DCIT221, MUMBAI vs. AAGAM CAPITAL LIMITED, MUMBAI

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ITA 6959/MUM/2026Status: DisposedITAT Mumbai30 September 2026AY 2012-1318 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the notice issued under section 148 and the reassessment proceedings pursuant thereto are not sustainable in law. The Tribunal upheld the order of the learned CIT(A) in annulling the reassessment proceedings. The reasoning was that the reopening was done after four years from the end of the assessment year, and therefore, the first proviso to section 147 was applicable. This proviso requires a failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal found that the reasons recorded by the AO did not identify any particular material fact that the assessee had failed to disclose during the original assessment proceedings. The mere use of the statutory expression regarding failure to disclose was not sufficient. The AO had to identify the material fact and show its connection with the alleged escapement of income. The Tribunal noted that the original assessment under section 143(3) had been completed, and the assessee had furnished details relating to its share transactions. The reasons recorded did not state that any particular material fact was withheld. Therefore, the reasons recorded did not satisfy the requirements of the first proviso to section 147, and the material referred to did not establish a sufficient nexus between the assessee's transactions and the alleged accommodation entry. Consequently, the grounds raised by the Revenue challenging the validity of the reassessment were dismissed. Since the reassessment itself was held to be invalid, the grounds challenging the additions made under sections 68 and 69C were rendered academic and not adjudicated upon.

What were the facts?

The Revenue is in appeal against the order of the learned CIT(A) for Assessment Year 2012-13. The assessee, Aagam Capital Limited, an NBFC, had filed a return declaring a loss. The original assessment under section 143(3) was completed on March 17, 2015, with an addition under section 14A. Subsequently, the Assessing Officer (AO) reopened the assessment under section 147 by issuing a notice under section 148 on March 30, 2019. The reopening was based on information from the Investigation Wing alleging that VMS Industries Limited was a 'penny stock' used for manipulating shares, and the assessee was a beneficiary. The assessee objected to the reopening, but the AO proceeded to make an addition of Rs. 6,73,00,000/- for the sale of VMS Industries shares. The CIT(A) annulled the reassessment proceedings and deleted the additions, holding the reopening to be invalid.

What were the issues?

1. Whether the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, are valid, considering the reopening was done after four years from the end of the assessment year and the AO allegedly relied on borrowed satisfaction and lacked independent inquiry, and whether there was a failure to disclose fully and truly all material facts by the assessee? Assessee's Contention (implied through CIT(A)'s findings): The reopening was invalid as the reasons recorded did not show independent inquiry by the AO, lacked a live nexus between the information received and the assessee's transactions, and did not identify any failure on the part of the assessee to disclose fully and truly all material facts. The CIT(A) also held that the AO had not pointed out any defect in the primary evidence furnished and had not afforded an opportunity for cross-examination. Revenue's Contention: The CIT(A) erred in granting relief and annulling additions without appreciating the facts, assessment order, and applicable provisions. The Revenue argued that the reassessment was initiated despite tangible material from the Investigation Wing indicating income escapement. It was contended that the AO independently examined the information, recorded reasons to believe, and obtained sanction. The Revenue also argued that the CIT(A) erred in holding the reassessment invalid due to alleged violation of natural justice or procedural infirmity, as the assessee was afforded sufficient opportunity and proceedings were conducted electronically. The Revenue further argued that the CIT(A) erred in deleting additions under section 68 and 69C despite material indicating lack of commercial genuineness and accommodation entries, and by accepting documentary evidence without considering surrounding circumstances.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(3),Section 68,Section 69C,Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI SIDDHARTHA NAUTIYAL

PER SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER: This appeal by the Revenue is directed against order dated 19th March 2026 passed by the learned National Faceless Appeal Centre (NFAC), Delhi [hereinafter shall be referred as the ‘Ld. CIT(A)] for Assessment Year 2012-13, raising following grounds:

1.

On facts and circumstances of the case and in law, the Ld. CIT(A) erred in granting relief to the assessee and annulling/deleting the additions made by the Assessing Officer without properly appreciating the facts on record, findings recorded in the assessment order and the applicable provisions of the Income-tax Act, 1961? 2. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in annulling the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961 despite the existence of specific and tangible material received from the Investigation Wing indicating escapement of income in the hands of the assessee? 3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the reopening of assessment was based on borrowed satisfaction, without appreciating that the Assessing Officer had independently examined the information available on record, recorded reasons to believe and obtained statutory sanction before issuance of notice under section 148? 4. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the reassessment proceedings were invalid on account of alleged violation of principles of natural justice and/or alleged procedural infirmity relating to DIN, despite the assesses having been afforded sufficient opportunity during assessment proceedings and the assessment proceedings having been conducted through the prescribed statutory electronic system? 5. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made under section 68 of the Income-tax Act, despite material gathered during investigation, SEBI findings, abnormal price movement, financial profiling of the penny stock company and surrounding circumstances establishing that the impugned transactions lacked commercial genuineness and constituted accommodation entries? 6. On facts and circumstances of the case and in law, the Ld. CITYA) erred in accepting the genuineness of the impugned penny stock transactions merely on the basis of contract notes, demat statements and banking records, without appreciating that such documentary evidences by themselves do not establish genuineness where the surrounding circumstances, financial fundamentals, market behavior and doctrine of human probalities indicate that the transactions were pre-arranged accommodation entries?

7.

On facts and circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the findings of the Investigation Wing, SEBI reports, abnormal and artificial price rigging in the scrip of VMS Industries Ltd., operator- driven trading pattern and the documented modus operandi of penny stock accommodation entry transactions while deleting the addition made under section 68? 8. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made under section 69C on account of commission expenditure, despite the established modus operandi of accommodation entry transactions involving payment of commission to entry operators for facilitating such artificial gains/profits? 9. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in granting consequential relief in respect of assessed income, tax liability and related additions/disallowances without properly appreciating the factual findings and legal position as discussed in the assessment order? 10. The appellant craves leave to add, alter, amend, modify or withdraw any of the above grounds of appeal at or before the time of hearing, as may be considered necessary.” 2. Briefly stated, facts of the case are that assessee is a Non- Banking Financial Company (NBFC) and its shares are listed on Bombay Stock Exchange (BSE). Being NBFC, the company was also d regulated by the Reserve Bank of India (RBI). The assessee filed return of income for the year under consideration declaring loss of Rs. 3,79,68,637/-. The return of income filed by the assessee was selected for scrutiny and the assessment was completed under section 143(3) of the Income-tax Act, 1961 (“the Act”) on 17.03.2015, wherein an amount of ₹9,57,350/- was disallowed under section 14A of the Act.

3.

Subsequently, the Assessing Officer reopened the assessment by way of issue of notice under section 148 dated 30th March 2019, after recording reasons to believe that income has escaped assessment. In the reasons recorded, the Assessing Officer mentioned principal reason as information received from the Deputy Director of Income Tax (Investigation) that VMS Industries Limited was a ‘penny stock’ scrip and was indulged in providing long term capital gain / short term capital loss, etc. by manipulating its shares. The said information further mentioned that the assessee was one of the beneficiaries who traded in the scrip of VMS Industries Limited. In response to the said notice, assessee filed return of income on 23rd April 2019, declaring the same loss which was declared in the original return of income.

3.1 During the course of the re-assessment proceedings, the assessee objected to the reopening made merely based on the information received from the Deputy Director of Income Tax (Investigation), without making independent inquiry and application of mind. But said objection was disposed of by the Assessing Officer on 6th November 2019. The submission of the assessee were considered by the Assessing Officer, however, he was not satisfied, and referring to general observation in respect of penny stock shares, price movement, and other features, made addition for the entire sale consideration of Rs. 6,73,00,000/- of sale of the shares of M/s VMS Industries.

4.

The assessee challenged the reassessment as well as the additions before the learned CIT(A). The learned CIT(A) held that the reopening was invalid, mainly on the ground that the reasons recorded did not disclose any independent enquiry by the Assessing Officer, did not establish a live nexus between the information received and the assessee’s transactions, and did not identify any failure on the part of the assessee to disclose fully and truly all material facts. The learned CIT(A) also held the additions on merits to be unsustainable and deleted the same. Relevant finding of the learned CIT(A) is reproduced as under:

“9. I have gone through the grounds of appeal, assessment order, and written submission filed by the appellant. Aggrieved with the assessment order, the appellant is in appeal with 4 grounds of appeal, which are adjudicated hereunder. 10. Ground no. 1 & 4: In regard to these grounds of appeal, I have carefully considered the assessment order passed under section 147 read with section 143(3), the grounds of appeal, the detailed written submissions of the appellant, and the material placed on record. The assessment was reopened beyond four years from the end of A.Y. 2012 13 solely on the basis of information from the Investigation Wing alleging that the scrip of VMS Industries Ltd. was a penny stock used for providing bogus LTCG/STCL, and that the appellant was one of the beneficiaries. The reasons recorded do not show any independent enquiry by the AO, any live nexus between the general investigation findings and the specific transactions of the appellant, or any failure on the part of the appellant to fully and truly disclose material facts during the original scrutiny under section 143(3). Further, the AO has not pointed out any defect in the primary evidences furnished, such as contract notes, demat statements, broker ledgers and bank statements, nor has any opportunity of cross examination been afforded in respect of any statement allegedly used against the appellant. The additions have thus been made purely on presumptions and surmises, contrary to settled law that suspicion, however strong, cannot take the place of proof and that quasi judicial authorities must act on relevant, tested material. In these circumstances, I hold that the reassessment order suffers from lack of jurisdiction as well as violation of principles of natural justice and is, therefore, unsustainable. The impugned order is annulled and the appeal on grounds 1 and 4 is allowed. 11. Ground no. 2 & 3: In this ground of appeal, the appellant has challenged the AO for making an unlawful addition of Rs. 6,73,00,000/- and Rs.3,79,725/-. The AO has treated the entire sale proceeds of Rs. 6,73,00,000/- from trading in shares of VMS Industries Ltd. as unexplained cash credits under section 68 and further estimated 5% as alleged commission at Rs. 3,79,725/- under section 69C, solely relying on generic SEBI and Investigation Wing material on penny stock modus operandi and judicial extracts about human probabilities in other cases. The appellant, however, is admittedly a registered NBFC engaged in regular trading in shares and securities. It has traded in multiple scrips through BSE/NSE platforms, paid STT, and disclosed the profit of Rs.4,83,13,750/- from VMS as part of its taxable business income, not as exempt capital gain. The appellant placed on record broker ledgers, demat statements, bank statements, and detailed trade-wise workings, which have not been found to be false or defective by the AO and no specific defect in quantity, rate, counter party, funding, demat movement or banking trail has been brought out. The AO has not confronted the appellant with any concrete adverse material, nor has he afforded cross examination of any person whose statement might have been used indirectly through investigation reports, contrary to the settled principle in Andaman Timber and allied rulings relied upon by the appellant, that additions cannot be made on the basis of untested, third party statements without effective cross examination. The entire addition is thus based on presumption, general suspicion and broader market wide allegations, without any cogent finding that the appellant introduced its own unaccounted money or obtained any accommodation entries. In such circumstances, once the appellant has discharged its initial onus by producing contract notes, demat statements and bank records, and by showing that the income was already offered to tax as business income, the burden shifts to the department to show, through specific material, that the transactions are sham and that the amounts represent unexplained credits of the appellant. Mere abnormal price movement in the scrip, general references to SEBI orders, SIT reports, or decisions in other penny stock cases cannot justify treating genuine, fully recorded exchange traded transactions as bogus, particularly where no tax benefit of exempt LTCG or concessional rate has been claimed. Likewise, the estimated commission addition under section 69C is made only on a standard percentage on the alleged bogus turnover, without any seized material, statement, or evidence of actual payment by the appellant. Such ad hoc additions based on assumptions have been repeatedly disapproved in the judicial precedents cited by the appellant. Therefore, even on merits, the addition of Rs. 6,73,00,000/- under section 68 and the consequential addition of Rs. 3,79,725/- under section 69C are unsustainable and are directed to be deleted. In view of the above discussion, I hold that the reassessment proceedings are invalid in law and the assessment order itself is non est; even assuming the reassessment to be valid, the impugned additions cannot be sustained on facts or in law. The assessment is accordingly without prejudice, all additions made by the AO are deleted and the AO is directed to assess the appellant at the returned loss of Rs. 3,79,68,637/- for A.Y. 2012-13 to be accepted. The appeal of the appellant is allowed in full.

12.

In the result, the appeal of the appellant is allowed.” 5. Before us, the learned Departmental Representative first referred to the ground challenging validity of the reassessment and submitted that the learned CIT(A) has ignored the existence of the specific and tangible material received from the Investigation Wing. Further, the learned DR submitted that learned CIT(A) has erred in holding that reopening was based on borrowed satisfaction and without appreciating that Assessing Officer had independently examined the information available on record.

6.

On the contrary, learned counsel for the assessee referred to reasons recorded and submitted that reasons are based purely on the ‘borrowed satisfaction’ without any application of the mind by the Assessing Officer. He submitted that the Assessing Officer has not even examined that assessee was a trader and shown business profit on the sale of such shares against the allegation of the Assessing Officer of earning long-term capital gain/short- term capital loss. Further, the learned counsel submitted that assessment has been reopened beyond the period of four years from the end of the relevant assessment year, wherein the proviso below Section 147 is attracted, under which if prior assessment is completed under section 143(3) of the Act, then reopening beyond four years cannot be done unless there is a failure on the part of the assessee in disclosing all the material facts fully and truly. The learned counsel referred to the decision of coordinate bench of the Tribunal in the case of Thirumalai Marketing and Investment Limited vs. ACIT in ITA No. 3364/MUM/2026 and submitted that an Assessing Officer, in the reasons recorded, is 7 required to specifically mention as what was the failure on the part of the assessee in disclosing full and true material facts. Unless such failure is identified, the reasons recorded cannot meet the requirement of law. The learned counsel also relied on the decision of the coordinate bench, Mumbai, in the case of Ananta Landmark Private Limited vs. DCIT [2021] 131 taxmann.com 52 (Bombay) and Export-Import Bank of India vs. ACIT in ITA No. 9465 & 9466/MUM/2026 to support that unless failure on the part of the assessee in disclosing all the facts fully and truly is identified in the reasons recorded, the reopening based on such reasons cannot be sustained.

7.

We have heard rival submissions of the parties and perused the relevant material on record. The validity of the reassessment has to be examined first. The assessment for the year under consideration was originally completed under section 143(3) on 17.03.2015. The notice under section 148 was issued on 30.03.2019, i.e. beyond four years from the end of Assessment Year 2012-13. Therefore, the first proviso to section 147 is attracted. The Assessing Officer could reopen the assessment only if the income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, for examining challenge to the reopening, the reasons recorded has to be analysed, and therefore, it is relevant to reproduce said ‘reasons recorded’, available on paper book page 48 to 50, for ready reference:

“Subject: Reasons for reopening in the case of AAGAM CAPITAL LIMITED (PAN: AAACP3134B)

1.

Brief details of the assessee : The assessee company is engaged in the business of trading in shares and securities and also earns Arbitrage/Jobbing and derivatives income. The assessee company filed its return of income 28.09.2012 declaring total income at Rs. NIL/- and same was processed u/s 143(1) of the IT Act on 18.05.2013. The assessment proceedings u/s. 143(3) of the I. T Act, 1961 was completed on 18.03.2015 accepting return income of the assessee. 2. Brief details of the information collected/received by the AO: Reliable information was received by DDIT (Inv.), Unit-7(1), Mumbai dated 27.03.2019 that VMS Industries Ltd. is a penny stock listed on BSE and used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt Long Term capital gain or Short Term Capital Loss in their books of Accounts. Upon receipt of such information, the DDIT (Inv.), Unit-7(1)), Mumbai, had carried out an investigation in the scrip namely M/s. VMS Industries Ltd. (SCRIPT CODE 533427) and analyzed the data collected from BSE to identify the beneficiaries who had traded in the script namely M/s. VMS Industries Ltd. (SCRIPT CODE 533427). On analysis of such data, the DDIT (Inv.), Unit-7(1)), Mumbai found that above named assessee is one of the beneficiary who had traded in the script namely M/s. VMS Industries Ltd. (SCRIPT CODE 533427) during F.Y. 2011-12 relevant to A.Y. 2012-13. The DDIT (Inv.), Unit-7(1), Mumbai forwarded the information to the office of the DCIT- 2(2)(1), Mumbai from the o/o AddI CIT range 2(1) Mumbai vide email dated 28/03/2019. 2.1 As per the information received the assessee M/s. Aagam Capital Limited. is one of the beneficiaries who have traded in this script M/s, VMS Industries Ltd. (SCRIPT CODE 533427) during FY 2011-12 as under:-

Sr PAN of the Name of the Script Script Name Sale value in AY No. beeficiaries beneficiary Code 2012-13

1 AAACP3134B M/s Aagam 533427 VMS Rs.67364000/- Capital Ltd. Industries

2.2. The investigation conducted by the DDIT (Inv.). Unit-7(1), Mumbai in the script M/s VMS Industries Ltd. (SCRIPT CODE 533427) reveals that the trading in the above mentioned penny stock was to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or Short Term Capital Loss in their books of Accounts. 3. Enquiries made by the AO as sequel to information collected/received: To ascertain the genuineness of the transactions, share price pattern of M/s VMS Industries Ltd. (SCRIPT CODE 533427) which is listed on Bombay Stock Exchange (BSE)), was analyzed. It is noticed that the share price of the share moved from Rs. 10.96 on 22nd August 2011 to Rs 132.65 on 25April 2012 and then fell to Rs 16.85 on the 13th September 2012. This is typical pattern of a penny scrip company where the per unit share price of the company are artificially rigged so as to derive bogus long term capital gain/short term capital loss in the hands of the beneficiaries.

3.1 Further financials of the company were analyzed and it was found that the financials of the company do not indicate any substantial change in the performance of the company which would substantiate the price movement of the scrip thus indicating that the price of the per unit shares of the company were artificially rigged so as to intend a few beneficiaries. 3.2 From trade data it is seen that most of the purchases was done by companies and individuals controlled by Naresh Jain, Bhavesh Pabri, Ravikant Chaudhary which has already been proved bogus by Mumbai Investigation wing. These companies are involved in providing bogus capital gain through accommodation entries. 3.3 Analysis of the sale data shows that bogus Long Term Capital Gains has been claimed by group of individuals who were allotted shares on preferential basis. The list of purchasers was analyzed. It is seen that most of the purchasers are entities which file either no return or almost nil return. These are Exit Providers who are employed by the operator to provide exit to the beneficiaries of bogus Long Term Capital Gains. 4 Analysis by the Assessing Officer. As per the information received and available on record, the assessee has entered into a sale transaction of Rs. 6,73,64,000/- of penny stock M/s VMS Industries Ltd. during the year under consideration. 5. Basis of forming reasons to believe and details of escapement of income the assessee has entered into a sale transaction in the above mentioned penny stock script and has derived long term capital gain during the year under consideration. Going by the aforesaid discussion the assessee is one of the beneficiaries of the bogus long term capital gain by trading in the script of M/s VMS Industries Ltd. thereby facilitating the entry of unaccounted income in its books of accounts. In view of the above I have reason to believe that the income to the extent of Rs. 6,73,64,000/- chargeable to tax has escaped assessment within the meaning of section 147 of the IT Act and the undersigned is satisfied that this is a fit case for issue of notice u/s 148. 6. Applicability of the provisions of Section 147/151 to the facts of the case: In this case, a return of income was filed for the year on 28.09.2012. Information has been received from the Investigation unit DDIT (Inv.), Unit-7(1), Mumbai that M/s. Aagam Capital Limited. is involved in the trading of penny stock M/s VMS Industries Ltd. of a total trade value of Rs. 6,73,64,000/-. As the facts and nature of this bogus transaction which has benefitted the assessee of deriving a long term capital gain the undersigned has firm reasons to believe that the amount of Rs. 6,73,64,000/- has escaped assessment. In this case, a return of income was filed for the year on 28.09.2012 and the scrutiny assessment u/s. 143(3) of the l.t Act, 1961 was completed on 18.03.2015 assessing total income NIL. Since, four years from the end of the relevant period has expired in this case, the requirements to initiate proceedings u/s 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for the Year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2 to 6). In view of the above, provisions of clause (c) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 is being sought from the Principal Commissioner of income tax as per the provisions of Section 151 of the Act.” 8. On perusal of the above reasons, we find that, firstly, the Assessing Officer has though referred to the information received from the Deputy Director of Investigation, but the reasons do not say how the DDIT got the information about VMS Industries. There is no reference to any search, survey, or document named.

It is simply stated as "reliable information." Based on this information, the Deputy Director of Investigation collected the list of all the persons who had traded in the said scrip, from the Bombay Stock Exchange (BSE), and on the basis of the said list, the learned DDIT concluded that the assessee had obtained benefit of the long-term capital gain / short-term capital loss, Second reason for reopening was that the Assessing Officer noted a price movement in the share price of M/s VMS Industries Limited, which moved from ₹10.96 on 22nd August 2011 to ₹132.65 on 25th April 2012, and then fell to ₹16.85 on 13th September 2012. Secondly, the reasons recorded mention that the Assessing Officer analyzed the financials of said company and found no performance to substantiate the price movement. Thirdly, the Assessing Officer recorded that from the trade data, he found that most of the purchases were done by the companies and individuals controlled by Shri Naresh Jain, Shri Bhavesh Pabari, and Shri Ravikant Choudhary, which were found to be bogus by the Investigation Wing. Fourthly, the Assessing Officer noted that share data shows that bogus long-term capital gain has been claimed by the group of individuals, and who were allotted shares on preferential basis. Fifthly, in paragraph 5, the Assessing Officer noted that the basis of forming reasons to believe was that the assessee had entered into sale transaction in the above scrip and derived long-term capital gain during the year under consideration. Thus, it is evident that firstly, there was no information or 9. the actual material indicating that the assessee was part of an accommodation entry racket in price movement of VMS Industries Limited, and assessment has been reopened only on the basis of the assumption that the assessee might be one of the beneficiaries of bogus long-term capital gain, whereas the assessee has shown business profit on the sale transaction of shares of VMS Industries Limited. Secondly, the Assessing Officer has not made any independent verification even to this basic fact as to whether the assessee has taken benefit of the exempted income, or has already paid the tax at the prevalent rate of the business income. In paragraph 5 of the reasons recorded, where the Assessing Officer himself is recording that the basis of forming his reasons was that the assessee had derived long-term capital gain during the year under consideration, this fact recorded is contrary to the income reported by the assessee on the said sale transaction as business profit. Thirdly, the fact of share purchase through preferential shares is also not found to be correct.

10.

Further, we find that in the instant case, there is no tangible material before the Assessing Officer, and he has simply, on the basis of the data of the customers who traded in the said scrip, came to the conclusion that the assessee was a beneficiary of the accommodation entry transaction of long-term capital gain or short-term capital loss without examining the facts of the case of the assessee.

11.

We also find important defect in the reasons. The information received by the Assessing Officer only showed that the assessee had traded in the scrip of VMS Industries Ltd. From this fact, the Assessing Officer proceeded to infer that the assessee had obtained bogus long-term capital gain or short-term capital loss. But there is no finding in the reasons based on any material relating specifically to the assessee which establishes that the assessee had taken any accommodation entry or introduced its own unaccounted money.

12.

Further, the reasons proceed on the basis that the assessee had derived long-term capital gain from the transaction, whereas the assessee had treated the profit from the share transactions as business income. This basic aspect was not examined by the Assessing Officer before forming the belief of escapement of income.

13.

It is settled law that there must be relevant material having a live nexus with the assessee and the assessment year to form a reasonable belief that income has escaped assessment. A mere inference based on general information regarding a particular scrip cannot, by itself, establish escapement of income in the hands of the assessee. In the present case, the information regarding VMS Industries Ltd. may have led to an inquiry, but the reasons recorded do not show the necessary link between that general information and the conclusion that the assessee had earned undisclosed income. The reasons, therefore, do not satisfy the jurisdictional requirement of section 147.

14.

On these facts, we find there was no material specific to this assessee. There was only a list of names, and a general theory about penny stocks. A reasonable person cannot form a belief of escaped income on a general list and a general theory alone. There must be material that points to this assessee, on this 14 transaction, for this year. That is missing here. This is the law laid down by the Hon'ble Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC) — belief must rest on material, not on presumption. In our opinion, the required conditions of reopening are not met in this case.

15.

Further, where the reopening is beyond four years and the original assessment was completed under section 143(3), the failure of the assessee to disclose fully and truly all material facts is an essential condition. The coordinate Bench in Thirumalai Marketing and Investment Ltd. (supra) has held that a mere recital of the statutory language is not enough. The Assessing Officer must identify the material fact which was not disclosed and establish its nexus with the escapement of income. The relevant finding is reproduced as under:

“8. In the present case, the reasons recorded by the Ld.AO refer to information received from the Insight Portal concerning certain transactions allegedly involving Decent Vincom Pvt. Ltd., VMS Industries Ltd. and other parties. The reasons quantify the alleged transactions and thereafter state that the income of Rs.3,11,17,134/-had escaped assessment "on account of failure of the assessee to disclose full and true material facts". However, we find that the reasons do not identify which particular material fact was not disclosed by the assessee, nor do they explain how the alleged failure to disclose such material fact resulted in escapement of income. 8.1. In this regard, the fact that the Ld.AO has used the statutory expression regarding failure to disclose fully and truly all material facts cannot, by itself, satisfy the requirement of the first proviso. The jurisdictional condition requires a factual nexus between the alleged failure of disclosure and the escapement of income. A mere recital of the statutory language, without identification of the material fact allegedly not disclosed, would not suffice.” 16. The same principle also finds support from the decision referred to by the assessee in Ananta Landmark Pvt. Ltd. (supra), wherein it has been held that the requirement contained in the first proviso to section 147 has to be satisfied where the reopening is made after four years. The relevant finding of the Honorable High Court is reproduced as under:

“7. In our view, the order impugned requires to be set aside and we have to hold that the Assessing Officer had no jurisdiction to issue the notice under section 148 of the Act. For ease of reference, we reproduce section 147 as it then was prior to amendment: "147. Income escaping assessment - If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." 8. It is settled law that where the assessment is sought to be reopened after the expiry of a period of four year from the end of the relevant year, the proviso to section 147 stipulates a requirement that there must be failure on the part of the assessee to disclose fully and truly all material facts necessary. Since in the case. hand, the assessment is sought to be reopened after a period of four years, the proviso to section 147 is applicable.” 17. In the present case, though in the reasons recorded, the Assessing Officer has mentioned to the effect that material facts have not been disclosed, but, the reasons do not identify any particular material fact which the assessee had failed to disclose during the original assessment proceedings. The mere use of the expression that there was a “failure on the part of the assessee to disclose fully and truly all material facts” is not sufficient to satisfy the requirement of the first proviso to section 147. The Assessing Officer has to identify the material fact which was not disclosed and show its connection with the alleged escapement of income. The record shows that the assessment under section 143(3) had already been completed and the assessee had furnished the details relating to its transactions in shares. The reasons recorded do not state that any particular material fact relating to the purchase or sale of the shares was withheld by the assessee.

18.

In our considered view, the reasons recorded in the present case do not satisfy the requirements of the first proviso to section 147. The Assessing Officer has not identified any failure on the part of the assessee to disclose fully and truly all material facts. Further, the material referred to in the reasons does not establish a sufficient nexus between the transactions of the assessee and the alleged accommodation entry.

19.

In view of aforesaid discussion and analysis, we hold that the notice issued under section 148 and the reassessment proceedings pursuant thereto are not sustainable in law. Accordingly, we uphold the order of the learned CIT(A) in annulling the reassessment proceedings. The grounds raised by the Revenue challenging the validity of the reassessment are dismissed.

20.

Since the reassessment itself has been held to be invalid, the grounds raised by the Revenue challenging the additions made 17 under sections 68 and 69C of the Act do not survive for adjudication. Those grounds are, therefore, rendered academic and are not adjudicated upon.

21.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open Court on 30/09/2026.

Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/09/2026 Saumya , Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai

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