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Facts
The assessee, engaged in trading of Futures, Options, and Derivatives, had income disclosed for AY 2014-15. The Assessing Officer (AO) reopened the assessment based on information suggesting fictitious profits in derivative trading and bogus LTCG from shares of M/s. Ashlar Securities Pvt. Ltd. The AO alleged these were accommodation entries to introduce unaccounted income and treated the transactions as sham.
Held
The Tribunal held that the AO issued the notice u/s 148 without application of mind, as the assessment records already contained all relevant details. The reasons recorded did not constitute a bonafide belief that income had escaped assessment or that there was a failure to disclose material facts. Therefore, the notice u/s 148 was quashed.
Key Issues
Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act were based on valid reasons and proper application of mind by the Assessing Officer, or if the notice was bad in law due to lack of sufficient material and application of mind.
Sections Cited
147, 148, 10(38), 151, 143(3), 68, 148A, 142(1), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA
3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal Per Bench: The present appeals filed by the assessee arises out of separate ordersdated 30/01/2025 passed by NFAC, Delhi for assessment years 2013-14, 2014-15, and 2015-16.
The Ld.AR at the outset submitted that the facts and circumstances on which appeals are filed for the years under consideration are similar and identical. He stated that the main issue raised by the assesse in these appeals is challenging the reopening of the assessment based on the incorrect fact that the assesse has earned bogus LTCG and claimed exemption under section 10(38) of the Act.
For the sake of convenience facts for assessment year 2014-15are considered to adjudicate the common issue. Reproduced hereunder is the grounds for assessment year 2014-15:
“1. On the facts and circumstances of the case, the Ld. AO erred in issuance of notice u/s 148 on the basis of reasons recorded depicting clear incorrect facts since the appellant had not traded in the shares of Ashlar Securities Private Limited.
2. On the facts and circumstances of the case, the Ld. AO erred in issuance of notice u/s 148 without obtaining appropriate satisfaction as required by provisions of section 151 and therefore the notice itself is bad in law.
3. On the facts and circumstances of the case, the Ld. AO erred in reopening the assessment u/s 148 without bringing on the failure on part of assessee to disclose fully and thoroughly all material facts since the assessment u/s 143(3) was already completed and all details were duly submitted during the course of assessment.
4. On the facts and circumstances of the case, the reopening of assessment is resorted to merely based on change of opinion as complete details were disclosed during the course of original assessment u/s 143(3).
3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal 5. On the facts and circumstances of the case, the Ld. AO erred in assuming jurisdiction without passing the speaking order disposing of the objections raised to reopening u/s 148 during the course of reopening assessment proceedings.
On the facts and circumstances of the case, the Ld. AO erred in making an addition u/s.68 of Rs.83,65,750/- in respect of currency derivatives.
On the facts and circumstances of the case, the Ld. AO failed to appreciate that the profit earned on currency derivatives was already offered for taxation.
On the facts and circumstances of the case, the Ld. AO erred in issuance of show cause notice on 23.03.2022 requiring assessee to respond by 24.03.2022 (i.e. one day) when the complete submissions were already made in response to various notices issued u/s 142(1) during the course of assessment proceedings and therefore the show cause notice itself is bad in law & consequently the order passed pursuant thereto is also bad in law.” Brief facts of the case are as under:
2. The assessee is an individual and is engaged in the business of trading in Futures and Options, Derivatives & Financial Consultancy. The assessee filed his return of income for the A.Y. 2014-15 on 27/09/2014, declaring total income at Rs.10,27,650/- after claimingbrought-forward business loss for the current year at Rs.23,62,231/-. 2.1. The case was reopened u/s.147 of the Act, on the basis of information available with the Department that, the assessee earned Fictitious profits in equity/derivative trading and bogus LTCG u/s.10(38)/and STCL in the shares of M/s. Ashilar Securities Pvt. Ltd., at Rs.83,65,750/- during F.Y. 2013-14 relevant to AY 2014-15.
3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal 2.2 Based on this information received, notice U/s 148A of the Act, was issued and duly served on the assessee. In response to the same, the assessee filed his return of income. The Ld.AO issued order under section 148A(d) rejecting assessee’s objections Thereafter notice under section 148 was issued on 25/03/2022. 2.3 During the course of assessment proceedings, the Ld.AO issued notice u/s142(1) & show-case notice. In response to the same, the assessee has filed some details. On perusal of the details furnished by the assesse, the Ld.AO came to the conclusion that the assesse manipulated through accommodation entries to facilitate introduction of unaccounted income of beneficiaries, to earn long term capital gain out of sale of share of M/s Ashlar Securities Pvt Ltd., that was treated as exempt. The Ld.AO treated the transaction as sham transaction. The Ld.AOthereafter completed the assessment u/s 147 r.w.s 144B by assessing the total Income Rs. 93,93,400/-. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee took multiple plea challenging the reopening of the assessment. The Ld.CIT(A), however after considering the same dismissed the submissions of the assesse. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. 2.4 The Ld.AR submitted that, the Notice u/s 148 was issued based on reasons recorded under the impression that the assessee traded in shares of M/s. Ashlar Securities Pvt. Ltd., and earned Bogus Long Term Capital Gains & claimed exemption u/s 10(38) of the Act.
3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal 2.5 The Ld.AR submitted that, the reasons recorded are based on incorrect facts. He submitted thatfor all three assessment years, the assessee did not trade in the shares of M/s. Ashlar Securities Pvt. Ltd. He submitted that M/s. Ashlar Securities Pvt. Ltd., is a private limited company and not listed on the stock exchange and therefore question of trading in those shares and claiming exemption u/s 10(38) do not arise. Our attention is drawn to the computation of total income placed on page 2 of the paper book for A.Y. 2014-15, to submit that the assessee did not claim any exemption u/s.10(38) in respect of any long-term capital gains.He thus submitted that the assessee did not trade in the shares of M/s. Ashlar Securities Pvt. Ltd., as recorded in the reasons by the Ld.AO.
The Ld.AR submitted that, on perusal of computation for assessment 2014-15 it can be appreciated that the assessee is a trader and deals in Futures & Options and Derivatives. The Ld.AR submitted that assesse did his trading in futures, options and derivative segment through M/s. Ashlar Securities Pvt. Ltd., who is the broker. It is submitted that the net profit of Rs. 64,95,750/- earned is credited in the Ledger account which is netted off against loss of Rs.40,08,242/- earned during the relevant previous year from the activity of future options and derivatives. He submitted that the net profit of Rs.46,61,592/- declared by the assesse in computation of income for assessment year 2014-15 is recorded in theprofit & loss statement placed at page 16 of paper book. He submitted that the ledger account depicts various transactions during the assessment year 2014- 3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal 15, wherein assessee earned profit from the activity of futures, options, and derivative segment. 3.1 Referring to the assessment order, Ld.AR submitted that, as per the table reproduced in para 5 out of Rs.83,65,750/-, transactions at Sr.No.4 & 5 are in respect of loss incurred Rs.9,80,000/- (USE Currency Derivative loss) and other amounts if added come to profit of Rs.73,85,750/- (USE Currency Derivative Profit). Furthermore, in case profits are adjusted against loss then Net profit is calculated at Rs.64,05,750/- (i.e 73,85,750 (-) 9,80,000). The Ld.AR submitted that the assessing officer calculated transaction totalling to Rs.83,65,750/- and after set-off the net profit was calculated at Rs.64,05,750/-. He submitted that as per the ledger account the net profit earned through M/s. Ashlar Securities Pvt. Ltd. is Rs.63,91,988/-, which is net of brokerage and Other Charges amounting to Rs.13,762/-. Furthermore, as per the ledger account, he submitted that the assesse also traded with other broker being, M/s.MSB E-Trade Securities For assessment year 2014-15, the assesse earned loss from the activity trough M/s.MSB E-Trade Securities was Rs.23,83,746/- which is net off brokerage and other charges. He relied on a summary of the transaction for all the years under consideration as under:
AY 2013-14 2014-15 2015-16 As per Assessing officer A USE Currency 53,78,500.00 73,85,750.00 1,02,53,300.00 Derivative-Profit B USE Currency 5,12,750.00 9,80,000.00 Derivative- Loss C Absolute Total 58,91,250.00 83,65,750.00 1,02,53,300.00
D Net Profit after 48,65,750.00 64,05,750.00 1,02,53,300.00 adjusting Loss (A-B)
E Brokerage & other 4,195.00 13,762.00 27,168.00 charges
Profit/Loss as per Ledger A/c (net of other charges) F Through M/s. 48,61,555.00 63,91,988.00 1,02,26,132.00 Ashlar Securities Private Limited- Broker (D-E) G Through Other -67,42,452.00 -23,83,746.00 - 28,25,622.00 Broker H Net Profit / Loss -18,80,897.00 -40,08,242.00 74,00,510.00 from Future, Options & Derivatives (F+G)
I Profit/Loss as per -10,25,587.00 46,61,592.00 72,63,006.00 P&L considered in Computation of Income (which includes H)
3.2 The Ld.AR thus submitted that, the transactions in respect of Future, Options and derivative segment done through M/s. Ashlar Securities Pvt Ltd as a broker is reported in the computation of income and necessary profit has been offered for taxation for the year under consideration.He submitted that thus the reasons recorded are bad in law on the following grounds- a) The assessee did not trade in shares of M/s. Ashlar Securities Pvt Ltd c) The F&O and derivative transactions done through a broker has been already offered for taxation and therefore there is no undisclosed income as alleged in the reasons by the assessing officer.
There is no Failure on part of the assesse to disclose fullythe material facts. d) The assesse did not claim any long term capital gains as exempt under 10(38) as noted in the reasons recorded by the assessing officer. e) And that the assessee has not traded in any penny stock or claimed any reasons as mentioned in reasons recorded by the assessing officer.
3.3 The Ld.AR submitted that, the reasons also do not bring any failure on part of the appellant. He thus submitted that the identical reasons recorded for assessment years 2013-14, 2014- 15 & 2015-16 has not brought anything on record to establish any failure on part of the assessee to fully & truly disclose all material facts for the purposes of assessment. Further, during original assessment, the submitted all details in respect of F&O activity.
3.4 The Ld.AR referring to the order of disposal of objections, submitted that the Ld.AOdid notverify the facts brought before him and about reasons being factually incorrect. He submitted 3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal that the objections were disposed off stating that it has been submitted after a long period of time. He submitted that this observation is incorrect as the assesse was given the reasons recorded on 27.10.2021 and the objections were raised on 31.01.2022 due to the ongoing COVID -19 Pandemic. He thus submitted that the objections were disposed of by non-speaking order dated 11.02.2022 whereas the time limit for passing the assessment order was 31.03.2022.
3.5 On merits of the case, the Ld.AR submitted that the transactions through thebroker M/s. Ashlar Securities Pvt. Ltd have been offered for taxation by making appropriate entries in books of accounts including them in profit & loss.
3.6 On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in the light of records placed before us.
The reasons recorded by the Ld.AO for assessment year 2014-15 is placed at page 35 of the Paper book. Scanned and reproduced herewith is the reasons recorded:
It is noted that there is no link between the reasons recorded and reason to believe that income has escaped assessment. Further the year under consideration was subjected to scrutiny 3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal assessment and assessment order under section 143(3) of the Act has been passed on 08/12/2016. The assesse has placed in the paper book notice issued under section 142(1) along with the questionnaire. It is noted that the assessing officer had called for details of the details and working of loss under F&O along with documentary evidence. Thus, it is clear that all details regarding the profit of loss earned by the assesse from the activity of F&O was already available on record for all the years under consideration.
4.1 It is also noted M/s. Ashlar Securities Pvt. Ltd., is the broker of assesse and that the assesse had not claimed any exemption under section 10(38) of the Act as recorded in the reasons. It is further noted that the assessment is reopened without coming to the conclusion as to how either income escaped assessment or that there is no full and true disclosure on behalf of the assesse as the case may be. Thus, what is to be looked into in the present facts of the case is whether materials in possession of the Ld.AO is sufficient to come to the conclusion was sufficient to form a “reason to believe”. This requirement is provided in the law because, legislature intended that the power to reopen should be exercised with due care and without any prejudice.
4.2 In our opinion, the assessing officer issued notice under section 148 of the act without application of mind as the assessment records had all relevant details to come to the conclusion either income chargeable to tax has escaped assessment or that there is no full and true disclosure for the 3335, 3336/Mum/2025; A.Y. 2013-14 – 2015-16 Anil RamniranjanKejariwal purposes of assessment. We also note that the reasons recorded also does not amount to a bonafide belief on the part of the Ld.AO to come to the conclusion either income chargeable to tax has escaped assessment or that there is no full and true disclosure for the purposes of assessment. We therefore quash the notice dated 31/03/2021 issued under section 148 of the Act for assessment year 2014-15 is held to be bad in law. As a consequence, the assessment order dated 25/03/2022 becomes null and void.
Accordingly, grounds raised by the assessee for assessment year 2014-15 stands allowed.
As the facts, circumstances and reasons recorded to issue notice under section 147 is identical and similar for assessment years 2013-14 and 2015-16, the above view taken for assessment year 2014-15 stands applied mutatis mutandis.
5.1 Accordingly, the notice dated 31/03/2021 issued under section 148 of the Act for assessment years 2013-14 & 2015-16 respectively is held to be bad in law. As a consequence, the assessment orders dated 25/03/2022 for assessment years 2013-14 & 2015-16 respectively becomes null and void.
Accordingly, grounds raised by the assesse for assessment year 2013-14 & 2015-16 stands allowed.
In the result appeals filed by the assesse for assessment years 2013-14 to 2015-16 stands allowed.