NAVNEETBHAI RAMANLAL PATEL,AHMEDABAD vs. THE ITO, WARD-2(1)(2), AHMEDABAD

In law and in the facts and circumstances of the case of the Appellant, the Ld. CIT(A)- NFAC has erred in confirming addition on account of alleged fictitious loss Rs.46,88,950/-.

5. Without prejudice to above, in law and in the facts and circumstances the Ld. CIT(A)-NFAC erred in confirming the levy of interest under section 234A/B/C/D.

6. Without prejudice to above, in law and in the facts and circumstances the Ld.CIT(A)-NFAC erred in initiating proceedings under section 271(1)(c) of the Act.

7. during the course of hearing of the appeal. The appellant craves leave to add to alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”

3. The brief facts of the case are that the assessee, an individual engaged in the business of commission agency for LIC, had filed origin return of income for Assessment Year 2016–17 on 28.06.2016 declaring total income of Rs. 2,55,960/-. The return was processed under section 143(1) of the Act. Subsequently, based on information received from the Investigation Wing regarding the assessee’s involvement in transactions of sale and purchase of shares through a stockbroker, M/s. Marfatia Stock Broking Pvt. Ltd., which were allegedly part of a bogus penny stock scheme, the Assessing Officer (AO) reopened the case under section 147 of the Act. As per the information received by the Assessing Officer, the assessee had claimed a fictitious trading loss of Rs. 46,88,950/- through manipulative transactions in shares, despite having a relatively modest income declared in the return. The AO issued notice under section 148 on 31.03.2021 and, in response, the assessee filed a return reiterating the same income of Rs. 2,55,960/-. During the . Navneetbhai Ramanlal Patel Asst. Year : 2016-17 3 reassessment proceedings, the Assessing Officer issued several notices under sections 142(1) and 143(2) of the Act along with questionnaires asking for documentary evidence and explanations regarding the impugned transactions. However, the Assessing Officer observed that despite repeated opportunities, the assessee failed to submit the required documents such as contract notes, demat statements, broker bills, and bank statements. The AO noted that the assessee remained largely non-compliant, seeking adjournments and delaying the proceedings until the period of limitation of passing assessment order was nearing expiry. Accordingly, finding no satisfactory explanation or supporting evidence to substantiate the loss claimed, the AO held that the assessee had engaged in accommodation transactions designed to generate a fictitious loss to offset other taxable income. Therefore, invoking the provisions of section 144 read with section 147 of the Act, the AO completed the assessment to the best of his judgment and added Rs. 46,88,950/- to the total income as fictitious loss. The AO relied on judicial precedents including Swadeshi Polytex Ltd. v. ITO [127 ITR 287 (All.)] and CIT v. Motor General Finance Ltd. [254 ITR 449 (Del.)] to justify the best judgment assessment in cases of non-compliance with statutory notices.

4. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], NFAC. In the statement of facts and grounds of appeal, the assessee challenged the validity of reopening under section 147 of the Act and the addition on account of fictitious loss, contending that the order was passed without due consideration of evidence and in violation of natural justice. However, during the appellate proceedings, despite several notices issued through the ITBA portal on multiple dates, the assessee failed to submit any written submissions or documentary evidence in support of his case and sought repeated adjournments. The CIT(A) observed that . Navneetbhai Ramanlal Patel Asst. Year : 2016-17 4 despite ample opportunities, the assessee neither appeared nor furnished any details to substantiate his claim. The CIT(A) held that the AO had given sufficient opportunities during the assessment proceedings and that, in the absence of cooperation from the assessee, the AO was justified in resorting to best judgment assessment. The CIT(A) further noted that the assessee had failed to explain the alleged trading loss or provide any corroborative evidence to rebut the information received from the Investigation Wing, and therefore the AO’s action in treating the loss as fictitious was in accordance with law. The CIT(Appeals) relying on the principle that an assessee cannot take advantage of his own non-compliance, the CIT(A) upheld the assessment order in full. The CIT(A) also cited the dictum vigilantibus non dormientibus jura subveniunt—that the law assists those who are vigilant with their rights—and held that the assessee’s persistent failure to respond showed lack of interest in pursuing the appeal. Accordingly, the CIT(A) confirmed the addition of Rs. 46,88,950/- as business income and dismissed the appeal both for appearance and on merits.

. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 5

. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 6 Similarly, in Meenakshi Overseas (P.) Ltd. v. Pr. CIT [2017] 395 ITR 677 (Del), the Hon’ble High Court observed that the reasons recorded must demonstrate a live link between the material relied upon and the belief formed; a mere reference to a general investigation report cannot justify reopening. The Hon’ble Gujarat High Court in Varshaben Sanatbhai Patel v. ITO (Tax Appeal No. 12873 of 2014, dated 13.10.2015) has also held that reassessment proceedings cannot be sustained where the Assessing Officer fails to apply independent mind to the facts of the assessee’s case and merely acts on borrowed satisfaction. Likewise, the Hon’ble Supreme Court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) laid down that there must be a direct nexus or live link between the material before the Assessing Officer and the formation of belief that income has escaped assessment.

11.1. Accordingly, the addition of Rs. 46,88,950/- made by the Assessing Officer and confirmed by the CIT(A) is directed to be deleted. The appeal of the assessee is, therefore, allowed.