (Respondent) Assessee by : Shri Anil Sathe Respondent by : Shri Swapnil Choudhary – SR. DR Date of Hearing : 02.02.2026 Date of Pronouncement : 30.04.2026 O R D E R Per Arun Khodpia, AM:

The aforesaid cross appeals by the assessee and revenue are directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, (in short ‘ld. CIT(A)’), passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act'), dated 09.02.2024, for the Assessment Year (in short ‘A.Y.’) 2012- 13 which in turn arises from the assessment order u/s. 143(3) r.w.s. 147, dated 17.12.2019, passed by Income Tax Officer, Ward 25(1)(1), Mumbai.

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF 2. The brief facts of the case are that, the assessee HUF is engaged in the business of share trading. The assessee filed its original return of income on 30.09.2012, declaring total income (loss) of Rs. (-16,75,704/-). The case of assessee was selected for scrutiny and assessment u/s. 143(3) was completed on 21.02.2015 accepting the returned income of the assessee. Subsequently, the case was reopened u/s. 148 and order was passed on 29.11.2016, observing that the assessee is a beneficiary of accommodation entries provided by Satish Saraf Group, an addition of Rs. 8,04,152/- was made. Further, again on receipt of information from Deputy Director (Investigation) Unit 3(2), Mumbai, vide letter dated 11.03.2019, in the case of scrip namely M/s. Rockon Fintech (Earlier Insutech India), BSE Scrip 531447, which was established to be a penny stock company and has been used by the operators/entry exit providers to provide exempt Long Term Capital Gain/ Short Term Capital Gain/business loss for the purpose of bringing unaccounted cash in the books of account or to create fictitious losses in the return of income to avoid paying due taxes on the income. It is revealed that the assessee herein has undertaken transactions amounting to Rs. 2,26,66,727/- during the F.Y. 2011-12 in the alleged script ‘M/s. Rockon Fintech’. Further, it is found that the assessee availed a loan of Rs. 4,02,912/- from M/s. Confidence Finance and Trading Ltd. which was used to facilitate the introduction of unaccounted income. The process of reopening assessment was initiated in second round and the assessee was provided with the additional information during the course of proceedings.

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF 3. Before ld. AO assessee objected the impugned reopening of assessment on 19.10.2019, stating that it had furnished all the information related to the script ‘M/s. Rockon Fintech’, at the time of original assessment. In rebuttal of objections, ld. AO clarified that the information about the particular script ‘Rockon Fintech’ being a penny scrip and the assessee is a beneficiary of bogus gains/loss from trading in the said scrip was received in March, 2019, so this issue was never examined during the original assessment u/s. 143(3) or earlier proceedings u/s. 147/148. It is also observed by the ld. AO that in view of the information from Investigation wing, there was fresh material on record which was not examined in the earlier proceedings that provided reason to believe that the assessee has taken accommodation entry in the above script to the extent of Rs. 2,26,66,727/-. The aforesaid rebuttal to the objection was never contested or challenged by the assessee, during the assessment stage. Further, the ld. AO discussed the merits of the issue, have analyzed the details of ‘Rockon Fintech Ltd’ (Now Rockon Enterprises Ltd), investigation reports of the company submitted by Investigation Wing, Mumbai, analysis of financials of the ‘Rockon Fintech Ltd.’, analysis of share price pattern of the said company, etc. The ld. AO observed that the assessee had made huge investment in the said company. The assessee was summoned for recording statement u/s. 131 of the Act, for which the Karta of HUF, Shri. Sanjay D Chavan attended on 11.12.2019. He explained the working of the HUF stating that he has reasonable knowledge of share trading and the business of HUF is

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF trading in shares through broker M/s Mangal Keshav Securities Ltd. Regarding source of funds for investment, it is stated by Karta that the assessee HUF had availed loan from M/s Mangal Keshav Finance LLP. The ld. AO discussed the modus operandi of the alleged penny stock script and have added the loss incurred by the assessee in transaction of the said penny stock by stating the following reasons: “32. The assessee's reply was considered and not found acceptable for the following reason: 1. The assessee has sought to cross examine witness at the fag end which is not feasible or impracticable and therefore rejected. 2. Regarding the loan from M/s Confidence Finance and Trading Ltd, the information is accurate. As per the assessee's own submissions, loan of Rs. 50,00,000/- was availed in September 2011 and repayment of Rs. 47,00,000/- was done in February 2012. The balance payable Rs. 3,00,000/- alongwith interest is Rs. 4,02,912/-. 3. The assessee was given reason for re-opening in April 2019. The assessee did not ask for cross examination at that time of receipt of reasons. After a lapse of 8 months after the issue of show cause notice the assessee is asking for cross examination in an attempt to stall assessment proceedings. Moreover, there is enough evidence to prove the predetermined action to deflate the taxable income by recording artificial losses. The cross examination will in no way diminish or justfy the Intention of the assessee. In this case rellance is place in the case of Manidhari Stalnless Wire (P) td vs Union of India 88 taxmann.com wherein the High Court of Andhra Pradesh while dealing with CGSTAct 2017 held that 'if there are factual grounds to show the denial of cross examination was based on sound logic then the order of adjudication cannot be interfered with' 4. Reliance is also placed in the case of Dr. Gauri Shankar Prasad vs ITO 393 ITR 635, wherein the Hon'ble High Court of Patna held that 'the assessee had been given sufficient opportunity in the matter and no point of time did he raise plea that copies of the statements of persons relied

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF upon or such evidence ought to be supplied to him or that he intended to cross examine them. Therefore, it was not open to him and turn around and claim that he had been denied the opportunity of cross examination and the statements could not be used against him. Considering the entirety of the evidence and materials which had come up against the assessee Including the huge amount of assets both movable and immovable, Investments made by the assessee it could not be said that the said statements, which had been concurrently accepted as relevant or corroborative evidence or material used for the purpose of addition, could not have been taken into consideration. the denial dact reason for reopening Therefore the total amount of Rs.1,52,21,727 loss claimed by the assessee in this scrip is treated as bogus loss and added to income as Business Income.” 4. Further, as per the ld. AO, the transaction of penny stock by which the assessee was benefited are completed by paying certain commission also. Therefore, the commission was estimated at 5% for Rs. 7,61,086/- (5% of Rs. 1,52,21,727/-) which is added to the income of the assessee u/s. 69 of the Act. The observation of ld. AO while estimating commission are as under: “29. It is a known fact that such entries are obtained through agents/brokers by payment of certain amount of commission. The DIT (Inv) Kolkata and Mumbai had conducted many search and seizure action and also survey and reached in a conclusion that "On such transactions, hefty commission is charged in cash by the intermediary for himself as well as for his associate operators". In such type of transaction, the assessee who has taken the entries commission payments are at least 5%, as without payment of such commission the assessee would not have got such entries. Hence, 5% of the transaction I.e. Rs.1,52,21,727/- which works out to Rs.7,61,086/- is treated to be the commission paid by the assessee and the said amount is brought to tax u/s 69 of the Act as expenses paid for unaccounted income. As the assessee has deliberately and willfully misreported and concealed income by paying un accounted money in form of commission, a conclusion which Is obvious from the discussion made in the order, penalty proceedings u/s 271(1)(c) is being initiated for concealment of Income and furnishing inaccurate particulars thereof.”

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF 5. Ld. AO also added an amount of Rs. 3,00,000/- being a difference between loan taken by the assessee for Rs. 50,00,000/- from M/s. Confidence Finance and Trading Ltd. which was paid for Rs. 47,00,000/- only. Ld. AO treated the difference of Rs. 3,00,000/- is treated as unaccounted case credit u/s 68. Further, the interest not paid on the aforesaid loan of Rs. 50,00,000/- was estimated at 12% for 6 months, calculated at Rs. 3,00,000/-, treated as commission for accommodation entries and added to the income of the assessee treating the same as unexplained expenses u/s. 68 of the Act. 6. Being aggrieved with the aforesaid additions, the assessee preferred an appeal before the ld. CIT(A) who had deliberated upon the issues raised before him and decided the issues as under: i. Regarding disallowance of Rs. 1,52,21,727/-, the ld. CIT(A) dismissed the contentions of the assessee as well as have added the amount received on the sale of such shares treating the same also as income of the assessee. Therefore, there was enhancement of income by the ld. CIT(A) to the tune of Rs. 74,85,000/-. ii. Regarding addition of Rs. 7,61,086/- as unexplained income u/s. 69 of the Act, the ld. CIT(A) had deleted the addition which is assailed by the revenue in their appeal. iii. Regarding addition of Rs. 3,00,000/- as unexplained cash credit u/s. 68 and another Rs. 3,00,000/- as unexplained expenditure on loan taken u/s.

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF 69 of the Act, the ld. CIT(A) deleted both the additions stating that the ld. AO has not provided anything on record to state that Rs. 3,00,000/- was not a loan and Rs. 3,00,000/- was paid to get the accommodation entry. Against this issue, the revenue is in appeal before us. 7. While computing the assessed income, the AO has not considered the carry forward losses of the assessee, which is contested before the ld. CIT(A) for which ld. CIT(A) has directed the ld. AO to take a comprehensive view of all the items of income/losses and redo the computation with the addition to income from other sources as computed by him in para 5 of his order. 8. In view of the aforesaid decision by the ld. CIT(A), wherein the legal contentions of the assessee challenging the reopening u/s. 147 was rejected by the ld. CIT(A), however, on merits, the appeal of the assessee has been partly allowed. 9. Regarding the additions/disallowances confirmed by the ld. CIT(A), the assessee is in appeal before the Tribunal, whereas for reliefs granted, the revenue is in appeal before us. 10. At the outset, learned Counsel of the assessee reiterated the facts of the case as discussed herein (supra). Ld. AR further take up the grounds of appeal challenging the validity of reopening assessment for which the first ground that the assessment order was invalid, having no Document Identification Number (DIN) and no exceptional circumstances for its absence were shown. Ld. AR preferred not to press this issue in view of Union Budget, 2026-27, wherein the issue of mentioning of

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF DIN on any document was considered as defective document by making a retrospective amendment, that technical defects in DIN do not invalidate assessments if they are traceable. Accordingly, ground no. 1 of the appeal has been treated as not pressed, therefore, dismissed. 11. Apropos, ground nos. 2, 3 and 4 which are interconnected issues challenging the initiation of reopening u/s. 147 r.w.s. 148 of the Act, on the issues that the reasons recorded has not formed basis or live link for forming a reason to believe. That the ld. AO merely relied on information received from Investigation wing without considering that neither the statement recorded by the consent person on oath nor any information reveled the nexus or connection with the assessee, thus, the reopening was bad in law. That during the original assessment u/s. 143(3) of the Act, the assessee had truly and fully discussed all material facts necessary for the purpose of original assessment. On these aspects, the assessee has initially made objection before the ld. AO, which were disposed off by the ld. AO. However, the assessee has not further rebutted to such observations of the ld. AO. Further, before the ld. CIT(A), the issue was discussed at length, the ld. CIT(A) had decided the issue in favour of the revenue that the reopening was validly invoked in the present case. The observations of the ld. CIT(A) are reproduced here under for the sake of completeness: “4.3 DECISION: 4.3.1 The "reason to believe is, the core concept of the section 147 which gives powers to the AO to reopen and the information made available to AO has

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF sufficiency to induce the 'reason to believe'. The Honorable Supreme Court decision in case of Kelvinator of India Ltd. 320 ITR 561(SC) is relevant in this context. In this context, the Apex court has clearly stated that tangible material must be available and there must be a live link to the reopening done. In this case, the material was made available by the investigation wing and the same was directly linked to appellant and hence, on this basis, the case was reopened. Further, in case of DCIT vs MR Shah Logistics Pvt Ltd., the Apex court has held as under:- "29. Another aspect which should not be lost sight of is that the information or "tangible material" which the assessing officer comes by enabling re-opening of an assessment, means that the entire assessment (for the concemed year) is at large; the revenue would then get to examine the returns for the previous year, on a clean slate -as it were. Therefore, to hold- as the High Court did, in this case, that since the assessee may have a reasonable explanation, is not a ground for quashing a notice under Section 147. As long as there is objective tangible material (in the form of documents, relevant to the issue) the sufficiency of that material cannot dictate the validity of the notice." 4.3.2.Hence, the AO 's action was in sync with the law laid out by the Supreme court. Further, the Honourable Apex Court in case of Raymond Wollen Mills [1999] 236 ITR 34 (SC) has also laid out that "We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous." The HC of Kolkata has in case of S.P. Jaiswal Estate (P.) Ltd.v.Income-tax Officer in [1991] 192 ITR 687 (CAL.) has also laid out that whether material is sufficient or not, is not a reason for quashing 148 proceedings. This was also held by HC of Gujarat in Praful Chunilal Patel vs ACIT 236 ITR 832.On specific issue of investigation report that pointed out transactions of the assessees with accommodation entry providers, numerous high courts have held, that thisis a basis for reopening. Judgement in 97 Taxman 177 (Delhi) AGR Investment Ltd. v. Additional Commissioner of Income-tax [2018] and 91 taxmann.com 181 (Gujarat) Jayant Security & Finance Ltd. v.Assistant Commissioner of Income- tax, officer Circle 1(1) are some of the latest judgments in this respect.

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF 4.3.3 Further, as noted by the AO in para 11, the appellant had earlier simply submitted details that the transactions existed. However, no material was brought to light that showed the true nature of transactions and fresh material is available now to the AO that the same were bogus in nature.”

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF channels. The transactions were recorded in the books of accounts and reflected in the return. The ld. AO and ld. CIT(A) had disregarded the documents submitted by the assessee. The assessee submitted documents such as contract notes, demat accounts and banking accounts. These are documents issued by unrelated third parties and cannot be treated as sham or self-serving. It is submitted that as per contract notes, the assessee had paid Security Transaction Tax (STT) on sale of purchase and shares which shows that the transaction was not off market transaction. It is submitted that there was no mention of the name of assessee in any of the recorded statement, which would indicate his nexus with the whole arrangement of providing and accepting accommodation entries. The appellant had carried out the transaction through recognized stock exchange and thus, operated in a regulatory environment and hence, the allegation that he was in hand in glove with some person, who operated the scheme is totally baseless. Without prejudice to above contentions in alternative, it is submitted that the entire sale proceeds have been added, whereas the sale proceeds constitute a return of the purchase cost, the action of ld. CIT(A) in adding the same is incorrect as the same cannot constitute unexplained credit u/s. 68 of the Act. 14. Per contra, the ld. DR submitted that the statement of assessee was evasive, therefore, does not sound genuine to substantiate the transaction. It was a submission that looking to overall facts and circumstances of the transactions as per human probabilities while deciding the issue, one has to look beyond the documents

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF into the circumstances. The assessee has been suspected by the investigation wing of the department. Accordingly, the information was received by the ld. AO and thereafter reopening was done. Therefore, there was fresh material available to the ld. AO for reason to believe about the escaped income by the assessee. Further, since there was a difference in the repayment of loan of Rs. 3,00,000/-, the ld. AO has rightly made the addition. Also, the accommodation entries in transactions are always with certain commission, therefore, the addition on account of commission estimated by the ld. AO was also justified and deserves to be sustained. Since the assessee has not pressed the ground regarding DIN, therefore, the ld. DR have not made any rebuttal. 15. In rebuttal, the ld. AR submitted that the department could not brought on record any ulterior motives of the assessee in the alleged transactions. The department was failed to brought on record to show any non-genuineness in the transactions. In was a submission that for substantial justice, human probabilities should not be the factor unless there is substantial corroborative evidence against the assessee. 16. We have considered the rival submissions, perused the material available on record. On perusal of the findings of ld. AO as well as ld. CIT(A), it is observed that the transactions of shares are legitimately done under proper paperwork in the form of contract notes, broker ledger, demat account and bank statements which were furnished by the assessee before the revenue authorities. However, regarding the genuineness of transactions, the doubt remains to be addressed. The observation of

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF ld. CIT(A) that the impugned script had witnessing a huge rise in the price even after poor financial of the company. It is brought upon the facts that the entity itself was involved in buying and selling of penny stocks and the directors were also associated with other penny stock companies, so as to provide exempt LTCG/STCG/business losses, for the purpose of bringing unaccounted cash in the books of account, or to create fictitious losses in the return of income to avoid paying due taxes on it. Ld. CIT(A) further analyzed the share price of the alleged script, taking its movement which is not commensurate with the financials of the said company. The ld. CIT(A) also made remarks regarding the nexus of assessee in the share price manipulations, wherein he observed that the assessee’s assertions that he is a regular share trader or not in accordance with the facts on record. The assessee’s demat account have only three scrips, all were subject to off-market transactions with inter-depositary trade (movement between demat accounts). The regular short-term share activity of the assessee was not apparent from the demat account. The ld. CIT(A) further referred to SEBI’s order dated 11.05.2017, it is observed that for a one-time investment, the choice of the said entity is dubious being on complete free fall in the concerned year and the period of holding being around months neither puts it in category of long-term investor nor in the category of regular share trader, therefore, the transaction of purchase appears to be arranged so that the said transaction of sale enables the claim of loss. It is further observed that assessee’s claim of loss on such transaction is found to be without basis, under

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF such observations the loss claimed by assessee, which is disallowed by the ld. AO has been sustained by the ld. CIT(A) with further addition of sale price of Rs. 74,85,000/- which is received by the assessee on sale of such shares. 17. On a thoughtful consideration of aforesaid facts and circumstances, we are of the considered view that the loss claimed by the assessee has rightly been disallowed by the ld. AO and confirmed by the ld. CIT(A). However, the amount of purchase cost for Rs. 74,85,000/- cannot be further added to the income of the assessee and such amount was not utilized for any one’s benefit. Further, as the enhancement was done without opportunity of being heard to the assessee, the same fails on legal principle of natural justice also. Regarding estimated commission added by the assessee, the ld. Assessing Officer made an addition of Rs. 3,00,000/- u/s. 68 of the Act for unexplained cash credit and another Rs. 3,00,000/- for unexplained expenses on loan taken u/s. 69 of the Act, which are rightly adjudicated by the ld. CIT(A), which could not sustain in the eyes of law, being on presumption without any cogent corroborative evidence or reasoning. In backdrop of aforesaid facts and circumstances and deliberations, ground nos. 5, 6, 7 and 8 of the assessee’s appeal are partly allowed. 18. Ground no. 9 of the assessee’s appeal is consequential in nature, for which ld. CIT(A) has directed the ld. AO to redo the computation. Such finding by ld. CIT(A) justifies, however, we direct ld. AO to consider the submissions of assessee while re-computing the assessable income of the assessee, so as to allow carry forward/set

ITA Nos. 1690 & 1692/Mum/2024 (A.Y. 2012-13) Sanjay D. Chavan, HUF off of losses in accordance with the mandate of law. Ground no. 9 is therefore allowed for statistical purposes. 19. Ground no. 10 is general in nature which needs no separate adjudication. 20. Adverting to the appeal of the revenue, wherein the revenue has raised certain interconnected grounds, which are adjudicating by us in assessee’s appeal hereinabove. Accordingly, the grounds of appeal of the revenue are disposed of in terms of our aforesaid observations. 21. In result, both the appeals of assessee as well as revenue are partly allowed. Order pronounced in the open court on 30.04.2026

Sd/-- Sd/- (JUSTICE (RETD.) C V BHADANG) (ARUN KHODPIA) PRESIDENT ACCOUNTANT MEMBER Mumbai; Dated: 30.04.2026 Karishma J. Pawar, SR. PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File

//True Copy// BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai