SALONI BHALOTIA,KOLKATA vs. ACIT, CEN. CIR.-1(3) , KOLKATA

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ITSSA 18/KOL/2024Status: DisposedITAT Kolkata16 June 2026AY 2014-1524 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the notice issued under Section 143(2) was bad in law and quashed the consequential assessment order. The Tribunal found that CBDT Notification No. S.O. 2752(E) dated 22.10.2014 mandates the assessment of companies and their directors/key personnel under the same Assessing Officer. Since the assessee company was assessed under ITO Ward-10(2), Kolkata, the assessment framed by DCIT Circle-12(1), Kolkata, violated this notification. Therefore, the notice under Section 143(2) and the subsequent assessment were quashed. Regarding the second issue, the Tribunal noted that the assessment was unabated on the date of search, and the time limit for issuing a notice under Section 143(2) had expired. Consequently, any addition under Section 153A could only be made based on incriminating material found during the search. The Tribunal observed that the AO relied on the profit and loss account for additions related to share sales, and it was admitted that no incriminating material was found regarding these transactions during the search. Therefore, the additions made were without jurisdiction. The Tribunal allowed the legal and jurisdictional issues raised by the assessee. The appeal in Saloni Bhalotia's case was allowed mutatis mutandis.

What were the facts?

These appeals by assessees Gaurav Bhalotia and Saloni Bhalotia for AY 2014-15 challenge orders of the CIT(A). A search under Section 132 was conducted on Gaurav Bhalotia on 09.12.2015. Subsequently, a notice under Section 153A was issued, and the assessee filed a return on 20.12.2016. Notices under Sections 143(2) and 142(1) were issued on 18.01.2017 and 28.02.2017, respectively, by the DCIT, Circle-12(1), Kolkata. The assessment was framed under Section 153A read with Section 143(3) on 31.12.2017, with additions totaling ₹9,34,65,760.65. The assessee contended that the notice under Section 143(2) was issued without lawful jurisdiction, as per CBDT Notification No. S.O. 2752(E) dated 22.10.2014, which mandates directors to be assessed with the company they hold office in. The CIT(A) upheld the assessment order without deciding this legal issue. The assessee also argued that the assessment under Section 153A was invalid as it was an unabated assessment with no incriminating material found during the search.

What were the issues?

1. Whether the notice issued under Section 143(2) of the Income Tax Act, 1961, by the DCIT, Circle-12(1), Kolkata, was without lawful jurisdiction, considering CBDT Notification No. S.O. 2752(E) dated 22.10.2014, which requires directors to be assessed along with the company in which they hold office, and therefore, the consequential assessment order is invalid? Assessee's contention: The notice under Section 143(2) was issued by an officer without jurisdiction, as per the mandatory CBDT Notification S.O. 2752(E), which dictates that directors are to be assessed under the same Assessing Officer as the company. The jurisdiction lawfully vested with ITO, Ward-10(2), Kolkata. Thus, the notice and the assessment are invalid. Revenue's contention: Not recorded. 2. Whether the assessment order passed under Section 153A/143(3) of the Act is without jurisdiction, as it pertains to an unabated assessment and no incriminating material was found during the search, rendering the additions made by the AO liable for deletion? Assessee's contention: The assessment was unabated on the date of search, and the time limit for issuing a notice under Section 143(2) had expired. Therefore, additions under Section 153A can only be made based on incriminating material found during the search, which was not the case here as the AO relied on the profit and loss account. Revenue's contention: The assessee failed to satisfy the ingredients of identity, capacity, and genuineness of transactions for share sales, making the transactions hit by Section 68. The appeal should be dismissed.

Which sections of the Income-tax Act were involved?

Section 132,Section 143(2),Section 143(3),Section 153A,Section 120,Section 68,Section 292BB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM

For Appellant: Shri Miraj D. Shah, AR
For Respondent: Shri Raman Garg, DR
Hearing: 12.06.2026Pronounced: 16.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM

IT(SS)A No.17/KOL/2024 (Assessment Year:2014-2015) Gaurav Bhalotia ACIT Central Circle-1(3), 5B, Judges Court Road, Alipore, Kolkata Vs. Kolkata-70027 (Respondent) (Appellant) PAN No. ADAPB9680Q AND IT(SS)A No. 18/KOL/2024 (Assessment Year: 2014-2015) Saloni Bhalotia ACIT Central Circle-1(3), 5B, Judges Court Road, Alipore, Kolkata Vs. Kolkata-70027 (Appellant) (Respondent) PAN No. AIKPK2010L Assessee by : Shri Miraj D. Shah, AR Revenue by : Shri Raman Garg, DR Date of hearing: 12.06.2026 Date of pronouncement: 16.06.2026

O R D E R Per Rajesh Kumar, AM:

These two appeals preferred by the two different assessees’ against the separate orders of the Commissioner of Income Tax Appeal, Kolkata-20, (hereinafter referred to as the “Ld. CIT(A)”] dated 09.02.2024 & 13.02.2024 for the AY 2014-15.

“1. The ld. CIT(A) has erred in upholding the assessment order where the notice u/s.143(2) of the Act was issued by the DCIT Circle-12(1), Kolkata without any lawful jurisdiction as the assessee is liable to be assessed by ITO Ward-10(2), Kolkata within the meaning of CBDT Notification No.S.O.2752(E) dated 22.10.2014 issued u/s.120 of the Act superseding all earlier orders, which provides that Directors are to be assessed along with the company in which they hold office. 2. The ld. CIT(A) has erred in law and on facts in upholding the assessment order passed u/s.153A/143(3) of the Act which is without jurisdiction as this being an unabated assessment and there was no incriminating material found during the course of search and, therefore, the addition made by the AO is without jurisdiction and deserves to be deleted.” 3. The facts in brief are that the assessee filed his return of income declaring ₹28,07,740/- after claiming deduction under Chapter VIA. The assessee’s income comprised of mainly remuneration received as Director’s salary from Maple Accessories Pvt. Ltd. of ₹30,00,000/-. A search was conducted u/s.132 of the Act in the case of the assessee on 09.12.2015 which was followed by issuance of notice u/s.153A of the Act which was duly served on the assessee. In compliance to the same, the assessee filed his return on 20.12.2016 disclosing the same income as was shown in the original return. Thereafter notice u/s.143(2) of the Act was issued on 18.01.2017 and notice u/s.142(1) of the Act was issued on 28.02.2017 which was duly served on the assessee. The assessee duly complied with the said notices by furnishing all the details/evidences as called by the AO. The said notice was issued by the DCIT, Circle-12(1), Kolkata. Finally the assessment was framed by the AO by making addition of ₹9,06,58,020.65 which comprised of long term capital gain from sale of shares of Kailash Auto Finance Limited and ₹3,03,37,012.48 from

4.

In appeal, the ld. CIT(A) upheld the assessment order framed by the assessee without deciding the legal issue raised by the assessee during the course of appellate proceedings.

5.

Ld. AR vehemently submitted before us that notice u/s.143(2) of theAct was issued by the DCIT Circle-12(1), Kolkata on 28.08.2015 and the assessee duly complied with the said notice. But simultaneously the assessee objected to the jurisdiction of the AO in view of the CDBDT Notification No.S.O.2752(E) dated 22.10.2014, which is mandatory that the Directors are to be assessed along with the company in which they hold office. The said notification stipulates that (a) companies registered under the Companies Act, 1956/2013 and (b) individuals being Managing Directors, Directors, Managers, or Secretaries of such companies, shall be assessee together under the same Assessing Officer where the company is assessable. Thus, the jurisdiction in assessee’s case lawfully vested only with the ITO, Ward-10(2), Kolkata having charge over Maple Accessories Pvt. Ltd. and not with the DCIT who issued the impugned notice dated 28.08.2015. The ld. AR, therefore , prayed that the notice issued u/s 143(2) of the Act is invalid and so is the consequential assessment framed.

6.

After hearing the rival contentions of the parties and perusing the material on record including the Notification referred to above and

9.

As stated above, search action u/s.132 of the Act was conducted on the assessee on 09.12.2015. On the date of search, undisputedly the assessee has attained finality and there was no pending proceedings against the assessee and time limit for issuance of notice u/s.143(2) of the Act had also expired. Therefore, in terms of Section 153A of the Act in order to make the addition in an unabated assessment, the

10.

In appeal, the ld. CIT(A) confirmed the order of the AO on this issue.

11.

Ld. CIT-DR relied on the orders of the authorities below and submitted that the assessee has failed to satisfy all the three ingredients together namely identity of the purchasers, capacity of purchasers and genuineness of transactions, sale consideration received on account of pre-designed share transactions are hit by the provisions Section 68 of the Act. Accordingly, ld. CIT-DR submitted that there is no merit at all in the case of the assessee and the appeal of the assessee may be dismissed.

12.

After hearing the rival contentions and perusing the material on record, we note that undisputedly the instant assessment was unabated on the date of search as the time limit for issuing notice u/s.143(2) of the Act had already expired. Therefore, the addition, if

14.

We further note that the statement of Shri Prasanta Bose which has been recorded behind the back of the Assessee in unconnected third party proceedings, and the said statement, even otherwise does not make any mention of the Assessee, cannot be regarded as an incriminating material. The coordinate bench of the Tribunal in the case of Mani Square Ltd. v. Asstt. CIT [2020] 118 taxmann.com 452, which has been affirmed by the Hon'ble Calcutta High Court, addressed the threshold for "incriminating material" in both unabated and abated assessment years, by emphasizing the necessity of tangible, cogent and co-relatable evidence discovered during the search qua the assessee qua each assessment year. The coordinate bench categorically held that evidence gathered in a search against other group entities or third parties (be it simultaneous, prior or subsequent) was held inadmissible for additions in the assessee's unabated years and affirmed that only material "found or discovered as a result of such search" on the assessee's own premises.

15.

In view of the settled legal position, no addition can be made in an unabated assessment under section 153A of the Act in the absence of incriminating material found during the course of search. In the assessee's case, no incriminating material whatsoever was found relating to the alleged long-term capital gains. On the contrary, the Assessing Officer himself recorded that the information regarding the transactions in question was received from another Assessing Officer,

16.

Even considering the addition on merit, we note that the assessee had had purchased 16,00,000 equity shares of Careful Projects Advisory Ltd. (now known as Kailash Auto Finance Ltd. "KAFL") and 12,00,000 equity shares of Mavens Internet Ltd. (now known as Shalimar Production Ltd. "SPL"), which were subsequently converted into 48,00,000 equity shares. The assessee sold these shares through the online platform of the recognized stock exchange on various dates during F.Y. 2013-14 at prevailing market prices. The transactions yielded long-term capital gains ("LTCG") aggregating to ₹9,06,47,144, which were claimed as exempt under section 10(38) of the Act. During the course of assessment proceedings, the assessee furnished complete primary evidences relating to the

17.

We note that The LTCG of ₹9,06,47,144 was computed strictly in accordance with law by deducting the cost of acquisition from the net sale consideration received through the stock exchange, and claimed as exempt under section 10(38) on the strength of statutory documentations. During assessment, the assessee produced every piece of primary evidence relating to both purchase and sale of shares, namely, (a) bank statements proving payment for purchase; (b) demat statements showing credit of shares in the assessee’s demat account; (c) all broker contract notes for the sale of shares; (d) The amalgamation order passed by Hon'ble Bombay High Court in the case of Mavens Internet Ltd. (now known as Shalimar Production Ltd. "SPL"). (e) The amalgamation order passed by Hon'ble Allahabad High Court in the case of Careful Projects Advisory Ltd. (now known as Kailash Auto Finance Ltd. - "KAFL"). (f) bank statements showing receipt of sale proceeds; and (g) books of accounts reflecting all related entries. These were examined by the Assessing Officer, who

18.

We also note that despite the assessee filingcomplete evidences, the Assessing Officer rejected the claim under section 10(38) and treated the LTCG of ₹9,06,47,144 as unexplained cash credit under section 68 of the Act. The Assessing Officer made no independent enquiry whatsoever into the assessee’s documents, demat records, banking trail, or broker confirmations. Instead, the disallowance was made solely on the basis of a report of the Investigation Wing, Kolkata, a copy of which was never furnished to the assessee, thereby violating the principles of natural justice and denying the assessee an opportunity to rebut the material.

19.

It is pertinent that SEBI had conducted an investigation into alleged manipulation in the scrip of Kailash Auto Finance Ltd. and, vide ex parte order dated 29.03.2016, initially restrained 246 entities from accessing the capital markets. The assessee was one of the entities named in the said ad-interim order. Upon further investigation, SEBI found that 244 out of the 246 entitiesincluding the assessee were not involved in any manipulation, collusion, price rigging, or unfair trade practices. The assessee appears at Serial No. 146 on page 12 of the final order, copy of which is available at Paper Book page 27. Therefore, even the statutory market regulator has categorically held that the assessee was not a part of any rigging or manipulation and that her transactions were genuine and bona fide. This conclusively established that although certain other persons may have engaged in manipulation of the KAFL scrip, the assessee acted as a genuine investor, purchased shares through lawful channels, and earned legitimate market-driven capital gains. The case of the assessee finds

“The assessee approached the learned Tribunal challenging the order passed by the Appellate authority dated 1 st December, 2023 by which the appeal filed by the assessee challenging the assessment order dated 20 th December, 2016 was affirmed. The Assessing Officer while completing the assessment held that the loss from M/s. First Financial Services Ltd. as claimed by the assessee is not treated as genuine business transaction made with an intention to create profit as the transaction was manufactured, managed and fabricated. Accordingly, the loss claimed by the assessee arising out of the said transaction amounting to Rs.71,38,200/- was disallowed and added to the income of the assessee. The learned Tribunal examined the factual aspects and noted that the share price of M/s. First Financial Services Ltd. was rigged by some persons but the assessee was not aware of that and the assessee was not involved in share price rigging. Further, the learned Tribunal noted that SEBI had conducted an investigation and also examined the role of the assessee and by order dated 2nd April, 2014 SEBI found that the assessee was not involved in price rigging of shares of First Financial Services Ltd. Therefore, the Tribunal came to the conclusion that the addition made by the Assessing Officer was not justified. The learned Tribunal also referred to a similar case of the Mumbai Tribunal in the case of Sunita Chaudhry vs. ITO in ITA No.143/Mum/2022, dated 13.10.2022, which was also concerning the scrips of M/s. First Financial Services Ltd. and the Tribunal took note of the report drawn by SEBI pursuant to the investigation and found the assessee was not involved in the share price rigging. Therefore, the learned Tribunal on examination of the admitted factual position granted relief to the assessee. Thus, we find no questions of law, much less substantial question of law, arising for consideration in this appeal. Accordingly, the appeal fails and is dismissed.” 20. Similar view has been taken by the Hon'ble Gujarat High Court in the case of PCIT Vs. Gokuldham LLP (Tax Appeal No.427 of 2023) dated 28.08.2023, wherein the Hon'ble High Court has held as under :-

"3.1 The assessee had filed return of income for the assessment year 2014-15 by declaring income of Rs. NIL. An assessment order was passed making addition on account of long term capital gain. The appeal was partly allowed deleting the addition made by the Assessing Officer. The Tribunal dismissed the appeal of the department. 3.2 The facts relating to the long term capital gain of Rs. 8,90,25,838/-earned by the assessee are that they related to 1805700 shares of one Mishka Finance and Trading

The main stand of the AO which was picked up from SEBI interim report has also been decimated by the final report of the SEBI itself. The relevant portion of para 8 of SEBI report dated 05.10.2017 is reproduced as under: "8. Considering the fact that there are no adverse findings against the 104 entities mentioned at S.No. 1-104 in Table No.2 with respect to their role in the price manipulation/ prima facie violations for which interim Order dated April 17, 2015 was passed and subsequently confirmed in the scrip of Mishka warranting continuation of action under section 11B and 11(4) of the SEBI Act, I am of the considered view that the directions issued against them vide interim order dated April 17, 2015 which were confirmed vide Orders dated October 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016, are liable to be revoked."

“8. After going through the document the Tribunal held that the assessing officer made the addition solely on the ground that the scrips are in the stock whereas the assessee was able to demonstrate that the shares of the company in which the assessee has invested does not appear in the AIR report of the revenue which related to trading in penny stock. Further the name of the alleged company did not appear in the list of 331 suspended companies and no adverse inference was drawn by the SEBI. 9. Thus, the Tribunal found that the assessing officer committed a mistake which is apparent on the face of the assessment order. The Tribunal also noted that the assessee had submitted details to substantiate the claim and the transaction of the assessee was found to be not in the nature of speculation and the assessee has purchased scrips for long term holding. The Tribunal faulted the assessing officer in not considering the voluminous information placed by the assessee during the course of assessment proceedings. The learned Tribunal also referred to the notice issued by the Bombay Stock Exchange dated 17.07.2016 wherein the trading in the company in question namely Wagend Infra Venture Limited resumed with effect from 15.7.2016 and this information made known in the notice issued by the Bombay Stock Exchange was not disputed by the revenue. Further, the learned Tribunal on facts found that in case of the assessee's father the long term capital gains on the sale of some scrips/shares was accepted by the department, and this was specifically noted by the CIT(A). 10. Thus, we find that the CIT(A) has elaborately considered the factual position and the voluminous documents and information furnished by the assessee and the same were re-appreciated by the Tribunal and the order passed by the CIT(A) was affirmed. 11. Thus, we find no question of law much less substantial question of law arising for consideration in this appeal. 12. Accordingly, the appeal fails and dismissed.” 22. Considering these facts, we are inclined to hold that the addition made by the AO on merit is unsustainable and accordingly we set

23.

Consequently, the appeal in the case of Gaurav Bhalotia in IT(SS)A No.17/Kol/2024 is allowed on merits as well as on legal grounds.

In case of Saloni Bhalotia) IT(SS)A No.18/Kol/2024A.Y.: 2014-15) 24. The first issue raised by the assessee is ajurisdictional issue challenging the issuance of notice u/s.143(2) of the Act by the ACIT Circle-9, Kolkata without any lawful jurisdiction as the jurisdiction vested with the ITO as per the CBDT Instruction No.01/2011 dated 31.1.2011.

25.

The facts in brief are that the assessee filed the return of income 31,7,2014 declaring total income of ₹ 15,25,915/- comprising income by way of remuneration from M/S Maple Accessories Pvt Ltd. A search was conducted u/s.132 of the Act in the case of the assessee on 09.12.2015 which was followed by issuance of notice u/s.153A of the Act which was duly served on the assessee. In compliance to the same, the assessee filed his return on 19.9.2016 disclosing the same income as was shown in the original return. Thereafter notice u/s.143(2) of the Act was issued on 4.11.2016 and notice u/s.142(1) of the Act was issued on 28.02.2017 which was duly served on the assessee. The assessee duly complied with the said notices by furnishing all the details/evidences as called by the AO. The said notices were issued by the ACIT, Circle- 29, Kolkata. Finally the assessment was framed by the AO by making addition of ₹4,01,95,593.77 which comprised of long term capital gain from sale of shares of Kailash Auto Finance Limited ₹2,33,26,548.98 and from

26.

The said assessment order was confirmed by the ld. CIT(A) in the appellate proceedings.

27.

The ld. AR vehemently submitted before us that since, the return of income of the assessee is below 20 lacs and assesseeis based and assessed in Kolkata, which is a metro city. Therefore, peculiar jurisdiction has not been followed by the authority issuing notice u/s 143(2) of the Act and also while passing the assessment order. Therefore, the notice issued u/s 143(2) of the Act is invalid and so is the consequent assessment framed by ACIT, Circle 29, Kolkata. The ld. AR stated that notice u/s 143(2) of the Act dated 28.08.2015 and consequent to assessment framed by DCIT, Circle 1(3), Kolkata, are in violation of pecuniary jurisdiction of the CBDT instruction No.1/2011 (F. No. 187/12/2010-IT(A-1), Dated 31.01.2011. According to the said instruction, the ITO has pecuniary jurisdiction where the income is upto 20 lacs in the Metro Cities and 15 lacs in Mofussil areas whereas the DC/AC have jurisdiction above 20 lacs in Metro cities and above 15 lacs in the Mofussil areas. The ld. AR therefore prayed that the notice issued u/s 143(2) of the Act as well as the consequent assessment framed were invalid may kindlky be quashed.

27.1. The ld. DR on the other hand, submitted that the income is below₹20 lacs and assessee has never challenged the issue before

27.2. After hearing the rival contentions and perusing the materials available on record, we find merit in the argument of the ld. AR that the notice issued u/s 143(2) of the Act by ACIT Circle-29 Kolkata is invalid and so is the consequent assessment framed by DCIT, Central Circle-1(3) Kolkataon the ground of being in violation of pecuniary jurisdiction of the CBDT instruction No.1/2011 (F. No. 187/12/2010-IT(A-1), Dated 31.01.2011. According to the said instruction, the ITO has pecuniary jurisdiction where the income is upto 20 lacs in the Metro Cities and 15 lacs in Mofussil areas whereas the DC/AC have jurisdiction above 20 lacs in Metro cities and above 15 lacs in the Mofussil areas. The said instructions reads as under:-

Intentionally left blank

27.3. In the present case, the assessee filed the return of income u/s 139(1) of the Act on 31.7.2014, disclosing total income of ₹15,25,910/-. The return of income in response to section 153A was filed on 19.9.2016 declaring same income as was returned in the original return of income. We note that the notice was issued by ACIT, Circle 29, Kolkata u/s 143(2) of the Act and consequent assessment framed accordingly by the DCIT Central Circle-1(3), Kolkata of the Act. In our opinion the notice issued u/s 143(2) and assessment framed are in violation of the CBDT Instruction

"4. This appeal by the revenue filed under section 260A of the Income-tax Act, 1961, (the Act, in brevity) is directed against the order dated 20-7-2016 passed by the Income-tax Appellate Tribunal, "C" Bench, Kolkata (Tribunal) in ITA Nos. 1621 & 1301/Kol/2011 for the assessment year 2007-08. The revenue has raised the following substantial question of law for our consideration. a. Whether on the facts and in the circumstances of the case the Learned Income-tax Appellate Tribunal, "C" Bench, Kolkata is illegally justified to hold that since notice under section 143(2) was not issued by the ITO -Ward 56(4), Kolkata, the assessment order passed by him is a nullity and without jurisdiction? 5. We have heard Mr. Mitra, learned senior standing counsel for the appellant and Mr. Ananda Sen, learned counsel assisted by Ms. Atasi Sarkar for the respondent/assessee. 6. The short issue which falls for consideration is whether the assessing officer, who had jurisdiction over the assessee at the relevant time had issued notice under section 143(2) of the Act before taking up the scrutiny assessment under section 143(3). Before we go into the facts, we take note of the legal position as laid down by the

i) PCIT-15, Kolkata vs. M/s Mohan Chand Motilal Kothari & Company in ITAT No. 228 of 2016 GA No. 1497 of 2016 dated 29.06.2018. (Cal HC) ii) PCIT-2, Kolkata vs. Cosmet Traders Pvt. Ltd. in ITAT No. 78/2022 IA No. GA/2/2022 dated 15.11.2022. (Cal HC)

30.

Mutatis mutandis for other legal issue as well as on merits. Thus, the appeal in the case of Saloni Bhalotia in IT(SS)A No.18/Kol/2024 is allowed in terms as has been held in IT(SS)A No.17/Kol/2024.

31.

In the result, the both appeals of the assessees’ are allowed.

Order pronounced in the open court on 16.06.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 16.06.2026

Asst. Registrar Income Tax Appellate Tribunal, Kolkata

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