M/S MOTI LAL HIRA LAL,BIKANER vs. ITO WARD-1(1) , BIKANER

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE DR. MITHA LAL MEENA, HON’BLE ACCOUNTANT MEMBER AND SHRI SUDHIR PAREEK, HON’BLE JUDICIAL MEMBER ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) M/s Moti Lal Hira Lal Addl./Jt./ Dy./ ACIT/ ITO, 38, New Anaj Mandi, National Faceless Appeal Centre Bikaner-334005 Delhi PAN No. AARFM 4058 K Assessee by Shri Suresh Ojha, Advocate (Physical) Revenue by Shri Arvind Kumar Gehlot, Addl. CIT-DR (Virtual) Date of Hearing 02 / 06 / 2026. Date of Pronouncement 12 / 06 / 2026. ORDER PER: DR. MITHA LAL MEENA, A.M.: This appeal by assessee is filed against the order of National faceless Appeal Centre, Delhi [hereinafter referred to as NFAC/CIT(A)] dated 12.11.2025 with respect to Assessment Year 2015-16. 2. The appellant has raised following grounds of appeal:

2 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) 3. Without prejudice, that order passed by the Assessing Officer appears to have been prepared with the help of artificial intelligence or an automated system, which is clear from the style and printing of the order. Such an order cannot be treated as an order because it has been made without applying the human mind; therefore, this order is wrong. 4. The Learned Commissioner of Income Tax (Appeals) erred in law and on facts by sustaining the addition, by summarily rejecting the sworn affidavit furnished by the Assessee, which contained an explicit explanation regarding the business activity and facts. This action is in direct violation of the principles of natural justice and is contrary to the binding judgment of the Supreme Court in the case of M/s. Mehta Parikh & Co. v. CIT [(1956) 30 ITR 181 (SC)], as well as ITAT order of Jodhpur Bench, Jodhpur in case of Amar Singh and Ashok Banthia which mandates that the contents of an affidavit must be accepted if the Revenue fails to controvert the same by providing an opportunity for cross-examination to the deponent. 5. The Learned CIT(A) erred in law by attempting to undermine and bypass the binding jurisdictional precedent of the Hon'ble High Court of Rajasthan (the specific order being one which was duly accepted by the ITAT, Jodhpur Bench). The CIT(A)'s action of distorting facts and legal principles to invalidate a settled position of law constitutes a grave breach of judicial discipline and the basic principle that a subordinate quasi-judicial authority is bound by the decisions of the superior courts in the judicial hierarchy." 6. The Ld. CIT(A) erred in law and on facts in holding that the denial of opportunity to cross-examine Shri Ashok Kumar Gupta does not vitiate the assessment. 7. The Ld. CIT(A) failed to appreciate that while the assessment may not be solely based on the statement, it is a crucial piece of adverse evidence, and non-grant of cross- examination on an adverse statement relied upon by the Department is a gross violation of the principles of natural justice, making the assessment order legally unsustainable. 8. The Ld. CIT(A) erred in law and on facts in confirming the entire addition of Rs. 92,22,798/- made by the AO on account of non-genuine purchases/accommodation entries, and the consequential addition of commission of Rs. 1,84,456/-. 9. The Ld. CIT(A) failed to appreciate that the addition was based on surmises, conjectures, and unsubstantiated allegations without a finding that the goods were not physically received, thereby disregarding the assessee's complete set of books of account and related documents. 10. The Ld. CIT(A) was not justified in rejecting the third party documents like Kanta Parchis, goods receipts, and transport details as internal records when they were sufficient to prima facie discharge the onus on the assessee to prove the purchase. 11. The Ld. CIT(A) erred in confirming the addition under alleged Section 68 by treating the credits as unexplained, without first holding that the books of account were unreliable and rejecting them under Section 145(3) of the Act. 12. The Ld. CIT(A) failed to appreciate that in a case of alleged bogus purchases, where sales are accepted, the entire purchase cost cannot be disallowed, and at best, only a reasonable profit margin embedded in such transactions could be brought to tax, and not the entire purchase amount of Rs. 92,22,798/-. 13. The Ld. CIT(A) failed to appreciate that the alleged purchase amount does not represent a credit in the assessee's books of account but a debit to the Trading Account (Purchases).

3 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) Therefore, the provisions of Section 68 are wholly inapplicable to disallow a debit/expense item in the Profit and Loss Account. 14. The Ld. CIT(A) failed to appreciate that since the corresponding sales relating to the alleged bogus purchases were fully accounted for and accepted by the Department, the entire purchase amount could not be disallowed. 15. The purchase expenditure, even if made from an unverified source, was necessary to effect the sales (the income already taxed). Disallowing the entire purchase amount leads to a gross distortion of income and the taxing of an expenditure, not a profit, thereby violating the fundamental concept of 'real income. 16. Without prejudice to the argument that the purchases were genuine, the addition should have been restricted only to the Gross Profit (G.P.) component embedded in such transactions, or a reasonable/estimated profit rate.

4 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) appellant has shown sales to these entities for a total consideration of Rs. 92,22,798/- as under:

Sr. No. Name of entity Amount of entry of bogus sale 1. Parth International 72,518 2. Ridhi Sidhi Impex 77,56,985 3. Shri Sai Overseas 13,93,295 Total 92,22,798 5. The AO has stated that based on above facts and information, he had reason to believe that income chargeable to tax in the hands of the assessee has escaped assessment. In view of this proceedings u/s 147 was initiated and accordingly, notice u/s 148 dated 30.03.2021 was issued. A copy of the reasons recorded for the reopening of the assessment u/s 147 was given to the assessee on 10.11.2021. AO has also mentioned that the objection raised by the appellant for reopening was carefully considered and duly rebutted on 17.01.2022 and uploaded on ITBA Portal.

“I have considered the assessment order passed under section 147 r.w.s. 144B of the Income-tax Act, 1961, the grounds of appeal filed by the appellant, the written submissions placed on record, and all other material available in the case. The various grounds raised, though differently worded, are interconnected and relate to a single substantive issue concerning the addition made by the Assessing Officer on account of non-genuine purchases/accommodation entries amounting to Rs.92,22,798/- and the consequential addition of Rs.1,84,456/- being commission thereon. For the sake of

5 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) clarity, all these grounds are considered together and disposed of by this consolidated finding, as they arise from the same set of facts and circumstances. It is noticed from the records that the reassessment proceedings were initiated on the basis of specific, reliable, and tangible information received from the Directorate of Investigation, Mumbai. The said information was the result of extensive inquiries conducted by the Investigation Wing into the activities of a well-known group of entry operators controlled by Shri Ashok Kumar Gupta and his associates, who were engaged in providing accommodation entries through a network of concerns, including M/s. Parth International, M/s. Ridhi Sidhi Impex, and M/s. Shri Sai Overseas. The information clearly revealed that the appellant was one of the beneficiaries of these non-genuine transactions, having routed entries aggregating to Rs.92,22,798/- in the guise of bogus purchases/sales. The information was accompanied by comprehensive data, including statements recorded on oath, bank transaction details, and corroborative findings by SEBI which conclusively established the modus operandi of the said entry network. On the basis of this credible material, the Assessing Officer recorded reasons believe that income chargeable to tax had escaped assessment and, aft obtaining the requisite approval of the competent authority under section 15 issued notice under section 148. The appellant was duly provided with reasons recorded and was given opportunity to file objections, which w disposed of by a reasoned order dated 17.01.2022. Thus, the initiatior reassessment proceedings was in complete conformity with the L requirements of sections 147 to 151 of the Act. The contention that the reope was based on borrowed satisfaction or was mechanical is not supported by facts. The reasons recorded by the Assessing Officer were based on specific information, independent examination, and objective satisfaction. The process followed reflects due application of mind and adherence to the statutory procedure. Accordingly, the reopening of assessment is held to be valid and proper.” 7. The ld. Counsel for assessee submitted that the ld. CIT(A) has erred in law and on facts in confirming the initiation of reassessment proceedings u/s 147/148 of the Act by holding that the AO has the requisite reason to believe based on specific, reliable and tangible material although the satisfaction recorded by the AO was mechanical and did not constitute the requisite reasons to believe. The AR contended that the reopening was based merely on borrowed information/

6 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) satisfaction from the investigation wing without any application of mind by the AO. Thereby rendering the mandatory satisfaction u/s 147 non-est and entire assessment was void ab initio.

7.1 The AR contended that the department case is substantially founded open to the alleged statement of Shri Ashok Kumar (APB/B, Pgs. 173 to 188). The Ld. AR referred to the aforesaid statement of Shri Ashok Kumar and demonstrates that the authorized officer has not made the mandatory endorsement that the statement was read over and expected to be correct to the maker. In absence of such authentication, the document loses the character of legal admissible statement. The issue is directly covered by the decision of Hon’ble ITAT Jodhpur Bench in the case of ITO Vs. Vardhman Industries [(2005) 99 TTJ 509 (jodh.)] wherein it was held that such unauthenticated statements have no evidentiary value and cannot form the basis of an addition.

7.2 The Ld. AR further submitted that the assumption of jurisdiction under section 147 is wholly bad in law, as the AO did not possess any valid "reason to believe" that income chargeable to tax had escaped assessment. It is a settled position of law that such belief must be founded on tangible material having a rational connection with the income of the assessee and cannot be based on

7 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) vague, irrelevant or incorrect facts. In the present case, the reasons recorded are based on alleged penny stock transactions, whereas the assessee is engaged in the business of trading in food grains and has not undertaken any transaction in shares or securities. Thus, the very foundation of the reopening is based on incorrect and non-existent facts, and there exists a complete absence of nexus between the material relied upon and the business activity of the assessee. In this regard, reliance is placed on the judgment of the Hon'ble Supreme Court in ITO vs. Lakhmani Mewal Das (103 ITR 437), wherein it has been held that "the reasons for the formation of belief must have a rational connection with or relevant bearing on the formation of the belief... it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief." Applying the ratio of the said judgment, it is evident that when the information itself pertains to a completely different class of transactions, the condition precedent for assumption of jurisdiction is not satisfied and the reopening is liable to be quashed as void ab initio.

7.3 The Ld. AR submitted that in the present case, the sole basis for initiating such proceedings is the allegation that the assessee invested in and derived gains from certain penny stock companies. However, it is an undisputed and

8 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) demonstrable fact on record that the assessee has not purchased even a single share of the said companies at any point in time. When the alleged transaction itself is non- existent, the very foundation for forming a "reason to believe" collapses, rendering the assumption of jurisdiction wholly untenable in law. Consequently, the notice issued and the reassessment framed pursuant thereto are void ab initio, being rooted in incorrect and unverified information. Furthermore, the Assessing Officer has proceeded mechanically, without due application of mind and without proper verification of facts on record, thereby violating the settled principles of natural justice. The impugned action is thus arbitrary, without jurisdiction, and liable to be quashed in entirety.

7.4 The Ld. AR contended that the reopening proceedings are vitiated as they are based on factually incorrect assumptions which do not pertain to the assessee at all. The AO has proceeded on the premise that the assessee has undertaken transactions in shares resulting in capital gains or losses, whereas it is an admitted factual position that the assessee has not entered into any such transactions. Thus, the very basis of the belief is erroneous and non-existent.

7.5 The Hon'ble Supreme Court in Sheo Nath Singh vs. AAC (82 ITR 147) has held that the belief must be that of an honest and reasonable person based upon

9 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) reasonable grounds and not on mere suspicion, gossip or rumour. In the present case, the belief formed by the Assessing Officer is neither reasonable nor based on correct facts, but is founded on borrowed and incorrect information, which renders the entire reopening proceedings without jurisdiction and liable to be quashed.

7.6 It is respectfully submitted that the reasons recorded clearly reveal that the Assessing Officer has merely reproduced the information received from the Investigation Wing without conducting any independent verification or enquiry. There is no indication in the reasons that the Assessing Officer has applied his own mind to the facts of the case or has made any effort to establish a nexus between the alleged information and the transactions of the assessee. The formation of belief under section 147 must be that of the Assessing Officer himself satisfied based on independent application of mind.

7.7 The Ld. AR pleaded that in the present case, the reopening is based on borrowed satisfaction, which is not permissible in law. The absence of independent application of mind vitiates the very assumption of jurisdiction and renders the reassessment proceedings invalid.

10 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) 8. On the other hand, the Ld. DR relied on the impugned order. However, he failed to rebut the factual contention of the ld. AR and he did not furnish any contrary judgement.

11 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) It is noted that the sole basis for initiating reopening proceedings is the allegation that the assessee has invested and derived gains from certain penny stock companies, however the AO/CIT (A) or the DR failed to establish by demonstrating the fact on record that the assessee has ever purchased even a single share of the said companies at any point in time. In view of that matter, the reopening is liable to be quashed as void ab initio. For this purpose, we rely on the Hon'ble Supreme Court in ITO vs. Lakhmani Mewal Das (Supra) wherein it was held that “the reasons for the formation of belief must have a rational connection with or relevant bearing on the formation of the belief.” It is further held that "there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief."

12 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) factually incorrect information as tangible material stated in the reason to belief by the AO.

13 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) reproduction of the satisfaction recorded by another authority does not amount to the formation of belief required under section 147." We find that the AO has not made any attempt to examine the material, nor has he applied his mind independently. Accordingly, such a "satisfaction" recorded by the AO is nothing but a mechanical act of adoption of third-party information, which is legally impermissible.

14 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) 14. From the above, it is evident that the AO has mechanically recorded the reasons supplied by the Investigation Wing without undertaking any independent enquiry into the transactions of the assessee, and he has not even examined whether the information had any direct nexus with the assessee's actual business activity. We therefore hold that the reopening initiated under section 147/148 is without jurisdiction, being based on incorrect and irrelevant facts, lacking independent application of mind, and devoid of any live nexus between the material and the belief.

15 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) 16. In the back drop pf the aforesaid discussion and following the judgement of the higher judicial forums, the reassessment proceedings initiated u/s 147/148 is quashed as void ab initio and consequential reassessment order passed u/s 147 read with section 144B of the act is rendered without jurisdiction and as such quashed.

Order pronounced on 12/06/2026 under Rule 34(4), in accordance with the Income Tax (Appellate Tribunal) Rules, 1963.

Sd/- Sd/- (SUDHIR PAREEK) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 12/06/2026. Nimisha Sr. PS True Copy Copies to : (1) The appellant. (2) The respondent. (3) CIT

16 ITA No. 1080/Jodh/2025 (Assessment Year – 2015-16) (4) CIT(A) (5) Departmental Representative (6) Guard File BY ORDER,