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Facts
The assessee had declared income including Long Term Capital Gain (LTCG) claimed as exempt. The case was reopened, and the Assessing Officer (AO) treated the LTCG from sale of shares as unexplained cash credits and estimated commission as unexplained expenditure, assessing higher total income. The CIT(A) set aside the assessment order and remitted it to the AO for fresh adjudication.
Held
The Tribunal held that the CIT(A) wrongly invoked the proviso to section 251(1)(a) to set aside the assessment as it was not made under section 144 and the proviso was not applicable retrospectively. The Tribunal restored the matter to the CIT(A) for adjudication on merits.
Key Issues
Whether the CIT(A) was justified in setting aside the assessment order by invoking the proviso to section 251(1)(a), when the assessment was not made under section 144 and the proviso was not applicable retrospectively.
Sections Cited
147, 144B, 144, 251(1)(a), 68, 69C, 10(38), 148, 271(1)(c), 234A, 234B, 234C, 143(2), 142(1), 250
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Asstt.Year : 2014-2015 Sanjay Jayantilal Shah ITO, Ward-2(1)(1) 202/A, Shivalik 10 Vs. Vejalpur Opp: SBI Zonal Office Ahmedabad. Ambawadi, Ahmedabad 380 015 PAN : AKTPS 8891 A (Applicant) (Responent) : Assessee by Shri S.N. Divatia, and Shri Samir Vora, ARs. : Shri Kalpesh Rupavatia, Sr.DR Revenue by सुनवाई क� तारीख/Date of Hearing : 30/09/2025 घोषणा क� तारीख /Date of Pronouncement: 07/10/2025 आदेश/O R D E R आदेश आदेश आदेश PER MAKARAND V.MAHADEOKAR, AM: This appeal by the assessee is directed against the order dated 29.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as "CIT(A)"], for the Assessment Year 2014–15, arising out of the assessment order dated 31.03.2022 passed u/s 147 read with section 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act") by the National Faceless Assessment Centre, Delhi [hereinafter referred to as "Assessing Officer or AO"].
Facts of the Case :
2.1 Briefly stated, the facts of the case are that the assessee had filed his return of income for the A.Y. 2014–15 on 28.09.2014 declaring a total 2 income of Rs. 17,25,831/-. In the said return, the assessee had also shown exempt income of Rs. 1,02,19,436/- under the head Long Term Capital Gain (LTCG) on sale of equity shares claimed exempt u/s 10(38) of the Act. The return was initially processed. Subsequently, based on information received from the Investigation Wing of the Income Tax Department, the case of the assessee was reopened by issue of notice u/s 148 on 30.03.2021.
2.2 During the course of reassessment proceedings, the Assessing Officer noted that the assessee had sold 24,800 equity shares of M/s. Looks Health Services Ltd. for a total consideration of Rs.1,05,04,800/-, which was claimed as exempt Long Term Capital Gain. The Assessing Officer observed that the said scrip was identified by the Investigation Wing as one of the penny stock companies which had been used as a vehicle for providing accommodation entries in the guise of bogus Long Term Capital Gain. The Assessing Officer noted that the assessee had claimed the aforesaid gain as exempt, whereas in fact the transaction was nothing but a colourable device adopted to launder unaccounted money into the books of account.
2.3 In the course of the assessment, the Assessing Officer called upon the assessee to furnish supporting documents including contract notes, demat account statements, bank statements, and other evidences. It was recorded by the Assessing Officer that though certain details were filed, the compliance was only partial. The Assessing Officer further relied upon the financials of M/s. Looks Health Services Ltd. which revealed negligible business activities, insignificant turnover, low promoter holding, erratic financial ratios and trading pattern wholly inconsistent with genuine market behaviour. A detailed analysis of trading data, as reproduced in the assessment order, was relied upon to conclude that the price rise and subsequent fall in the scrip was artificial, manipulated and without any sound financial fundamentals.
2.4 The Assessing Officer further relied on statements and reports of the Investigation Wing and placed reliance on judicial precedents such as the decision of the Hon’ble Supreme Court in Sumati Dayal vs. CIT (214 ITR 3 801), CIT vs. Durga Prasad More (82 ITR 540), McDowell & Co. Ltd. vs. CTO (154 ITR 148), and other authorities to hold that the apparent must be considered in the light of surrounding circumstances and the test of human probabilities must be applied. On such analysis, the Assessing Officer came to the conclusion that the claim of Long Term Capital Gain was not genuine.
2.5 Consequently, the Assessing Officer treated the amount of Rs.1,05,04,800/- being the sale consideration of shares as unexplained cash credits u/s 68 of the Act and further estimated cash commission at the rate of 5% of such accommodation entry, amounting to Rs. 5,25,240/-, as unexplained expenditure u/s 69C of the Act. Accordingly, the total income of the assessee was assessed at Rs. 1,27,55,871/-, as against returned income of Rs. 17,25,831/-. The Assessing Officer also initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income and directed charging of interest u/s 234A, 234B and 234C of the Act.
2.6 Aggrieved by the aforesaid assessment, the assessee carried the matter in appeal before the ld. CIT(A)/NFAC. In the appellate proceedings, the assessee submitted, inter alia, bank statements, contract notes, share sale bills, demat statements and ledger accounts in support of the genuineness of the impugned transactions. The assessee also sought admission of additional evidences.
2.7 The ld. CIT(A), after considering the submissions, observed that the assessment order had been passed u/s 147 r.w.s. 144 of the Act, since the Assessing Officer had recorded partial non-compliance with statutory notices. Relying upon the newly inserted proviso to section 251(1)(a) of the Act, effective from 01.10.2024, which empowers the Commissioner (Appeals) to set aside an assessment made under section 144 and remit the matter to the Assessing Officer for fresh adjudication, the ld. CIT(A) came to the conclusion that the issues required further verification and enquiry at the level of the Assessing Officer.
4 Accordingly, the ld. CIT(A) set aside the assessment order passed u/s 147 r.w.s. 144 and directed the Assessing Officer to frame the assessment de novo after giving due opportunity to the assessee and after considering the submissions and evidences furnished by him. Thus, without adjudicating the appeal on merits or deciding the correctness of the additions, the ld. CIT(A) remitted the matter back to the Assessing Officer.
2.8 Aggrieved, the assessee is now in appeal before us raising following grounds of appeal:
1.1 The order passed by U/s.250 on 29.11.2024 by NFAC, [CIT(A)l, Delhi (for short CIT(A)" for A.Y. 2014-15 setting aside the assessment order by invoking proviso to sec. 251(1) of the Act. is wholly illegal, unlawful and against the principles of natural justice. 2.1 The ld. CIT(A) has grievously erred in law and or on facts in not appreciating that the invocation of proviso to sec. 251(1) was invalid and unlawful since the assessment was not completed u/s 144. 2.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have invoked proviso to sec. 251(1) since the assessment was not framed u/s 144 and all relevant documents/evidence were produced during the assessment proceedings before AO 3.1 The Id. CIT(A) has grievously erred in law and or on facts in not disposing of the appeal on its merits and deleting the impugned additions. 3.2 That the in the facts and circumstances of the Id. CIT(A), ought to have disposed of the appeal on its merits and deleting the impugned additions. It is, therefore, prayed that the impugned order passed u/s 250 should be quashed and additions should be deleted.
During the course of hearing before us, the learned Authorised Representative (AR) of the assessee reiterated the grounds of appeal and submitted that the impugned order of the ld. CIT(A) is not sustainable insofar as the provisions of section 251(1) have been wrongly invoked. It was submitted that the ld. CIT(A) has assumed as if the assessment was completed under section 144 of the Act, whereas in fact, the assessment was completed under section 147 read with section 144B of the Act, vide order dated 31.03.2022. It was emphasised that the ld. CIT(A) has set aside the assessment only by invoking the newly inserted proviso to section 251(1)(a), whereas the said proviso is not applicable in the facts of the 3.1 The AR pointed out that the Assessing Officer had issued notice u/s 143(2) on 29.05.2021 and thereafter notice u/s 142(1) on 21.12.2021, to which the assessee duly responded. In fact, in response to notice u/s 142(1) dated 31.12.2021, the assessee had filed detailed objections against the reopening, along with copy of bills, demat statements, and bank statements. Subsequently, in response to the show cause notice dated 25.03.2022, the assessee filed reply on 28.03.2022 enclosing the relevant evidences. Thus, the contention of the Department that the assessee was non-compliant and that the assessment was completed ex parte u/s 144 is factually incorrect.
3.2 The AR drew our attention to para 4 of the assessment order, where the Assessing Officer himself has recorded that in response to notice u/s 142(1) dated 31.12.2021, the assessee had filed objections and also furnished supporting documents. This, according to the AR, clearly establishes that the assessment was not framed u/s 144 and hence the proviso to section 251(1)(a) could not have been invoked by the ld. CIT(A).
3.3 It was contended that the ld. CIT(A) has misdirected himself by assuming jurisdiction to set aside the order, whereas his duty was to decide the appeal on merits and adjudicate the additions made u/s 68 and 69C of the Act. The AR submitted that once the assessee had furnished all evidences during the assessment proceedings, the appellate authority was required to evaluate those materials and return findings on merits. By not doing so, and by remitting the matter back, the ld. CIT(A) has abdicated his appellate jurisdiction.
3.4 It was further argued that the entire exercise of setting aside was unlawful, because the new proviso to section 251(1)(a) came into effect from 01.10.2024, whereas the appellate order has been passed for A.Y. 2014–15 on 29.11.2024 in respect of an assessment framed on 31.03.2022.
The learned Departmental Representative (DR) fairly conceded to the contention of the learned AR that the impugned assessment order was not passed under section 144 of the Act. The DR accepted that the assessment in the present case was framed under section 147 read with section 144B of the Act, and therefore, technically, the assessment cannot be treated as one made under section 144 of the Act.
4.1 It was, however, submitted that notwithstanding the above, the matter on merits involves examination of genuineness of the claim of exempt Long Term Capital Gains, and hence the matter may be restored to the file of CIT(A) for deciding on merit.
We have carefully considered the rival submissions, perused the orders of the lower authorities, the material placed on record and the relevant provisions of law. The short controversy before us is regarding the legality of the action of the ld. CIT(A) in setting aside the assessment order passed by the Assessing Officer by taking recourse to the proviso to section 251(1)(a) of the Act.
5.1 For proper appreciation, it is necessary to notice the scheme of section 251 of the Act. Section 251(1) provides the powers of the Commissioner (Appeals) in disposing of an appeal. As per clause (a), in an appeal against an order of assessment, the CIT(A) may confirm, reduce, enhance or annul the assessment. Prior to the Finance Act, 2001, the CIT(A) also had the express power to set aside an assessment and remit the matter back to the Assessing Officer. However, this power to set aside was specifically withdrawn w.e.f. 01.06.2001.
5.2 The position of law thus remained that the CIT(A) was obliged to decide the appeal on merits by exercising powers of confirmation, reduction, enhancement or annulment, and he could not remand the matter back to 7 the Assessing Officer. This settled legal position has been reiterated in a catena of judicial pronouncements wherein it was held that the first appellate authority is a quasi-judicial authority and is duty bound to render findings on merits, unless specifically empowered otherwise.
5.3 The Finance Act, 2023 inserted a proviso to section 251(1)(a), effective from 01.10.2024, whereby a limited power has been restored to the CIT(A) to set aside an assessment, but only in cases where the assessment has been made under section 144 of the Act. The said proviso reads as under:
“Provided that where such appeal is against an order of assessment made under section 144, he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment.” 5.4 From the plain language of the proviso, it is evident that two pre- conditions must be satisfied for its invocation: i. There must be an appeal against an order of assessment made under section 144 of the Act; and ii. Only in such case can the CIT(A) set aside the assessment and remit the matter back to the Assessing Officer for fresh assessment. 5.5 In the present case, as noticed earlier, the Assessing Officer has passed the assessment order dated 31.03.2022 under section 147 read with section 144B of the Act. The order itself records compliance to notices issued u/s 142(1) and submission of documents by the assessee. Even the learned Departmental Representative has fairly conceded that the assessment was not passed u/s 144 of the Act. Thus, the fundamental condition for invoking the proviso to section 251(1)(a) is not satisfied.
5.6 In our considered opinion, therefore, the exercise of powers by the ld. CIT(A) in setting aside the assessment order by relying upon the proviso to section 251(1)(a) is clearly unsustainable in law. The action is contrary to the express limitation contained in the statute itself and is also against the settled principle that an appellate authority cannot remand the matter unless specifically authorised.
5.7 We may also observe that the assessment order under challenge was dated 31.03.2022, whereas the proviso to section 251(1)(a) was inserted with effect from 01.10.2024. Even otherwise, applying such provision retrospectively to assessments of earlier years would not be legally permissible unless the statute so provides expressly, which is not the case here. Therefore, on both counts – firstly, that the assessment was not made u/s 144, and secondly, that the proviso cannot apply retrospectively – the impugned action of the ld. CIT(A) cannot be upheld.
5.8 At the same time, we note that the ld. CIT(A) has not adjudicated the appeal on merits, particularly with respect to the additions made u/s 68 and 69C of the Act. Once the appellate jurisdiction was invoked, it was incumbent upon the CIT(A) to evaluate the material, examine the evidences and render findings. By merely remanding the matter, the ld. CIT(A) has failed to discharge the statutory duty cast upon him.
5.9 In these circumstances, we deem it just and proper to set aside the order of the ld. CIT(A) and restore the matter back to his file with a direction to adjudicate the appeal afresh on merits, in accordance with law, after affording due opportunity of hearing to the assessee. We further direct that the ld.CIT(A) shall dispose of the appeal within a period of six months from the date of receipt of this order. We make it clear that we have not expressed any opinion on the merits of the additions and all issues are left open for determination by the ld. CIT(A).
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Court on 7th October, 2025 at Ahmedabad.