ABHISHEK ASHOK KUMAR JAIN,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-27(1), MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: A BEFORE HON’BLE BEENA PILLAI, JUDICIAL MEMBER AND HON’BLE JAGADISH, ACCOUNTANT MEMBER

ITA 3432/MUM/2026 िनधा�रण वष�/Assmt. Year: 2013-14) DY. COMMISSIONER OF INCOME TAX, CIRCLE- ABHISHEK ASHOK KUMAR 27(1) JAIN IT-OFFICE, VASHI B-5, SUNNY ESTATE 3 CHS RAILWAY STATION LTD, SION TROMBAY ROAD, Vs. BUILDING, NAVI MUMBAI CHEMBUR, MUMBAI-400071, MAHARASHTRA MUMBAI-400703, MAHARASHTRA (��थ� Respondent) (अपीलाथ� Appellant) Permanent Account Number of AGHPJ1487H Assessee: Shri Prakash Jhunjhunwala, िनधा�रती �ारा/Assessee CA & Shri Saiprasad Ghosh, represented by: CA राज� व �ारा/Revenue represented Shri Surendra Mohan ( SR. by: DR. )

सुनवाई की तारीख / Date of conclusion of hearing: 16-Jun-2026 घोषणा की तारीख / Date of pronouncement: 25/06/2026 आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER: Present appeal filed by assessee arises out of the order passed by the NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] dated 23/01/2026, for A.Y. 2013-14, on the following grounds of appeal:-

“1) On facts and circumstances of the case and in law, the re-assessment order passed u/s.147 by National Faceless Assessment Centre (NFAC) is bad- 1 in-law, since the jurisdiction of NFAC under the Faceless assessment of income escaping assessment prescribed u/s.151A had been notified by CBDT w.e.f. 29/03/2022. 2) On facts and circumstances of the case and in law, the re-assessment order passed u/s.147 r.w.s. 144B is bad-in-law, since the intimation to complete the assessment in accordance to the procedure laid u/s.144B has not been issued by the NFAC and no notice u/s 144B had not been served to the assessee. 3) On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of reassessment order passed u/s. 147, though the statutory notice u/s.143(2) to scrutinize the return filed in response to notice u/s.148 had not been issued. 4) On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of reassessment order passed u/s. 147, since Ld. AO had passed the assessment order before 4 weeks of passing of the Disposal of Objection Order u/s.148, thereby violated the principles laid by Jurisdictional High Court in the case of Asian Paints Ltd vs. DCIT (308 ITR 195 (Bom-HC)). 5) On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the validity of notice u/s.148 issued in absence of fresh tangible material, in mechanical manner and on the basis of borrowed satisfaction, without having reason to believe of escapement of income. 6) On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition made u/s 68 of entire sale consideration of STT paid listed shares of M/s JRI Industries and Infrastructure Ltd of Rs.86,41,477/-, on rejecting the appellants claim of Long term capital gain u/s.10(38) of the Act. 7) The Ld. CIT(A), before confirming the addition of entire sale consideration of STT paid listed shares of M/s JRI Industries and Infrastructure Ltd of Rs.86,41,477/-, ought to have considered the understated vital facts, being :- a) The exhaustive documentary evidences being Contract-cum-bills, letter of allotment of shares, D-mat statements, bank statements, bhav copy, confirmation of stock broker, etc had not been doubted by Ld. AO and Ld. CIT(A). b) The period of holding of listed shares by the appellant exceeds 12 months and such shares had been sold on floor of BSE at prevailing market price, on which STT, Service Tax had been paid. c) The SEBI had not framed any allegations and had not passed any contrary order against the appellant and stock broker. d) The substantial increase in price of shares listed in BSE cannot be a reason to treat the bonafide transaction as non-genuine. e) The appellant is not related to any directors/promoters and exit providers and the AO, inspite”

Assessee had filed his return of income for A.Y. 2013-14 declaring total income of Rs.18,85,030/- and claiming exemption u/s.10(38) of the Income Tax Act, 1961 in respect of long-term capital gains 2 amounting to Rs.86,41,477/- arising from sale of shares of M/s JR Industries and Infrastructure Ltd.

2.1. Subsequently, based on information received from the Investigation Wing that the assessee was a beneficiary of accommodation entries in the form of bogus long-term capital gains through penny stock transactions in the aforesaid scrip, the case was reopened by issuance of notice u/s.148 of the Income Tax Act, 1961. During the reassessment proceedings, the Ld.AO observed that the steep rise in the price of the said shares was not supported by the financial fundamentals of the company and formed a view that the transactions were part of a manipulated penny stock arrangement.

2.2. The assessment was ultimately completed ex-parte u/s.144 r.w.s.147 of the Income Tax Act, 1961. The Ld.AO treated the amount of Rs.86,41,477/-, claimed as exempt long-term capital gains, as unexplained cash credit u/s.68 of the Income Tax Act, 1961 and added the same to the income of the assessee, thereby assessing the total income at Rs.1,05,26,507/-.

Aggrieved by the order passed by Ld.AO, assessee preferred appeal before Ld.CIT(A).

2.3. The Ld.CIT(A) after considering submissions of assessee observed as under:-

“6(a). I have carefully considered the facts of the case, the assessment order, the grounds of appeal, the statement of facts, the written submissions filed by the appellant and the material available on record. The appeal arises out of a reassessment completed u/s.147 r.w.s.144 of the Income Tax Act, 1961, wherein the Assessing Officer has made an addition of Rs.86,41,477/- by treating the alleged long-term capital gains claimed by the appellant on sale of shares of M/s JRI Industries & 3 Infrastructure Ltd as unexplained cash credit u/s.68 of the Income Tax Act, 1961.

6(b). At the outset, the appellant has raised various legal grounds challenging the validity of the reassessment proceedings, inter alia, on the issues of reopening based on borrowed satisfaction, non-issuance of notice u/s.143(2) of the Income Tax Act, 1961, alleged violation of the four-week period after disposal of objections and non-speaking disposal of objections.

On careful consideration of the record, it is noticed that the reopening in the present case is not based on any vague or general information, but on specific and concrete inputs received from the Investigation Wing regarding large-scale manipulation in the scrip of M/s JRI Industries & Infrastructure Ltd, which was found to be used for providing bogus long- term capital gains through a network of shell entities acting as exit providers. The Assessing Officer has not merely reproduced the information but has examined the trading pattern, price movement and financials of the company before forming the belief of escapement of income. Therefore, the contention that the reopening is based on borrowed satisfaction or without application of mind is not acceptable.

As regards the contention relating to non-issuance of notice u/s.143(2), it is seen from the assessment record that the appellant did not file a valid and verified return of income in response to notice u/s.148 of the Income Tax Act, 1961. The so-called return was not verified and was, therefore, treated as non est. In such a situation, the very foundation for issuance of notice u/s.143(2) does not exist. The Assessing Officer has proceeded to complete the assessment u/s.144 after repeated non-compliance by the appellant. Accordingly, the legal plea raised on this issue is found to be devoid of merit.

The objection regarding passing of the assessment order within four weeks of disposal of objections is also found to be technical in nature. The appellant was throughout non-cooperative and had been granted multiple opportunities during the course of reassessment proceedings. No prejudice has been demonstrated to have been caused to the appellant on this account. Similarly, the disposal of objections shows due application of mind and consideration of the objections raised. Merely because the appellant is not satisfied with the reasoning adopted by the Assessing Officer cannot render the proceedings invalid.

In view of the above, all legal grounds raised by the appellant challenging the jurisdiction and validity of the reassessment proceedings are rejected.

6(c). Coming to the merits of the addition, it is an undisputed fact that the appellant has shown an investment of about Rs.11.20 lakh in the shares of M/s JRI Industries & Infrastructure Ltd and has claimed to have earned exempt long-term capital gains of Rs.86,41,477/- by selling the same at an extraordinarily high price within a relatively short period. The 4 Assessing Officer has brought on record a detailed analysis of the price movement of the said scrip, which shows a classic “bell curve” pattern, typical of penny stock manipulation. The financials of the company do not justify such an astronomical rise in share price. Further, the entities which have allegedly purchased the shares from the appellant and provided exit have been found, in various investigations, to be shell or paper companies without real financial capacity.

It is true that the appellant has produced contract notes, demat statements and bank statements to support the transactions. However, it is now well settled that mere production of documents and routing of transactions through banking channels cannot, by itself, establish the genuineness of a transaction when the surrounding circumstances and human probabilities clearly suggest otherwise. The Hon’ble Supreme Court in the case of Sumati Dayal has laid down that the apparent has to be tested on the touchstone of human probabilities. In the present case, it is difficult to accept that an ordinary investor could earn such phenomenal returns from a company with weak fundamentals, without there being any pre-arranged and manipulated scheme.

The entire chain of events, the nature of price rise, the involvement of shell entities as exit providers and the pattern of transactions clearly show that this is not a case of a genuine investment, but a well-orchestrated arrangement to convert unaccounted money into tax-exempt long-term capital gains. The absence of any adverse order from SEBI or the fact that transactions have taken place through stock exchange and banking channels does not, in such circumstances, sanctify an otherwise sham transaction.

The Assessing Officer has rightly relied upon the principle of human probabilities and the surrounding circumstances to lift the veil and ascertain the real nature of the transaction. The appellant has failed to establish the genuineness of the transaction in substance and not merely in form. Therefore, the Assessing Officer was justified in treating the amount of Rs.86,41,477/- as unexplained cash credit u/s.68 of the Income Tax Act, 1961.

6(d). In view of the totality of facts and circumstances, I find no infirmity in the action of the Assessing Officer. The addition made is confirmed and all the grounds of appeal raised by the appellant are dismissed.”

Before the Ld.CIT(A), assessee had also raised a legal plea regarding non-issuance of notice u/s 143(2) of the Act. This issue was not decided by Ld.CIT(A).

Aggrieved by the order passed by Ld.CIT(A), assessee is in appeal before this Tribunal. 5

3.1. The Ld. AR submitted that the Ld.AO did not issue notice u/s.143(2) on the premise that the return filed in response to notice u/s.148 was beyond the period of 30 days specified in the notice. However, it was contended that while framing the assessment, the Ld.AO himself took cognizance of the original return of income and adopted the returned income for the purpose of computing the assessed income. According to the Ld. AR, the return filed by the assessee was never rejected or treated as invalid and, therefore, once the return filed in response to notice u/s.148 was available on record, issuance of notice u/s.143(2) was mandatory before proceeding to frame the reassessment. It was thus argued that the reassessment completed without issuance of notice u/s.143(2) is bad in law and liable to be quashed. In support of the aforesaid proposition, reliance was placed on the following judicial precedents:-  CIT vs. Fomento Finance and investment (P.) Ltd. reported in 113 taxmann.com 237 (Bom-HC)  ACIT vs. Hotel Blue Moon reported in 188 Taxman 113(SC)  CIT vs. Nagendra Prasad reported in 156 taxmann.com 19 (Patna-HC)  PCIT vs. Devendranath Chaturvedi reported in 83 taxmann.com 141 (Guj-HC)  Kabel Metal Power Cables Ltd. Vs. DCIT in ITA No. 4799 & 4789/Mum/2025 (Mum-ITAT)

3.2. Per contra, the Ld. DR strongly supported the orders of the lower authorities. The Ld. DR submitted that the assessee had participated in the reassessment proceedings and, therefore, in view of the provisions of section 292BB of the Income Tax Act, 1961, any objection regarding service of notice or procedural irregularity in relation thereto cannot be entertained at this stage. It was contended that once the assessee had appeared and participated in the proceedings without raising any objection before the Assessing Officer, the notice is deemed to have been validly served in terms of section 292BB of the Income Tax Act, 1961.

3.3. The Ld. DR, therefore, submitted that there is no infirmity in the reassessment proceedings conducted by the Assessing Officer and the assessment order passed deserves to be upheld.

We have perused the submissions advanced by both sides in light of the record placed before us.

4.1. It is not the case of the Revenue that the assessment order passed is in the nature of a best judgment assessment u/s.144 of the Income Tax Act, 1961. It is also not the case that the return filed by the assessee was treated as non-est or invalid. Under such circumstances, issuance of notice u/s.143(2) of the Income Tax Act, 1961 was mandatory before completion of the reassessment.

4.2. We are unable to accept the contention of the Ld.DR that since the assessee participated in the assessment proceedings, the provisions of section 292BB of the Act, would come to the rescue of the Revenue. The reason is that section 292BB cures defects in the service of a notice and deems such notice to have been validly served where the assessee has participated in the proceedings. However, the said provision cannot cure a complete absence of notice where issuance of such notice is a mandatory jurisdictional requirement. Section 292BB does not dispense with the requirement of issuance of notice u/s.143(2) of the Income Tax Act, 1961, which is a sine qua non for framing an assessment u/s.143(3) of the Income Tax Act, 1961. The Hon'ble Supreme Court in the case of Hotel Blue Moon (supra) has held as under:-

“15. We may now revert back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing 8 officer shall proceed to determine the undisclosed income of the Block period in the manner laid down in Section 158 BB and the provisions of Section 142, sub-section (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply". An analysis of this sub- section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(1)(a). The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex-parte under Section 144. Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded. But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under Section 143(2). However, if an assessment is to be completed under Section 143(3) read with Section 158-BC, notice under Section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks of subsections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be excluded. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14 August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Sections 158 BC, the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act. However, it is contended by Sri Shekhar, learned counsel for 9 the department that in view of the expression "So far as may be" in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this Court in Dr. Pratap Singh's case [1985] 155 ITR 166 (SC). In this case, the Court has observed that Section 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression as far as possible will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied".

4.3. The contention of the Ld.DR that the return filed by the assessee was beyond the time stipulated in the notice issued u/s.148 of the Income Tax Act, 1961 also cannot come to the aid of the Revenue in justifying the non-issuance of notice u/s.143(2) of the Income Tax Act, 1961. Though the assessee may have filed the return belatedly or may have belatedly requested the Ld.AO to treat the original return of income as the return filed in response to notice u/s.148 of the Act, the fact remains that the Ld.AO did not discard or reject such return. On the contrary, he proceeded on the basis of the said return, examined the issues arising therefrom and ultimately framed the reassessment by determining the total income at a figure higher than the returned income.

4.4. Under these circumstances, before varying the income returned by the assessee and making additions thereto, issuance of notice u/s.143(2) of the Act was mandatory. The failure to issue such notice goes to the root of the assessment and renders the reassessment order unsustainable in law. The reassessment order is quashed on this legal issue.

Accordingly, Ground No.3 raised by assessee stands allowed.

4.5. Since the assessee succeeds on the issue relating to non- issuance of notice u/s.143(2) of the Income Tax Act, 1961, the other grounds challenging the validity of the reassessment proceedings are rendered infructuous and are dismissed as such.

In the result, the appeal of the assessee stands allowed.

Order pronounced in the open court on 25/06/2026. Sd/- Sd/- JAGADISH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 25/06/2026 SC, Sr. P.S.

Copy to: ABHISHEK ASHOK KUMAR JAIN, B-5, SUNNY ESTATE 3 CHS LTD, 1 SION TROMBAY ROAD, CHEMBUR, MUMBAI-400071, MAHARASHTRA DY. COMMISSIONER OF INCOME TAX, CIRCLE-27(1), 2 IT-OFFICE, VASHI RAILWAY STATION BUILDING, NAVI MUMBAI, MUMBAI-400703, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE