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Facts
The assessee HUF filed its return for AY 2012-13 declaring income of Rs. 9,24,340/-. The AO, based on information from DDIT (Investigation), initiated proceedings u/s 147 and issued a notice u/s 148. The AO observed that the assessee had not disclosed sale transactions of M/s. Blue Print Securities Limited and had claimed bogus LTCG as exempt u/s 10(38). The AO made an addition of Rs. 1,22,55,978/-.
Held
The Tribunal noted that the assessee claimed not to have transacted in shares of M/s. Blue Print Securities Limited during the subject year, and evidence for the subsequent year (AY 2013-14) showed a disclosure of LTCG. The Tribunal observed a contradiction between the AO's assessment order and the 'reasons to believe' for reopening. The Tribunal restored the matter to the AO to verify the assessee's claim and whether conditions for best judgment assessment were met.
Key Issues
Whether the reopening of assessment u/s 147 and subsequent best judgment assessment u/s 144 were justified based on the facts and evidence presented, particularly regarding the alleged bogus LTCG transactions.
Sections Cited
144, 147, 148, 10(38), 251(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad “B” Bench, Hyderabad
करदाता का प्रतततितित्व/ Assessee : Shri Sridhar Jhawar, CA. Represented by राजस्व का प्रतततितित्व/ Department : Dr. Sachin Kumar, Sr.A.R. Represented by सुिवाई समाप्त होिे की ततति/ Date of : 11.06.2025 Conclusion of Hearing घोर्णध की तधरीख/Date of Pronouncement : 30.06.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M.
The present appeal filed by the assessee HUF is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 2 Satyanarayan Somani (HUF)
09.01.2025, which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) u/s 144 r.w.s. 147 of the Income Tax Act, 1961 (for short “the Act”) dated 27.11.2019 for A.Y. 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. On the facts and circumstances of the case, the order of the Learned CIT(A) is erroneous both on facts and law and against the principles of natural justice.
2. The Learned CIT(A) erred in setting aside the Assessment order passed by the Assessing officer without appreciating the fact that the AO on the facts and in the circumstances of the case and also in law, erred in re-opening the assessment u/s. 148 of the Act, in the absence of any reasons to believe that income chargeable to tax has escaped assessment. Further no fresh, tangible material/information was brought on record which is a primary requirement for Assessment under section 147. The Appellant prays that it be held that the notice u/s 148 of the Act is bad-in-law.
3. The Learned CIT(A) erred appreciating the fact the AO was erred in invoking provisions under section 144 of the Act.
4. The Learned CIT(A) also failed to adjudicate on the ground that the during the relevant Assessment year the appellant had not claimed any exemption under section 10(38) and had not undertaken any transaction with respect to the share of M/s Blue print securities Limited.”
Succinctly stated, the assessee HUF had filed its return of income for A.Y. 2012-13 on 16.06.2012, declaring an income of Rs.9,24,340/-. Subsequently, the A.O, based on information shared by the DDIT (Investigation), Unit-2(2), Kolkata vide email dated 26.03.2019, that the assessee was one of the beneficiaries 3 Satyanarayan Somani (HUF) of trading of penny stock by the name of M/s. Blue Print Securities Limited and had earned bogus “Long Term Capital Gains” (LTCG) of Rs. 1,22,55,978/- by trading in the said scrip during the subject year, initiated proceedings u/s 147 of the Act. Notice u/s 148 of the Act, dated 31.03.2019 was issued by the A.O. In compliance, the assessee filed its return of income for the subject year on 25.04.2019, declaring the same income as was originally returned.
During the course of the assessment proceedings, the A.O, based on the aforesaid information that was shared by the DDIT (Investigation), Unit – 2(2), Kolkata, observed that the assessee had in its return of income for the subject year not disclosed the sale transactions of the shares of the abovementioned penny stock, viz. M/s. Blue Print Securities Limited.
As is discernible from the assessment order, the A.O. observed that perusal of the return of income of the assessee for the subject year, revealed that it had invested in the shares of M/s. Blue Print Securities Limited, a shell company, that had provided bogus capital gains to its beneficiaries. Also, the A.O. observed while framing the assessment that the assessee had claimed the income 4 Satyanarayan Somani (HUF) on the sale of the shares of M/s. Blue Print Securities Limited amounting to Rs. 1,22,55,978/- as its income that was exempt u/s 10(38) of the Act. The A.O. holding firm conviction that the impugned income on the bogus transaction of sale of the shares of the aforementioned shell company was the income of the assessee chargeable to tax that had escaped the assessment, vide his order passed u/s 144 r.w.s. 147 of the Act, dated 27.11.2019, made an addition of the same and determined the income of the assessee at Rs. 1,31,80,318/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). After deliberating on the facts involved in the case before him in the backdrop of the documents/explanation filed by the assessee, the CIT(A) held a firm conviction that instead of calling for a “remand report” from the A.O, the matter, in all fairness, as per the “Proviso” to sub-section (1) of Section 251(1) of the Act, that was inserted by the Finance No.(2) Act, 2024, w.e.f. 01.10.2024, could safely be set aside to the A.O. with a direction to make a fresh assessment. Accordingly, the CIT(A) based on his aforesaid observations set aside the matter to the file of the A.O for 5 Satyanarayan Somani (HUF) framing a fresh assessment. For the sake of clarity, the observations of the CIT(A) are culled out as under :
6 Satyanarayan Somani (HUF)
The assessee, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us.
We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record.
Shri Sridhar Jhawar, C.A, the learned Authorized Representative (for short “ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the lower authorities have grossly erred in law and facts of the case in making/ sustaining the impugned addition of Rs. 1.22 crores (approx.) in the hands of the assessee. Elaborating on his contention, the Ld.AR submitted that as the assessee had not carried out any transactions of purchase/sale of the shares of M/s. Blue Print Securities Limited during the subject year i.e., the period relevant to A.Y. 2012-13, therefore, the A.O was not justified to make the impugned addition of Rs. 1.22 crores (supra). The Ld. AR to buttress his aforesaid claim had drawn our attention to the 7 Satyanarayan Somani (HUF)
“Contract Notes” that were issued by the broker of the assessee, viz. M/s. Shares and Stocks Pvt. Ltd., which revealed that the respective transactions of purchase/sale of the shares of M/s. Blue Print Securities Limited were spread over the period i.e 12.04.2012, 13.04.2012, 16.04.2012, 18.04.2012, 19.04.2012, and 23.04.2012, Pages 23-28 of APB. The Ld. AR submitted that the assessee vide its reply that was filed/uploaded in the course of the assessment proceedings on 27.11.2019, had in reply to the queries raised by the A.O. vide his notice dated 22.11.2019, specifically brought to his notice that it had not carried out any transactions in the shares of M/s. Blue Print Securities Limited during the Financial Year 2011-12, and had filed before him the copy of his computation of income and the bank statements, Page 19 of APB. The Ld. AR submitted that the A.O, based on incorrect facts, had wrongly initiated proceedings u/s 147 of the Act, and thereafter made the addition while framing the assessment for the subject year.
8. Alternatively, the Ld. AR submitted that as the assessee in compliance to the notice issued by the A.O. u/s 148 of the Act, dated 31.03.2019, had filed its return of income on 25.04.2019, 8 Satyanarayan Somani (HUF)
Page 17 of APB; complied with the notices issued by the A.O. u/s 142(1) and u/s 143(2) of the Act, therefore, there was no justification for the A.O. to have framed the assessment in its case to the best of his judgment u/s 144 r.w.s. 147 of the Act, dated 27.11.2019. The Ld. AR based on his aforesaid contention, submitted that neither the best judgment assessment framed by the A.O. vide his order u/s 144 r.w.s. 147 of the Act, dated 27.11.2019 was sustainable in the eyes of the law; nor the impugned addition in the absence of any transaction of purchase/sale of the shares of M/s. Blue Print Securities Limited having been carried out by the assessee during the subject year was called for in its case.
Per contra, Dr. Sachin Kumar, learned Senior Departmental Representative (for short “Ld. DR”) relied upon the orders of the lower authorities. The Ld. DR submitted that it can safely be gathered from the information shared by the DDIT(Investigation), Unit-2(2), Kolkata with the A.O and also the order of assessment passed by the A.O u/s 144 r.w.s. 147, dated 27.11.2019, that the assessee had transacted in the shares of M/s. Blue Print Securities Limited during the year under consideration i.e. A.Y. 9 Satyanarayan Somani (HUF)
2012-13. However, the Ld. DR on being confronted with the “Contract Notes” of the assessee and also its reply filed/uploaded on 27.11.2019 (in response to the notice/reminder letter dated 22.11.2019 issued by the A.O.) failed to rebut the claim of the assessee that it had not carried out the impugned share transactions during the subject year. Apart from that, the Ld. DR submitted that the assessee had in the course of the assessment proceedings not raised the aforesaid claim before the A.O. The Ld. DR supported the orders of the authorities below and submitted that the addition made by the A.O. be sustained.
We have thoughtfully considered the contentions advanced by the learned Authorized Representatives of both parties in the backdrop of the material available on record.
Although, it is the claim of the Ld. AR that the assessee during the subject year had neither transacted in the shares of M/s. Blue Print Securities Limited; nor raised in its return of income for the said year any claim of exemption of “Long Term Capital Gains” (“LTCG") under Section 10(38) of the Act, but we find that the same militates against the observation recorded by 10 Satyanarayan Somani (HUF) the A.O in the assessment order. We say so, for the reason that the AO in the assessment order had, inter alia, observed that the assessee had admitted LTCG of Rs. 1,22,55,978/- on the sale of shares of M/s. Blue Print Securities Limited and claimed the same as exempt under Section 10(38) of the Act. Apart from that, we find that as per the "Reasons to believe", dated 31.03.2019 recorded by the A.O for initiating the proceedings u/s 147 of the Act, it was observed by him that the information received from DDIT (Investigation), Unit-2(2), Kolkata, vide letter dated 06.03.2019 (received on 26.03.2019) revealed that the assessee had purchased/sold the shares of M/s. Blue Print Securities Limited and the trade value of the same was to the tune of Rs. 1,22,55,978/- for A.Y. 2012-13. Accordingly, the A.O. based on the aforesaid information that was shared with him by the DDIT (Investigation), Unit-2(2), Kolkata, had initiated proceedings u/s 147 of the Act to bring to tax its aforesaid income of Rs. 1.22 crore (approx.) that had escaped assessment.
Ostensibly, on the one hand, the observations of the A.O in the assessment order and also the "reasons to believe" recorded for reopening the case u/s 147 of the Act are based on the fact 11 Satyanarayan Somani (HUF) that the assessee was a beneficiary of the bogus transactions of purchase/sale of shares of M/s. Blue Print Securities Limited during the subject year, i.e., A.Y. 2012-13, but the copies of “Contract Notes” for the period from 12.04.2012 to 23.04.2012, and also the reply filed/uploaded by the assessee during the course of the assessment proceedings on 27.11.2019 claiming that it had not carried out any such transactions in the shares of M/s. Blue Print Securities Limited during the subject year is found to be in clear contradiction and reveals a different story.
The Ld. AR to fortify his claim that the transactions of purchase/sale of shares of M/s. Blue Print Securities Limited (supra) pertained to the immediately succeeding year i.e. A.Y. 2013-14 and not the subject year has placed on our record the copy of the return of income of the assessee for A.Y. 2013-14 along with his computation of income. On a perusal of the return of income of the assessee for A.Y. 2013-14, we find that the assessee had disclosed the sale transaction of the shares of M/s. Blueprint Securities Ltd dated 20.04.2012 and disclosed the “Long Term Capital Gains” of Rs.1,17,16,737/- which is claimed as exempt u/s 10(38) of the Act.
12 Satyanarayan Somani (HUF)
Considering the aforesaid facts, we are of the firm conviction that if the claim of the assessee that it had not transacted in the shares of M/s. Blue Print Securities Limited during the subject year i.e., relevant to A.Y. 2012-13 is found to be in order, then there can be no justification for the A.O in making the impugned addition of Rs. 1.22 crores (supra) while framing the assessment in its case for the year under consideration. It would be apposite to point out that though the A.O. in the assessment order had observed that the assessee had claimed the LTCG arising on the sale of shares of M/s. Blue Print Securities Limited of Rs.1.22 crores (supra) as exempt u/s 10(38) of the Act, but on the contrary, he had in the "reasons to believe" stated that a perusal of the return of income of the assessee revealed that it had not claimed any exemption u/s 10(38) of the Act.
We shall now deal with the Ld. AR's contention that as the assessee had duly complied with the notice u/s 148 of the Act, dated 13-06-2019, and filed the return of income in compliance thereto within the prescribed period, i.e., on 25-04-2011, and also complied with the notices issued u/ss. 142(1)/143(2) of the Act, 13 Satyanarayan Somani (HUF) therefore, there was no justification for the A.O. to have framed the assessment to the best of his judgment u/s 144 r.w.s. 147 of the Act, dated 27-11-2019. It will be apposite to cull out the provisions of Section 144, which read as under:
Best judgment assessment. 144. (1) If any person- (a). fails to make the return required [under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or] (b). fails to comply with all the terms of a notice issued under sub-section (1) of section 142 [or fails to comply with a direction issued under sub-section (2-A) of that section, or] (c). having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the [Assessing Officer], after taking into account all relevant material which the [Assessing Officer] has gathered, [shall, after giving the assessee an opportunity of being heard, make the assessment] of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: [Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.] 14 Satyanarayan Somani (HUF)
We though principally concur with the Ld. AR that if the assessee had not controverted either of the conditions contemplated in sub-sections (a) to (c) of Section 144 of the Act, then the A.O had no justification to frame the assessment in its case to the best of his judgment vide his order passed u/s 144 r.w.s. 147 of the Act, dated 27.11.2019, but the claim of the Ld. AR that the assessee has not contravened either of the conditions contemplated in sub-sections (a) to (c) of Section 144 of the Act and, thus, was not liable to be visited with best judgment assessment framed by the A.O vide his order passed u/s 144 r.w.s 147 of the Act, dated 27.11.2019 cannot be summarily accepted and will require necessary verification.
Considering the aforesaid facts, we herein for the limited purpose of verifying, viz. (i). the correctness of the claim of the assessee that it had during the subject year not transacted in the shares of M/s. Blueprint Securities Ltd.; and (ii). that it had not contravened either of the conditions contemplated in sub-sections
(a) to (c) of Section 144 of the Act, which, thus would have justified framing of the assessment by the A.O to the best of his judgment vide order passed u/s 144 r.w.s. 147 of the Act, dated 27.11.2019, 15 Satyanarayan Somani (HUF) restore the matter to the file of the A.O. In case, the claim of the assessee that it had during the subject year not transacted in the shares of M/s Blueprint Securities Limited is found to be correct, then the A.O is directed to vacate the impugned addition of Rs.1.22 crores (supra). Apart from that, the AO is directed to verify whether or not the assessee had contravened either of the conditions contemplated in sub-sections (a) to (c) of Section 144 of the Act, which, therein justified the framing of the impugned assessment vide order passed u/s 144 r.w.s. 147 of the Act, dated 27.11.2019. In case, the assessee is not found to have contravened either of the conditions contemplated in sub-sections (a) to (c) of Section 144 of the Act, then the assessment framed by the A.O to the best of his judgment vide his order passed under Section 144 r.w.s 147 of the Act, dated 27.11.2019 would stand quashed.
Resultantly, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the Open Court on 30th June, 2025. (श्री मिुसूदन सावडिया) (श्री रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखा सदस्य/ACCOUNTANT MEMBER न्यायिक सदस्य/JUDICIAL MEMBER 16 Satyanarayan Somani (HUF)