DINESSH KUMAR SHARMA,JAIPUR vs. ITO, WARD4(2), JAIPUR

fu/kZkj.ko"kZ@Assessment Year : 2013-14 Shri Dinesh Kumar Sharma cuke Income Tax Officer, E-157, Road No. 11, VKI Area, Vs. Ward 4(2), Jaipur. Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AFEPS6643A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Shivangi Chopra, C.A. jktLo dh vksjls@Revenue by :Shri Gautam Singh Choudhary, JCIT-DR lquokbZ dh rkjh[k@Date of Hearing : 16/04/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 24/06/2025 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC) Delhi dated 23.09.2024 passed under section 250 of the I.T. Act, 1961, for the assessment year 2013-14. The assessee has raised the following grounds of appeal :-

1. That the ld. Assessing Officer grossly erred in reopening assessment under section 147 of the Act merely on the basis of borrowed satisfaction.

2. That the ld. Assessing Officer is not justified making addition amounting to Rs. 15,95,000/- under section 69A of the Act as undisclosed income.

3. That the ld. Assessing officer erred in law in not complying with principles of natural justice. Further, the ld. Assessing Officer did not grant sufficient time to respond to show cause notice issued under section 144 of the Act.

4. That the ld. Assessing Officer grossly erred in law and on facts in not appreciating that the appellant incurred only short term capital loss, which was not even claimed while filing return of income. Consequently, no loss accrued to Revenue. The appellant craves to add, amend, modify and delete any of the above grounds at or before the time of hearing.”

2. The brief facts of the case are that the assessee is an Individual, filed his return of income under section 139(1) of the IT Act, 1961 on 29.09.2013 for the assessment year 2013-14, declaring total income at Rs. 2,76,990/-. Subsequently, notice under section 148 of the IT Act was issued on 16.03.2020 to the appellant on the basis of information received from DDIT (Inv.), Unit-1(3), Ahmedabad that the appellant has claimed bogus long term capital gains (LTCG) of Rs. 15,95,000/- , which has not been found genuine and verifiable from the return of income on prima facie verification. In response to the notice under section 148 of the IT Act, the appellant e-filed return of income on 17.03.2021 declaring total income at Rs. 2,76,990/- for the AY 2013-14. Thereafter, notices under section 143(2) and 142(1) of the IT Act, 1961 were issued on 23.09.2021 requiring the appellant to furnish documents in support of return of income filed. Subsequently, show cause notice under section 144 of the Act was issued on 28.09.2021 to furnish response by 29.09.2021. In response to the said notice, the assessee sought adjournment on Shri Dinesh Kumar Sharma, Jaipur. 29.09.2021 but then filed response on 30.09.2021 which was not considered while passing order on 30.09.2021. From the assessment order, it was established that the appellant did not earn LTCG amounting to Rs. 15,95,000/-. The AO completed the assessment on 30.09.2021at a total income of Rs. 18,71,990/- by making addition of Rs. 15,95,000/- under section 69A as unexplained investment made in purchase of shares of ‘Safal Herbs Limited’. Aggrieved by the order of AO, the assessee has filed appeal before the ld. CIT (A), who dismissed the appeal of the assessee. Now the assessee has come in appeal before the Tribunal on the grounds reproduced herein above.

is submitted below. Ground of Appeal No. 1- That the Learned Assessing Officer grossly erred in reopening assessment under section 147 of the Act merely on the basis of borrowed satisfaction.

1. Facts underlying the ground of appeal-

Shri Dinesh Kumar Sharma, Jaipur. 1.1 The Learned AO relied upon information received from DDIT(Inv.)-Unit-1(3), Ahmedabad in formation of reasons to believe' for reopening assessment under section 147 of the Act. However, the learned AO failed to conduct further independent inquiry before reopening the assessment proceedings. 1.2 In this regard, reasons for reopening as per the assessment order are reproduced herewith for your ready reference- As per the details/information received from DDIT(Inv), Unit 1(3), Ahmadabad, the assessee has held claimed bogus LTCG of Rs.15,95,000/-, which has not been found genuine and verifiable from the ITR on prima facie verification. Thus, the then Assessing Officer has reasons to believe that the income to the extent of Rs. 15,95,000/-has escaped assessment within the meaning of Section 147 of the Income Tax Act 1961 and recorded reasons w/s 147 & found it a fit case for issue of notice u/s 148 of the Act. 1.3 Accordingly, the Learned AO reopened the assessment in the present case, believing that long term capital gain amounting to Rs. 15,95,000/- was earned by the appellant during relevant assessment year. However, the grounds for reopening the assessment were fundamentally wrong. As such, no long term capital gains were earned by the appellant, instead the appellant incurred short term capital loss amounting to Rs. 7,01,240/- 1.4 The details are tabulated as below- Particular Date Amount (in INR) Supporting document Purchase 04.06.2012 15,99,785/- Contract Note annexed as Annexure

12. Sale 16.11.2012 8,98,545/- Contract Note annexed as Annexure-13 1.5 Therefore, the premises on which 'reasons to believe' are grounded, is based out of mere suspicion and conjectures, as firstly, the impugned amount did not pertain to amount of capital gains but purchase amount, and secondly, the appellant incurred short term capital loss, and did not earn long term capital gains. In the present case, reopening under section 147 has been done without linking information received from Investigation Wing of Department to actual facts in the appellant's case.

2. Legal position in this regard- 2.1 In this regard, provisions of section 147 are reproduced hereunder for your ready reference- "If the Assessing Officer has reason to believe that any income, chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153. assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).

Shri Dinesh Kumar Sharma, Jaipur. 2.2 The expression 'believe" in section 147 requires an objective satisfaction based on definite material and information, howsoever insufficient it is. The sufficiency of the material cannot be gone into, but relevancy certainly can be gone into. The reasons for the belief should have a rational connection or a relevant bearing on the formation of the belief and should not be extraneous or irrelevant. That is, there must be live nexus between information, assessee and escaped income. Absence of material and nexus of the material with the assessee and escaped income will invalidate reopening of assessment. 2.3 There are large number of cases explaining the legal requirement that is to be satisfied by the Assessing Officer for valid assumption of jurisdiction under section 147 to reopen the assessment. The power to reopen the assessment under section 147 is a potent power and cannot be exercised lightly. Said power cannot be invoked casually or mechanically. Formation of belief by the Assessing Officer that income has escaped assessment is the heart of the provision. The reasons recorded must be based on some tangible material and the same should be evident from the reading of the reasons and this constitutes the mandatory requirement of section 147. In this regard, reliance is placed on following legal precedents, clarifying position of law as under: 2.3.1 Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income-tax (166 taxmann.com 72)-Delhi High Court (copy annexed as Annexure-17) In this case, the Assessing Officer received information from Investigation Wing that the assessee deposited substantial amount of cash in different bank accounts. The Assessing Officer based on said information, formed reason to believe that income to the extent of cash deposited in the bank account had escaped assessment. As a result of writ petition by the assessee, Hon'ble High Court held as under-

26. Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of sections 147 and 148.

26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. In the present case as well, reasons to believe are merely copy paste of information contained in report from Investigation Wing. Thus, the learned AO had only "reasons to suspect and not "reasons to believe in the instant case. Analysing the 'reasons to believe' recorded by the learned AO, following observations are noted, which are identical to facts of the above judicial pronouncement: i) The first sentence of the reasons states that information had been received from DDIT(Investigation) that the appellant has claimed bogus LTCG of Rs. 15,95,000/-which has not been found genuine and verifiable from Income Tax Return on prima facie verification. The last sentence records that as per this information, "reasons to believe' are formed, approval taken under section 151 and notice issued under section 148 of the Act. ii) The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document. Further, it is apparent that the learned AO did not apply his own mind to the information and examine the basis and material of the information. The learned AO recorded reasons on the basis of vague information in a mechanical manner. The approving authority under section 151 also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the learned AO did not independently apply his mind to the information received from the DDIT (Investigation) and arrive at a belief whether or not any income had escaped assessment."

Shri Dinesh Kumar Sharma, Jaipur. In view of above observations, the ratio laid down by Hon'ble Delhi High Court squarely applies to the facts of present case. 2.3.3 Rajhans Processors vs. Union of India [2023] 149 taxmann.com 29 (Rajasthan)/[2023] 292 Taxman 332 (Rajasthan)[08-02-2023] (copy annexed as Annexure-19) In this case, the Assessing Officer issued a notice under section 148 on the assesse, proposing to reopen assessment for the assessment year 2017-18 for the reasons that it had made investment to tune of Rs. 1.21 crores for purchase of a property situated at Delhi and it had not disclosed this investment in return of income as well as the source of investment and as such the amount of Rs. 1.21 crores was actually the undisclosed income of the assessee and he had reason to believe that the same had escaped assessment. On careful examination of facts, Hon'ble High Court held as under- It has been admitted by the revenue in the reply that the property at Delhi was inadvertently mentioned in the proceedings under section 148 and reference thereto may be considered as the property at Pali. [Para 6] On peruse the notice issued under section 148 and the reasons for reopening the assessment it becomes clear that the same are founded on non-existent transaction of purchase of property at Delhi. Inspite of the assessee elaborating in its reply as well as the objections that it had never entered into any such transaction the Assessing Officer made no effort whatsoever to rectify the blatant blunder and instead he has tried to justify the fundamentally flawed reopening proceedings on entirely a new ground that the assessee did not upload the financial statement with the return and the details of the land transaction were not mentioned in Schedule VI of the balance sheet. This observation of the Assessing Officer is also incorrect on the face of record because the balance sheet was admittedly uploaded with the return filed by the assessee pursuant to receiving the notice under section 148. In Schedule VI of the balance sheet transaction pertaining to procurement of land worth Rs. 1.26 crores is clearly stated [Para 9] learned AO, following observations are noted, which are identical to facts of the above judicial pronouncement: i) The first sentence of the reasons states that information had been received from DDIT(Investigation) that the appellant has claimed bogus LTCG of Rs. 15,95,000/-which has not been found genuine and verifiable from Income Tax Return on prima facie verification. The last sentence records that as per this information, "reasons to believe' are formed, approval taken under section 151 and notice issued under section 148 of the Act. ii) The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document. Further, it is apparent that the learned AO did not apply his own mind to the information and examine the basis and material of the information. The learned AO recorded reasons on the basis of vague information in a mechanical manner. The approving authority under section 151 also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the learned AO did not independently apply his mind to the information Shri Dinesh Kumar Sharma, Jaipur. received from the DDIT (Investigation) and arrive at a belief whether or not any income had escaped assessment." In view of above observations, the ratio laid down by Hon'ble Delhi High Court squarely applies to the facts of present case. 2.3.3 Rajhans Processors vs. Union of India [2023] 149 taxmann.com 29 (Rajasthan)/[2023] 292 Taxman 332 (Rajasthan)[08-02-2023] (copy annexed as Annexure-19)

In this case, the Assessing Officer issued a notice under section 148 on the assesse, proposing to reopen assessment for the assessment year 2017-18 for the reasons that it had made investment to tune of Rs. 1.21 crores for purchase of a property situated at Delhi and it had not disclosed this investment in return of income as well as the source of investment and as such the amount of Rs. 1.21 crores was actually the undisclosed income of the assessee and he had reason to believe that the same had escaped assessment. On careful examination of facts, Hon'ble High Court held as under- It has been admitted by the revenue in the reply that the property at Delhi was inadvertently mentioned in the proceedings under section 148 and reference thereto may be considered as the property at Pali. [Para 6] On peruse the notice issued under section 148 and the reasons for reopening the assessment it becomes clear that the same are founded on non-existent transaction of purchase of property at Delhi. Inspite of the assessee elaborating in its reply as well as the objections that it had never entered into any such transaction the Assessing Officer made no effort whatsoever to rectify the blatant blunder and instead he has tried to justify the fundamentally flawed reopening proceedings on entirely a new ground that the assessee did not upload the financial statement with the return and the details of the land transaction were not mentioned in Schedule VI of the balance sheet. This observation of the Assessing Officer is also incorrect on the face of record because the balance sheet was admittedly uploaded with the return filed by the assessee pursuant to receiving the notice under section 148. In Schedule VI of the balance sheet transaction pertaining to procurement of land worth Rs. 1.26 crores is clearly stated [Para 9] Resultantly the very foundation of the impugned notice, the reasons to believe and the order turning down objections is non-existent. All the three proceedings are based sheerly on conjectures and surmises. The Assessing Officer had no tangible evidence to initiate the reassessment proceedings against the assessee. Even if it is assumed for argument's sake that the transaction made by the assessee for the acquisition of land at Pali may be read in place of Delhi then also the said transaction is duly mentioned in the return filed for the relevant assessment year and is supported by the audited balance sheet which was accepted by the Assessing Officer. [Para 10] In view of aforesaid the notice under section 148, the reasons to believe and the order disposing of the objections and all consequential proceedings deserved to be quashed and struck down [Para 11] Shri Dinesh Kumar Sharma, Jaipur. In the present case as well, reasons to believe are founded on non-existent transaction. The Learned AO believed the said transaction to be 'long term capital gains", whereas no such "long term capital gains were earned by the appellant on alleged scrip. Rather, short term capital gains were earned by the appellant, which was later admitted by the learned AO. However, learned AO proceeded to make addition on entirely new ground, ie, 'unexplained investment" with regards to purchases made. Hence, the law laid down by jurisdictional High Court squarely applies to facts of present case. 2.4 Further, it must be noted that the Assessing Officer in para 1 of the order mentioned that "Copy of reasons recorded u/s 147 has been provided, however no such copy was furnished to the appellant during assessment proceedings. 2.5 In view of above, it is evident that the notice under section 147 and further assessment proceedings were invalid. Ground of Appeal

No. 2- That the Ld. Assessing Officer is not justified making addition amounting to Rs. 15,95,000/- under section 69A of the Act as undisclosed income.

3. Facts underlying ground of appeal-

3.1 The details regarding sale and purchase of shares of "Safal Herbs Ltd' are already elaborated with supporting documents in para 1.4 above, reiterated below for ready reference. It is pertinent to note that the alleged shares were purchased and sold through recognised stock exchange and STT was duly paid on the said transactions. Particular Date Amount (in INR) Supporting document Purchase 04.06.2012 15,99,785/- Contract Note annexed as Annexure-12 Sale 16.11.2012 8,98,545/- Contract Note annexed as Annexure-13 3.2 During the course of assessment proceedings, the appellant duly submitted following documents-  Copy Purchase & Sales Bills (attached as Annexure 12 &13)  Copy of Sauda Summary for relevant financial year (attached as Annexure-14)  Copy of Bank Statements for relevant financial year (attached as Annexure-15)  Copy of Balance Sheet and Profit & Loss Account (attached as Annexure-16)

4. Legal position regarding the issue- 4.1 In this regard, provisions of section 69A are reproduced hereunder for ready reference- "Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assexsee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."

Shri Dinesh Kumar Sharma, Jaipur. 4.2 Since the appellant recorded all purchases and sales with regard to investment in shares in books of accounts, there arises no violation of provisions of section 69A of the Act. 4.3 It is also relevant to note that various courts had taken a view that the reassessment proceedings were confined under section 147 only to the issues (reasons to believe) on the basis of which the assessments were reopened. Thus, there was no scope for making any addition other than those which were circumscribed by the reasons to believe as recorded by the Assessing Officer prior to the issuing a notice under section 148. However, this controversy was set at rest by introduction of Explanation 3 by virtue of the Finance Act, 2009 with retrospective effect from 1-4-1989. Explanation 3 to Section 147 as applicable at the material time reads as under "Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148," 4.4 It is apparent that the said Explanation merely clarified that the Assessing Officer would assess or reassess the income in respect of the issue which had escaped assessment and such other issue, which came to the notice subsequently, However, the said explanation does not control the import of the plain language of section 147. Explanation 3 to section 147, merely clarifies that the jurisdiction of the Assessing Officer was not confined to assessing or reassessing of the income of an assessee only in respect of the issue, which formed a part of the reasons recorded for reopening the assessment. The said explanation cannot be interpreted to mean that the Assessing Officer could assess other incomes of the assessee even in cases where no addition is made on account of the reasons for which reassessment was initiated. 4.5 In the present case, assessment was reopened for the reasons briefly noted above. During the course of proceedings before learned AO and Hon'ble CIT(A), the appellant argued that no 'long term capital gains were earned during the year. Subsequently, the CIT(A) admitted the said fact in his order, relevant para of the order is reproduced hereunder for ready reference- As per Purchase & Sale Bill submitted by the appellant, the appellant has purchased 25,000 shares of Safal Herbs Ltd for the amount of Rs 15,99,785/- and sold the same at Rs. 8.98.545/-, thus suffering a Capital Loss of Rs. 7,01.240/- 4.6 But proceeded to make addition of purchase amount under section 69A of the Act, i.e. on an issue which did not form a part of 'reasons to believe recorded before reopening the assessment proceedings. 4.7 Undisputedly, the issue involved is squarely covered by the decisions of Delhi High Court in Ranbaxy Laboratories Limited (supra); Pr. CIT v. Jaguar Buildcon (P.) Ltd. in ITA 756/2023 decided on 01.08.2024/[2024] 165 taxmann.com 757 (Delhi), and a recent decision in Pr. CIT v. Naveen Infradevelopers & Engineers (P.) Limited, Neutral Citation No.: 2024:DHC:7997-DB.

Shri Dinesh Kumar Sharma, Jaipur. 4.8 In Ranbaxy Laboratories Limited (supra), this court had noted and interpreted the import of the word "and also any other income chargeable to tax" and had concluded that the said word clearly indicate that other income could be brought to tax provided an addition was made on the ground on which the assessment was reopened. We consider it apposite to set out the following extracts of the decision in the case of Ranbaxy Laboratories Limited (supra). (copy annexed as Annexure-20) "17... Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment, and also any other income chargeable to tax. The words 'and also cannot be ignored. The interpretation which the court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words 'assess or reassess such income and also any other income chargeable to tax which has escaped assessment', the words 'and also' cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word 'or'. The Legislature did not rest content by merely using the word 'and'. The words 'and as well as 'also' have been used together and in conjunction...... Evidently, therefore, what Parliament intends by use of the words 'and also is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (1). 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income" refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which Shri Dinesh Kumar Sharma, Jaipur. came to his notice during the proceedings. In the absence of the assessment or reassessment the former, he cannot independently assess the latter Section 147 has this effect that the Assessing Officer has to assess or reassess the income (such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income If he intends to do so, a fresh notice under section 148 would he necessary, the legality of which would be tested in the event of a challenge by the assessee." 4.9 If the ground on which assessment is sought to be re-opened, cannot be sustained, there would be little rationale for expanding the reassessment proceedings. In our view, it would not be apposite to accept an expansive interpretation to the provision of section 147 of the Act. Given that the nature of the proceedings is to unsettle concluded assessment, a strict interpretation of the plain language of Section 147 of the Act, is warranted. 4.10 The Bombay High Court in Jet Airways (1) Limited (supra) had examined the import of Explanation 3 that was introduced to Section 147 of the Act by virtue of Finance (No.2) Act of 2009. It would also be relevant to refer to the following extracts of the said decision: (copy annexed as Annexure-21) "22 Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to the reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain to contents and cannot be construed to override it or render the substance and core nugatory, Section 147 has this effect that the Assessing Officer has to assess or reassess the income (such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice Shri Dinesh Kumar Sharma, Jaipur. under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." 4.11 It would be important to advert to decision of jurisdictional Rajasthan High Court in case of Commissioner of Income-tax vs. Shri Ram Singh [2008] 306 ITR 343 (Rajasthan)/[2008] 217 CTR 345 (Rajasthan) [20-05-2008), which was further followed in case of Commissioner of Income Tax, Ajmer v. Mahendra Singh Asoliya (107 taxmann.com 80). SLP filed against the said order of High Court was dismissed in Principal Commissioner of Income-tax Mahendra Singh Asoliya [2019] 107 taxmann.com 81 (SC)/[2019] 264 Taxman 287 (SC)(31-08-2018). Relevant extract from Shri Ram Singh's case is reproduced hereunder- (copy annexed as Annexure-22) It is only when in proceedings under section 147 the Assessing Officer assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition he can also put to tax the other income chargeable to tax which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. If in the course of proceedings under section 147, the Assessing Officer were to come to conclusion that any income chargeable to tax which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then the mere fact. that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction to subject to tax any other income chargeable to tax which the Assessing Officer may find to have escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147. It is a different story that for such other income, the Assessing Officer may have recourse to such other remedies as may be available to him under law but then once it is found that the income regarding which he had "reason to believe" to have escaped assessment, is not found to have escaped assessment, the Assessing Officer is required to withhold his hands at that only Thus, once the Assessing Officer comes to the conclusion, that the income with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction comes to a stop at that and he does not continue to possess jurisdiction to put to tax any other income which subsequently came to his notice, in the course of the proceedings, which was found by him to have escaped assessment 4.12 Thus, it is apparent from the material on record, that case was reopened to examine "long term capital gains' but no addition was made in this regard, as no gains accrued to the appellant. However, learned AO proceeded to make addition on "investment amount' under section 69A which is uncalled for. Ground of Appeal

No.

3. That the Ld. Assessing Officer erred in law in not complying with principles of natural justice. Further, the Ld. Assessing Officer did not grant sufficient time to respond to show cause notice issued under section 144 of the Act.

Shri Dinesh Kumar Sharma, Jaipur.

5. Facts underlying the issue- 5.1 In the present case, show cause notice was issued to the appellant on 28.09.2021, requiring the appellant to respond by 29.09.2021. The appellant sought adjournment on 29.09.2021, and also furnished response on 30.09.2021 (copy of acknowledgement of response furnished is attached as Annexure-8 & 9) 5.2 However, the learned AO did not consider the response furnished on 30.09.2021 and proceeded to make addition under section 69A of the Act. 5.3 Therefore, learned AO erred in complying with principles of natural justice and did not grant sufficient time to respond to show cause notice.

Where Assessing Officer issued show cause notice-cum-draft assessment order directing assessee to comply with same within time of 12 hours and later, passed assessment order making additions, there was gross violation of principles of natural justice and thus, final assessment order was to be quashed. 6.2 Rahim Saib Hiriyur Hyder Ali vs. National Faceless Assessment Centre [2022] 145 taxmann.com 116 (Karnataka)/[2023] 291 Taxman 175 (Karnataka)/[2023] 457 ITR 253 (Karnataka)[02-09-2022] (copy annexed as Annexure-24) Where Assessing Officer passed a final assessment order within short period of only two days from issuance of show cause notice against assessee asking it to furnish his reply, same was violative of principles of natural justice and, thus, impugned assessment order was to be quashed The above decision of Karnataka High Court is squarely applicable on the facts of present case. It is therefore prayed that the assessment order be quashed as a result of infraction of principles of natural justice. Ground of Appeal

No.

4. That the Ld. Assessing Officer grossly erred in law and on facts in not appreciating that the appellant incurred only short term capital loss, which was not even claimed while filing return of income. Consequently, no loss accrued to Revenue.

7. Without prejudice to above arguments, it is respectfully submitted that the appellant incurred short term capital loss on the alleged transaction, which was not even claimed in return of income filed for relevant assessment year. Consequently, no loss accrued to Revenue and no prejudice caused. It is therefore prayed to delete the impugned addition and oblige.”

Accordingly, the AO reopened the assessment by issuing notice under section 148 of the IT Act, 1961 believing that long term capital gain amounting to Rs. 15,95,000/- earned by the appellant has escaped assessment. In response to the notice u/s 148, the assessee filed the return of income declaring total income at Rs. Shri Dinesh Kumar Sharma, Jaipur. 2,76,990/- on 17.03.2021 along with computation of total income under section 148. At the time of hearing on 16.04.2025, as sought for by the Bench, the assessee filed copy of return of income filed on 17.03.2021 in response to notice under section 148 of the IT Act, 1961 along with computation of total income u/s 148 on 17.04.2025. On perusal of return, we find that the assessee had filed his return of income on 17.03.2021 declaring total income of Rs. 2,76,990/- vide acknowledgement no. 292762281170321.

5.1 On perusal of the case file, we find that the AO has also not recorded anything with regard to the material on the basis of which the reasons and conclusion was formed except the information received from DDIT (Inv.), Unit 1(3), Ahmedabad and on the basis of vague reasons initiated proceedings under section 147 by issuing notice under section 148 of the Act. The case of the assessee was reopened on the reason that the assessee has claimed bogus Long Term Capital Gain of Rs. 15,95,000/- and has not disclosed the capital gain earned and income escaped assessment. Whereas, the assessment order was passed taking into account that the assessee has invested Rs. 15,95,000/- in purchase of shares of Safal Herbs Ltd. The AO observing that the assessee could not explain the source of investment made in purchase of the shares of Safal Herbs Ltd. made the addition of Rs. 15,95,000/- to the total income of the assessee. Thus the grounds for Shri Dinesh Kumar Sharma, Jaipur. reopening the assessment were fundamentally wrong. As such, no long term capital gains were earned by the appellant. On perusal of the first appellate order, we find that the assessee actually incurred short term capital loss amounting to Rs. 7,01,240/- which was not claimed by the assessee in return of income filed, the details of which are as under :- Name of Script Safal Herbs Ltd. Date of purchase 04.06.2012 Date of Sale 16.11.2012 Purchase value 15,99,785/- Sales Value 8,98,545/- Capital loss 7,01,240/- Therefore, the premises on which ‘reasons to believe’ are grounded, is based out of mere suspicion and conjectures, as firstly, the impugned amount did not pertain to amount of capital gains but purchase amount, and second, the appellant incurred short term capital loss; and did not earn long term capital gains. In the present case, reopening under section 147 has been done without linking information received from Investigation Wing of the Department to actual facts in the appellant’s case. Therefore, it is observed that the reasons recorded are vague and suffer from infirmities mentioned. We also note that even after verifying that the information available with him based on which notice u/s 148 had been issued was wrong, the Shri Dinesh Kumar Sharma, Jaipur. AO lost his jurisdiction to assess the case, but completed the assessment on wrong footing. Therefore we are of the opinion that once the reasons on the basis of which notice of reassessment had been given do not subsist, the AO loses his jurisdiction to assessee the case and hence we quash the assessment order passed by ld. AO on this score. 5.2 It is noteworthy that it is a settled position that reasons cannot be substituted and the reasons are required to be read as they were recorded by the AO. In the instant case, the information was available with the AO at the time of recording reasons was that the appellant had claimed bogus Long Term Capital Gain of Rs. 15,95,000/- and has not disclosed the capital gain earned and income escaped assessment. however, when the assessment order was passed it was mentioned that the assessee has invested Rs. 15,95,000/- in purchase of shares of Safal Herbs Ltd. and the assessee could not explain the source of purchase of the shares. Therefore, what has been recorded by the AO as ‘reasons to believe’ is nothing more than a vague information, further, the said reasons cannot be substituted subsequently by way of assessment order. It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd.

“ 21. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and while. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer, The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced”.

Hon’ble Delhi High Court, in the case of Well Trans Logistics India (P) Ltd. vs. Addl. Commissioner of Income-tax (166 taxmann.com 72)(Del.) has observed in para 25 to 27 of its order as under :- “ 25. In the instant case, there is no ‘close nexus’ or ‘live link’ between tangible material and the reason to believe that income has escaped assessment. The information received from the Investigating Unit ofd the revenue cannot be the sole basis for forming a belief that income of the assessee has escaped assessment. Having received information from the Investigating Wing, it was incumbent upon the Assessing Officer to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment.

27. Consequently, the writ petition is allowed. The impugned reassessment notice issued under section 148 and further proceedings, if any, initiated pursuant to the said notice are set aside.”

Further, reasons are deduced from the material available on record and such material should have a direct link with the formation of the belief that income chargeable to tax has escaped assessment. In the instant case the AO has neither provided any material nor referred any material on the basis of which the AO formed his reasons and came to the conclusion that there is escapement of income. In fact, there was no tangible material in possession of the AO leading to the belief that income has escaped assessment. The AO has failed to establish any live nexus Shri Dinesh Kumar Sharma, Jaipur. between the information and formation of belief that the assessee claimed Long Term Capital gains of Rs. 15,95,000/- which represents income of the appellant and such income has escaped assessment. 5.3 In the present case, the assessment was completed the by the AO by making addition of Rs. 15,95,000/- under section 69A as undisclosed income, holding that the assessee has failed to explain the source of investment of Rs. 15,95,000/- in purchase of shares of Safal Herbs Limited, which are not the reasons while recording the reasons by the AO for initiating proceedings under section 148 and for obtaining the approval of the competent authority. The ld. A/R submitted that during the course of assessment proceedings, the assessee duly submitted the details regarding sale and purchase of shares of ‘Safal Herbs Ltd. along with supporting documents as under :-  Copy of Purchase & Sales Bills (Annexures 12 & 13)  Copy of Sauda Summary for relevant financial year (Annexure-14)  Copy of Bank Statements for relevant financial year (Annexure-15)  Copy of Balance Sheet and Profit & Loss account (Annexure-16)

From the documents submitted before us, we find that the shares were purchased and sold through recognized stock exchange and STT was duly paid on the said transactions. But the AO without considering the documents/evidences furnished Shri Dinesh Kumar Sharma, Jaipur. before him, passed the assessment order thereby making the addition of Rs. 15,95,000/- as undisclosed income under section 69A of the IT Act. The ld. A/R submitted that before the AO and ld. CIT (A), the assessee stated that no Long Term Capital Gains were earned during the year under consideration. The ld. CIT (A) has failed to appreciate facts evident from ledger account with the broker as well as contract notes, in respect of purchase and sale of shares and the loss incurred by the assessee. On perusal of the first appellate order, we find that ld. CIT (A) admitted the said fact by observing in his order as under :- “ As per Purchase & Sale bill submitted by the appellant, the appellant has purchased 25,000 shares of Safal Herbs Ltd. for the amount of Rs. 15,99,785/- and sold the same at Rs. 8,98,545/-, thus suffering a Capital Loss of Rs. 7,01,240/-.”

But proceeded to make addition of purchase amount under section 69A of the IT Act, 1961 on an issue which did not form a part of ‘reasons to believe’ recorded before reopening the assessment proceedings. In this regard, vide following judgments of the Hon’ble High Courts and the Tribunals have observed as under :- “The Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT, (2011) 12 taxmann.com 74 (Delhi) in para 17 of its Judgment observed as under :- “17. Now, coming back to the interpretation which was given by the Bombay High Court to sections 147 and 148 in view of the precedent on the subject. The Court held as under :-

“11…….Interpreting the provisions it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason Shri Dinesh Kumar Sharma, Jaipur. to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words “and also” cannot be ignored. The interpretation which the Court places on the provisions should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words “assess or reassess such income and also any other income chargeable to tax which has escaped assessment”, the words “and also” cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word “or”. The Legislature did not rest content by merely using the word “and”. The words “and” a s well as “also” have been used together and in conjunction.”

Evidently, therefore, what Parliament intends by use of the words “and also” is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess : (i) ‘such income’; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words ‘such income’ refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1.4.1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice

Section 147 has this effect that the Assessing Officer has to assess or reassess the income (“such income”) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”

Hon’ble jurisdictional Rajasthan High Court in the case of Commissioner of Income-tax vs. Shri Ram Singh (2008) 306 ITR 343 (Raj.), relevant extracts from this judgment is reproduced hereunder :-

“ It is only when in proceedings under section 147 the Assessing Officer assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had “reason to believe” to be so, then only, in addition he can also put to tax the other income chargeable to tax which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147.

If in the course of proceedings under section 147, the Assessing Officer were to come to conclusion that any income chargeable to tax which according to his “reason to believe”, had escaped assessment for any assessment year, did not escape assessment, then the mere fact, that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction to subject to tax any other income chargeable to tax which the Assessing Officer may find to have escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147. It is a different story that for such other income, the Assessing Officer may have recourse to such other remedies as may be available to him under law but then once it is found that the income regarding which he had “reason to believe” to have escaped assessment, is not found to have escaped assessment, the Assessing Officer is required to withhold his hands at that only.

Thus, once the Assessing Officer comes to the conclusion that the income with respect to which he had entertained “reason to believe” to have escaped assessment, was found to have been explained, his jurisdiction comes to a stop at that, and he does not continue to possess jurisdiction to put to tax any other income which subsequently came to his notice, in the course of the proceedings, which was found by him to have escaped assessment.

Hon’ble Gujarat High Court in the case of Vijay Harish Chandra Patel vs. ITO 400 ITR 167 (Guj.) (2018)

Held that – “ When very basis for reopening no longer survives, assumption of jurisdiction u/s 147 by AO by issuing notice u/s 148 was without authority of law and could not be sustained.”

Nadeem Hasan vs. ITO, Ward-46(4), New Delhi in dated 18.05.2022 ITAT, Delhi:

Shri Dinesh Kumar Sharma, Jaipur. 6. Since we have quashed the order of the ld. CIT (A) as well as that of ld. AO, ground nos. 3 and 4 of the appellant become infructuous and hence we are not deciding the same. 7. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 24/06/2025. Sd/- Sd/- ¼ jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 24/ 06/2025 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Sh. Dinesh Kumar Sharma, Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-4(2), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { vkns'kkuqlkj@By order,

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