NITABEN GIRISHBHAI PATEL,AHMEDABAD vs. THE ITO, WARD-3(3)(2), AHMEDABAD

2.5 The Assessing Officer further analysed the source of investment of Rs.19,68,683/- and compared it with the assessee’s returned incomes in earlier years, namely Rs.2,06,128/- in AY 2015-16 and Rs. 5,98,386/- in AY 2016-17 and concluded that the assessee’s disclosed income did not justify such investment. While considering a part of the investment (30% being Rs. 5,90,605/-) as explained, the AO treated the balance amount of Rs. 13,78,078/- as unexplained investment under section 69A of the Act. Consequently, the total income was assessed at Rs. 83,38,658/- as against the returned income of Rs.69,60,580/-. Interest under sections 234A/B/C/D was charged and penalty proceedings under section 271AAC were initiated separately.

2.6 Aggrieved by the assessment order, the assessee carried the matter in appeal before the Ld. CIT(A). Before the CIT(A), the assessee raised multiple grounds including the validity of reopening, justification of addition under section 69A, levy of interest and initiation of penalty. The assessee also filed written submissions 4 contending that she was a genuine investor; that the purchases were made through proper banking channels; that all documentary evidences including bank statements and broker notes were placed on record; and that denial of cross-examination of persons connected with M/s Kushal Ltd. amounted to violation of principles of natural justice.

2.7 However, the Ld. CIT(A) observed that despite several opportunities being granted through notices dated 15.10.2024, 25.11.2024, 13.03.2025, 24.04.2025 and 08.05.2025, no written submissions were filed by the assessee during the appellate proceedings. Accordingly, the Ld. CIT(A) proceeded ex parte and adjudicated the matter on the basis of material available on record.

2.8 The Ld. CIT(A), while confirming the findings of the Assessing Officer, observed that the assessee had failed to discharge the onus of proving the source of investment. No contract notes or satisfactory evidence were produced even during the appellate proceedings. The Ld. CIT(A) placed reliance on the judgments of the Hon’ble Supreme Court in Roshan Di Hatti vs. CIT (107 ITR 938) and Kale Khan Mohammad Hanif vs. CIT (50 ITR 1) to hold that the burden lies upon the assessee to explain the nature and source of the investment. In the absence of such explanation, the addition made by the AO under section 69A was confirmed. The appeal of the assessee was thus dismissed.

2.9 The assessee, being further aggrieved, is now in appeal before us raising following grounds:

1. The Ld. CIT(A) has erred, both in law and on facts, in passing ex- parte order which is in gross violation of the principles of natural justice.

5 2. The Ld. CIT(A) has erred, both in law and on facts, in confirming the action of Ld. AO in reopening the assessment under section 147 of the Act.

5. The Ld. CIT(A) has erred in law and on facts of the case in confirming levy of interest u/s. 234A/B/C/D of the Act. The Ld. CIT(A) has erred in law and on facts of the case in confirming the action of initiation of penalty proceedings under section 271AAC of the Act.

at the time of or before the hearing of the appeal.

3. At the time of hearing before us, the Learned Authorised Representative (AR) of the assessee reiterated the grounds of appeal and further placed reliance upon a sworn affidavit filed by the assessee, Smt. Nitaben Girishbhai Patel, dated 29/09/2025, explaining the circumstances which led to non-compliance before the Ld. CIT(A). In the said affidavit, the assessee has deposed that though she had filed appeal before the first appellate authority against the reassessment order dated 30/03/2022, the notices issued under section 250 of the Act by the Ld. CIT(A) were inadvertently not forwarded to her Chartered Accountant due to oversight. It has been explained that at the time of filing the appeal, the email ID of the assessee’s husband was furnished since he was looking after all matters pertaining to income-tax. However, owing to inadvertence and oversight, her husband failed to forward such notices to the concerned Chartered Accountant. As a result, despite having a strong case on 6 both technical grounds (reopening) as well as on merits, necessary submissions and supporting documents could not be filed before the Ld. CIT(A), who proceeded to dismiss the appeal ex parte. The assessee has further affirmed that the non-compliance was not willful but was due to a reasonable cause, namely the oversight in forwarding the notices.

3.1 The learned AR of the assessee further contended that the reasons recorded for reopening specifically alleged escapement of income of Rs.83,05,785/- on account of accommodation entries in the form of bogus share transactions. However, in the reassessment order, the AO has not made any addition on that footing but has instead made addition of Rs.13,78,078/- u/s 69A towards unexplained investment. Thus, the addition ultimately made has no nexus with the reasons recorded, rendering the reassessment proceedings bad in law. Reliance was placed on various judicial pronouncements including the decision of the Hon’ble Bombay High Court in CIT v. Jet Airways (I) Ltd. (331 ITR 236) and the Hon’ble Gujarat High Court in CIT v. Mohmed Juned Dadani (355 ITR 172) to contend that when the Assessing Officer does not ultimately make any addition on the very ground which formed the basis of the reasons recorded for reopening, he cannot proceed to make additions on some other issues which did not form part of such recorded reasons. settled proposition that addition cannot be sustained on issues which are not part of the recorded reasons.

3.2 Further, the AR placed on records an application for admission of additional evidence, seeking to place on record 35 pages of documentary evidence comprising relevant contract notes, ledger in the books of broker for financial year 2015-16 and bank statements, contending that these evidences go to the root of the matter and are

4. The Learned Departmental Representative (DR), on the other hand, strongly supported the orders of the lower authorities. According to the DR, what is material is not only the genuineness of the sale transaction but also the source of the initial purchase of the impugned shares. Unless the source of investment is satisfactorily explained, the claim of capital gain cannot be accepted as genuine. The DR further pointed out that as rightly noted by the CIT(A), the assessee failed to adduce any documentary evidence regarding the source of purchase even at the appellate stage, despite being afforded several opportunities. It was thus argued that the additional evidences now tendered before the Tribunal assume importance and require proper examination at the end of the fact-finding authority. In these circumstances, the DR requested that the matter may be restored, not merely to the file of the CIT(A), but preferably to the file of the Assessing Officer, so that the evidences filed by the assessee can be duly verified and the issue decided on merits in accordance with law.

5.1 It is a well-settled proposition that at the stage of reopening, the Assessing Officer is only required to form a prima facie belief, on the 8 basis of tangible material, that income chargeable to tax has escaped assessment. The existence of such material is sufficient to clothe the Assessing Officer with jurisdiction; the sufficiency or correctness of the material is not to be adjudicated at this stage. Judicial scrutiny at this point is limited to examining whether there was some relevant material having a live nexus with the belief formed, and not to assess whether ultimately the addition would be sustainable. Whether or not the assessee may later succeed in explaining the transactions is a matter to be considered in the course of reassessment proceedings, and not while testing the validity of reopening. In the facts of the present case, the information received from the Investigation Wing, when read in conjunction with the assessee’s own disclosure of capital gains from sale of shares of M/s Kushal Ltd., clearly constituted tangible material warranting further inquiry. It is also pertinent to note that capital gain is an outcome of purchase and sale transactions, and, by its very nature, such transactions are capable of being arranged in a manner to generate accommodation entries or colourable gains. The Assessing Officer, therefore, had reason to believe that income had escaped assessment. The contention of the assessee that the addition ultimately made was not in exact conformity with the recorded reasons pertains to the merits of the assessment and cannot invalidate the assumption of jurisdiction once valid reasons were duly recorded.

5.2 We have carefully considered the reliance placed by the AR. The facts of the present case, however, stand on a different footing. The recorded reasons clearly noted that the assessee was beneficiary of accommodation entries in the scrips of M/s Kushal Ltd. and that income of Rs.83,05,785/- had escaped assessment on account of such transactions. The addition made by the Assessing Officer under section 69A was intrinsically connected to the very same transaction, 9 since the source of purchase of the impugned shares was not explained and was held to represent unexplained money. Thus, unlike the cases relied upon by the assessee, it is not a situation where the Assessing Officer altogether dropped the issue forming the basis of reopening and travelled to wholly unconnected issues. On the contrary, the addition is directly rooted in the very transactions of purchase and sale of shares of M/s Kushal Ltd. which formed the basis of recorded reasons.

5.3 Coming to the merits, it is seen that the AO made addition of Rs.13,78,078/- out of investment in shares of M/s Kushal Ltd. treating the same as unexplained under section 69A. The CIT(A), however, dismissed the appeal ex parte without considering the evidences and submissions of the assessee.

5.4 The assessee has now filed an application for admission of additional evidence seeking to place on record contract notes, broker’s ledger, and bank statements. The explanation tendered in the affidavit, namely that notices issued by the CIT(A) were inadvertently not forwarded to the Chartered Accountant, constitutes reasonable cause. In our considered view, the evidences now produced are vital and decisive for determining the controversy.

5.5 Considering the totality of circumstances, we are of the opinion that the ends of justice would be met if the matter is restored to the file of the CIT(A). The CIT(A) shall admit the additional evidences, call for a remand report from the Assessing Officer wherever necessary, and thereafter decide the appeal afresh in accordance with law, after giving adequate opportunity of being heard to the assessee. This approach will balance both sets of submissions, since the Assessing 6 In the result, while upholding the validity of reopening, we set aside the ex parte order of the CIT(A) on merits and restore the matter to his file for fresh adjudication in accordance with law. All grounds on merits are kept open for decision by the CIT(A).