INCOME TAX OFFICER, WARD 16(2)(1), MUMBAI, MUMBAI vs. KAILASH MULCHAND KOTHARI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E’ BENCH
MUMBAI

BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
A-2005, Cosmic Height,
Bhakti Park
Wadala East
Mumbai- 400 024
PAN/GIR No.AADPK9073C
(Appellant)
..
(Respondent)
CO No.133/Mum/2025
(Arising out of ITA No.2727/Mum/2025)
(Assessment Year :2015-16)
Kailash
Mulchand
Kothari
A-2005,
Cosmic
Height, Bhakti Park
Wadala East
Mumbai- 400 024
Vs. Income Tax Officer, Ward
16(2)(1),
Mumbai
PAN/GIR No.AADPK9073C
(Appellant)
..
(Respondent)

Assessee by Shri Prakash Jhunjhunwala
Revenue by Shri Hemanshu Joshi, Sr.
DR
Date of Hearing
13/08/2025
Date of Pronouncement
26/08/2025
आदेश / O R D E R

PER AMIT SHUKLA (J.M):

The aforesaid appeal has been filed by the Revenue and the cross-objection by the assessee against the order dated

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07/02/2025 passed by the National Faceless Appeal Centre
(NFAC), Delhi, arising from the quantum assessment framed under Section 143(3) read with Section 147 of the Income-tax
Act, 1961, for the A.Y. 2015-16. 2. In the grounds of appeal, the Revenue has primarily assailed the action of the learned CIT(A) in deleting the addition of ₹2,47,39,575/- made by the Assessing Officer under Section 68 of the Act on account of alleged bogus long- term capital gains (LTCG) earned by the assessee on the sale of shares of M/s Indo-American Advanced Pharmaceuticals
Ltd. (subsequently renamed M/s Mahavir Advance Remedies
Ltd.). On the other hand, in the cross-objection, the assessee has challenged the very assumption of juri iction under Section 147 and the validity of the reassessment order on two interrelated grounds. Firstly, it is the case of the assessee that no statutory notice under Section 143(2) was issued or served after the assessee filed his return of income in response to the notice under Section 148. Secondly, and more fundamentally, the assessee contends that despite filing detailed objections challenging the reopening disputing the very basis and validity of the reasons recorded the Assessing Officer failed to dispose of such objections by passing a separate speaking order, thereby violating the binding procedure prescribed by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v.
ITO [(259 ITR 19)] and rendering the reassessment order void ab initio.
3. Briefly stated, the relevant facts are that the assessee filed his original return of income under Section 139(1) on ITA No.2727/Mum/2025 and CO No.133/Mum/2025
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30/09/2015, declaring a total income of ₹11,08,910/-.
Subsequently, the Assessing
Officer received specific information from the office of the Director General of Income- tax (Investigation), Mumbai, indicating that the assessee was one of the beneficiaries of accommodation entries in the form of long-term capital gains arising from trading in penny stocks, and that the assessee had claimed an exemption of ₹2,37,99,628/- under Section 10(38).
Based on this information, the AO issued notice under Section 148 dated
31/03/2017, reopening the assessment.
3.1. From the records, it is observed that the assessee had purchased 1,50,000 equity shares of M/s Mahavir Advance
Remedies Ltd. (then known as M/s Indo-American Advanced
Pharmaceuticals Ltd.) on a preferential allotment basis on 28/02/2013 at a price of ₹11/- per share, making a total investment of ₹16,50,000/- by way of cheque. The assessee received physical share certificates on 08/03/2013, which were subsequently dematerialised and credited into his D-mat account on 05/03/2014. 3.2. During the period from 25/06/2014 to 01/12/2014, the assessee sold 75,895 shares of the said company on the floor of the Bombay Stock Exchange (BSE) through his registered broker, M/s Swastika Investmart Ltd., for a total sale consideration of ₹2,46,45,528/-. The corresponding delivery of shares was effected through the assessee’s D-mat account between 25/06/2014 and 27/11/2014. The average sale price of the shares worked out to approximately ₹324.73 per share as against the purchase price of ₹11/- per share,

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resulting in a steep appreciation of nearly 29 times within a span of 15 to 18 months.
3.3. The assessee disclosed long-term capital gains of ₹2,38,10,682/- arising from these transactions in his return of income and claimed the same as exempt under Section 10(38) of the Act, having paid Securities Transaction Tax
(STT) on the sale transactions.
4. In response to the notice under Section 148 dated
31/03/2017, the assessee filed his return of income on 10/04/2017, declaring the same income as originally returned, and simultaneously requested the Assessing Officer to furnish a copy of the recorded reasons for reopening. The recorded reasons were supplied to the assessee on 24/08/2017. Thereafter, on 22/09/2017, the assessee filed a comprehensive set of detailed objections, challenging both the factual basis and the legal validity of the reopening initiated under Section 147, the copy of which is placed at pages 5 and 6 of the assessee’s paper book.
4.1. This specific issue regarding the non-disposal of objections was also raised before the learned CIT(A). During appellate proceedings, the learned CIT(A) called for a remand report from the Assessing Officer on the submissions and legal contentions raised by the assessee. In response, the Assessing
Officer furnished his remand report dated
14/10/2019, wherein, significantly, he admitted that the objections filed by the assessee were not available on the assessment record and that no separate disposal order had been passed. For the sake of clarity and completeness, the ITA No.2727/Mum/2025 and CO No.133/Mum/2025
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relevant portion of the remand report has been reproduced by the learned CIT(A) in paragraph 5.3 of his appellate order at pages 7 and 8, which reads as under:
5.3 The AO furnished the remand report dated 14/10/2019
and the same is reproduced as under :-

“Kindly refer to the above:
2. Facts of the case are that, order u/s 143 r.w.s. 147 of the I.T. Act, 1961 was passed on 29.12.2017. Addition of Rs.
2,47,39,575/- was made to the total income of the assessee being LTCG claimed exempted u/s 10(38) of the Act earned on investment in Penny Stock company, allegedly, through operators.
3. The assessee filed appeal before the First Appellate
Authority (FAA). Through one of the ground the assessee challenged the juri iction of the order passed u/s 143 r.w.s.
147 of the Act pleading that the objection raised by him against the re-opening was not disposed off by the then AO before passing the assessment order and hence the order passed is bad in law.
4. First and foremost it may be mentioned here that there is nothing on record to suggest that the assessee has filed any objection against the re-opening of the case. Further, perusal of assessment record shows that a letter was e-mailed to the assessee on 20.12.2017 at „ca.tpdangi@gmail.com‟ wherein the case was thoroughly discussed vis-à-vis submission of the assessee. The assessee was asked to explain his case and discharge his onus by satisfactory explanation to prove the genuineness of the LTCG claimed exempt u/s 10(38) of the Act.
Copy of the letter is enclosed herewith for ready reference. This letter is self explanatory and shows that the objection of the assessee was duly disposed. Also, even if the assessee had filed the so called objection against the re-opening, he never camp up with facts or reminded the AO until the completion of the assessment which clearly shows his malafide intentions.

Nowithstanding anything contrary to the above, it may be mentioned here that non compliance of procedure of disposing off of assessee‟s before passing the assessment order cannot made the order void or non-est as has held by the Hon‟ble
Madras High Court in the case of M/s. Home Finders Housing

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Ltd. W. A. No. 463 OF 2017 dated 25.04.2018). Such procedural violation can be cured by remitting the matter to the authority. The Hon‟ble Court held that, it is not that there is statutory requirement to pass an order taking into account the statement filed by the assessee, however the Hon‟ble Supreme
Court in GKN Driveshafts (India) was given procedural safeguards to the assessee to avoid unnecessary harassment by directing the AO to pass a speaking under taking into account the objection. In case all order is passed without following a prescribed procedure, the entire proceedings would not be vitiated.

In view of the above, the case may be decided on merits.”

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Ltd. v. ITO [(259 ITR 19)], wherein it has been unequivocally held that upon receipt of objections, the Assessing Officer is bound to dispose of the same by way of a reasoned speaking order before proceeding further with the reassessment.
5.2. The assessee further emphasised that the Assessing
Officer’s failure to follow this mandatory procedure was not a mere procedural irregularity but went to the very root of the juri iction assumed under Section 147. In the rejoinder, the assessee specifically pointed out that the reasons for reopening were premised solely on third-party investigation reports received from the DGIT(Inv.) and that no independent enquiry or verification was conducted by the Assessing Officer to establish the alleged accommodation entry. In such circumstances, the assessee contended that his objections challenging the mechanical reopening ought to have been judicially considered and disposed of by the Assessing Officer in compliance with the binding directions of the Hon’ble Apex
Court.
5.3. The rejoinder of the assessee is reproduced here under:-
“The appellant is engaged in investment in shares on long term basis. The appellant filed his original return of income u/s 139(1) on 30/09/2015 on disclosing the total income of Rs.11,08,910/-. The Ld. AO, relying on the information received from DGIT(Inv), re-opened the assessment on issuing the notice u/s 148 dated 31/03/2017 (copy enclosed). The appellant filed the return u/s 148 on 10/04/2017 on disclosing the same total income of Rs.11,08,910/- and requested Ld. AO to provide a copy of the recorded reason (copy enclosed). The Ld. AO provided a copy of the recorded reasons (copy enclosed) to the appellant on 24/08/2017. The appellant filed the written objections on 22/09/2017 (copy enclosed) on disputing the validity of notice u/s.148 and reason recorded therein.

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However, Ld. AO did not dispose the objections and passed the re-assessment order on 29/12/2017 which is in gross violation to the settled position of the law.

The appellant had disclosed the long term capital gain on sale of STT paid listed shares M/s. Mahavir Advance Remedies Ltd
(Formerly known as M/s.
Indo
American
Advanced
Pharmaceuticals Ltd) of Rs.2,38,10,682/- and claimed exempt u/s.10(38) of the Act. During course of re-assessment, the appellant filed the written submissions and exhaustive documentary evidences (copies enclosed) to justify the genuineness of the Long Term Capital Gain. However, Ld. AO without pointing any fault in the documentary evidences filed on record, harshly rejected the appellant‟s claim of long term capital gain u/s.10(38) of Rs.2,38,10,682/- and made the addition u/s.68
of the entire sale consideration of Rs.2,47,39,575/-.
The additions made in the assessment order are stated as under :-
Total Income as per Return of Income
Rs. 11,08,910
Add: Addition made in assessmentAddition u/s.68 of long term capital gain on sale of STT paid listed shares of M/s. Mahavir Advance
Remedies Ltd
Rs.2,47,39,575
-------------------
Assessed total income
Rs.2,58,48,485
===========
Being aggrieved, the appellant preferred this appeal.
SUBMISSIONS :-

Ground No.2 : Re-assessment order u/s.143(3) r.w.s.147
passed without disposing the written objections challenging the validity of notice u/s.148
is erroneous.
------------------------------------------------------------------------------------------
In Ground No.2, the appellant had challenged the validity of the re-assessment order u/s.143(3) r.w.s.147 under the reason that the written objections filed by the assessee, wherein the validity of notice u/s.148 and reasons therein are disputed, has not been disposed by Ld. AO and no separate Disposal of Objection order had been passed by the Ld. AO. The Ld. AO, in the remand report dated 14/10/2019, had accepted the fact

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that the Disposal of objection order has not been passed by his predecessor.
The event chart on this issue is stated as under (copies enclosed) :- a)
Notice u/s.148
31/03/2017
b)
Return filed by assessee in response to notice u/s.148
10/04/2017
c)
Assessee‟s
Request to provide copy of recorded reasons
10/04/2017
d)
Reasons provided by Ld.
AO to the assessee
24/08/2017
e)
Objections raised by the assessee before Ld. AO
22/09/2017
f)
Objections disposed by Ld. AO
Not disposed
The appellant submits that the re-assessment order passed u/s.143(3) r.w.s.147 is bad in law since Ld. AO had passed the reassessment order without disposing the written objections filed by the appellant. The appellant had disputed the validity of notice u/s 148 in the objections filed in time on 22/9/20217, however Ld. AO had not passed the disposal of objection order, accordingly the reassessment order passed u/s 147 is bad in law.

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reopening initiated under Section 148, the Assessing Officer is mandatorily bound to dispose of such objections by passing a separate, reasoned, and speaking order before proceeding to frame the reassessment. Failure to adhere to this statutory mandate, as consistently held in these judicial precedents, renders the assumption of juri iction itself defective, and any consequential reassessment order passed thereafter stands vitiated in law.
6.1. The learned CIT(A), however, after considering the submissions and judicial authorities cited, did not accept the assessee’s contention.
While acknowledging that the Assessing Officer had not passed any separate disposal order on the objections filed by the assessee on 22/09/2017, the learned CIT(A) proceeded to reject the juri ictional ground by holding that, in substance, the assessee’s objections stood impliedly addressed during the course of assessment proceedings. According to the CIT(A), the assessee had actively participated throughout the reassessment proceedings, had filed detailed submissions on merits, and had also responded to the show-cause notice issued by the Assessing Officer proposing to treat the long-term capital gains as unexplained income.
6.2. The learned CIT(A) placed reliance on the remand report of the Assessing Officer, which stated that the assessee’s objections were “not available on record” and that an email communication dated 20/12/2017 had been issued by the AO to the assessee’s authorised representative, wherein the issues raised in the objections were allegedly discussed. On ITA No.2727/Mum/2025 and CO No.133/Mum/2025
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this basis, the CIT(A) formed the view that, though a formal disposal order had not been passed, the objections were constructively addressed and, therefore, the reassessment order was not vitiated.
6.3. The learned CIT(A) also distinguished the judicial precedents relied upon by the assessee by observing that the facts of those cases were materially different, and that in the present case, since the assessee had participated fully in the reassessment proceedings and had furnished replies on merits, the omission to pass a separate disposal order on objections was, in his opinion, not fatal to the validity of the reassessment. Accordingly, the juri ictional ground raised by the assessee was dismissed, and the learned CIT(A) proceeded to adjudicate the matter on merits.
“8.4 I have considered the facts of the case, remand report furnished by the AO and contention of the appellant. The contention of the appellant is that AO is mandated to pass a separate speaking order to dispose the objections filed by the appellant and non-disposal of appellant‟s objections would invalidate the consequential reassessment order. The appellant furnished the copies of notice u/s 148, recorded reasons, return filed u/s 148, objections filed during course of assessment and relied on judicial precedents.

However, the AO, in remand report, stated the objections filed by the appellant is not available on assessment record. As per
AO, the appellant, during course of assessment, had never stated that his objections had not been disposed, which establishes the mala-fide intentions of appellant The AO stated that in letter send through e-mail on 20/12/2017, the case of appellant was thoroughly discussed vis-à-vis submissions of the appellant and such letter shows that the objections of the appellant was disposed.

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I observe that, the appellant had actively participated in assessment proceeding and furnished the submissions along with documents on assessment record and during course of entire assessment proceeding, the appellant had never informed the AO that the objections had not been disposed. As per remand report, the objections filed by appellant are not available on assessment record. The AO issued the show- cause notice to the appellant on proposing to make the additions of long term capital gain on sale of shares of Mahavir
Advance Remedies Ltd and thus, the appellant was well informed that the objections raised by appellant had been rejected by the AO. Further, the appellant had furnished the reply to showcause on merits which proves that he was aware that his initial objections had been rejected by the AO. The judicial decisions relied by the appellant are distinguishable on facts, since in instant case, the appellant had actively participated in assessment and had furnished the documents on assessment record. Accordingly, the Ground of appeal No.-2
is hereby dismissed.

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7.1. The sole reasoning advanced by the learned CIT(A) to uphold the validity of the reassessment was that the assessee had “actively participated” in the reassessment proceedings and had furnished submissions on merits, implying that the omission to dispose of the objections stood “constructively cured.”
In our considered view, such reasoning is fundamentally flawed and legally untenable, as juri ictional defects cannot be remedied by participation or acquiescence.
7.2. It is now settled law by a series of binding precedents that the failure of the Assessing Officer to dispose of objections filed by the assessee against the reopening notice strikes at the very root of the juri iction assumed under Section 147 and renders any reassessment order passed thereafter null and void. The Hon’ble Supreme Court, in its landmark judgment in GKN Driveshafts (India) Ltd. v. ITO
[(259 ITR 19)], has laid down the mandatory procedure in unequivocal terms:
“When a notice under s. 148 is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment.”
8. The ratio of the above decision, being the law declared by the Hon’ble Apex Court, is binding on all subordinate authorities, including the Assessing Officer and the first appellate authority. The Assessing Officer, having failed to ITA No.2727/Mum/2025 and CO No.133/Mum/2025
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adhere to this statutory mandate, has committed a juri ictional error that vitiates the entire reassessment proceedings.
8.1. The above proposition has been consistently reaffirmed by the Hon’ble
Bombay
High
Court, which is our juri ictional High Court, in a series of authoritative pronouncements. In Allana Cold Storage Ltd. v. ITO [(287 ITR
1) (Bom)], the Court unequivocally held that where the assessee has filed objections to the reopening, it is incumbent upon the Assessing Officer to decide such objections by passing a separate order before proceeding with reassessment; failure to do so renders the reassessment order unsustainable.
“The law as laid down by the apex Court in GKN Driveshafts
(India) Ltd. vs. ITO &Ors. (2003) 179 CTR (SC) 11 : (2003) 259
ITR 19 (SC) is binding on this Court as well as on the authorities functioning under the statute. This being the position, one fails to understand as to why the first respondent did not decide the objections separately which he is duty- bound to decide. .................
That being so, the orders of assessment passed in all these four petitions are quashed and set aside.”

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rejection” can be drawn from the assessee’s participation in the reassessment proceedings.
“These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer.
Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law.
The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a juri ictional issue ....

The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where juri ictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise.”

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12. Equally significant is the judgment of the Hon’ble Bombay
High Court in Bayer Material Science (P.) Ltd. v. DCIT [(2016)
66 taxmann.com 335], wherein the Court struck down the reassessment order for the AO’s failure to dispose of the objections and held that such non-compliance amounts to assumption of juri iction without authority of law. The relevant observation reads as under:-
“In the present facts, the draft assessment order was passed on 30-3-2015 without having disposed of the assessee's objections to the reasons recorded in support of the impugned notice. The reasons were supplied to the assessee only on 19-
3-2015 and the assessee had filed the objections to the same on 25-3-2015. The passing of the draft Assessment order without having disposed of the objections is in defiance of the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO
[2003] 259 ITR 19/[2002] 125 Taxman 963 Thus, the draft
Assessment order dated 30-3- 2015 is not sustainable being without juri iction. This for the reason that it has been passed without disposing of the objections filed by the assessee to the reasons recorded in support of the impugned notice.
Accordingly, the draft assessment order dated 30-3-2015 is set aside.

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perpetual harassment. The Hon’ble Court dealt with following substantial question of law:-
“ Whether on the facts and circumstances of the case and in law, the Tribunal was justified in restoring the issue to the Assessing Officer after having quashed/ set aside the order dated 14th December, 2009 passed by the Assessing Officer without having disposed of the objections filed by the appellant to the reasons recorded in support f the reopening Notice dated
28th March, 2008.?”

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“(a) Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal ought to have held that since the respondent did not furnish to the appellant the reasons recorded for reopening of the assessment for the assessment year 1997-98 and did not comply with the mandatory preconditions laid down by the Hon'ble Supreme
Court in GKN Driveshaft vs. ITO 259 ITR page 19, the reassessment order was bad in law as being opposed to the principles of natural justice ?”

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upholding the reassessment merely on the ground of the assessee’s participation in the proceedings. It is a well-settled principle that consent or conduct of the assessee cannot confer juri iction upon the Assessing Officer where none exists.
18. Accordingly, we hold that the reassessment order dated
29/12/2017 passed under Section 143(3) r.w.s. 147 is null and void. On this ground alone, the cross-objection filed by the assessee succeeds and is allowed in full. Consequently, the Revenue’s appeal, which assails the deletion of the addition made under Section 68, becomes infructuous and is dismissed.
19. In the result, the cross-objection filed by the assessee is allowed, and the appeal filed by the Revenue stands dismissed.
Order pronounced on 26th August, 2025. (ARUN KHODPIA) (AMIT SHUKLA)
ACCOUNTANT MEMBER
JUDICIAL MEMBER
Mumbai; Dated 26/08/2025
KARUNA, sr.ps

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Copy of the Order forwarded to :

BY ORDER,

(Asstt.