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Facts
The Revenue filed an appeal challenging the order of the CIT(A) which deleted additions made by the AO. The AO reopened the assessment based on the assessee being a beneficiary of bogus LTCG from M/s Greencrest Financial Services Pvt Ltd. However, the addition was made on receipts from M/s Jaisukh Dealers Ltd, which was not part of the original reasons for reopening.
Held
The Tribunal held that while Explanation 3 to Section 147 of the Income Tax Act allows additions based on new issues that come to light during reassessment, this is contingent on the original issue for reopening not being dropped. In this case, the original issue related to M/s Greencrest Financial Services Pvt Ltd was not pursued for addition, and the subsequent addition from M/s Jaisukh Dealers Ltd. was unrelated.
Key Issues
Whether additions can be made on issues not covered in the reasons for reopening, if no addition is contemplated on the original issues.
Sections Cited
Section 147, Section 148, Section 68, Section 10(38)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER I.T.A. No. 2878/Mum/2025 Assessment Year: 2015-16 ITO – 22(1)(6) Vs Arvind Premchand Jain Room No. 121, 1st Floor, 601, Orbit Plaza, New Piramal Chamber, Parel, Prabhadevi Road, Mumbai – 400012. Mumbai – 400025. AAEHA0172K (Appellant) (Respondent) CO. No. 136/Mum/2025 (Arising out of ITA No. 2878/Mum/2025) A.Ys: 2015-16 Arvind Premchand Jain Vs ITO – 22(1)(6) 601, Orbit Plaza, New Room No. 121, 1st Floor, Prabhadevi Road, Piramal Chamber, Parel, Mumbai – 400025. Mumbai – 400012. AAEHA0172K (Appellant) (Respondent) Assessee by Shri Tarang Mehta Revenue by Shri Surendra Mohan Date of Hearing 12.11.2025 Date of Pronouncement 11.02.2026 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeals have been filed by the revenue and cross objection filed by the assessee challenging the order dt. 06.03.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless
2 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Appeal Centre (NFAC) / CIT(A) for the assessment years 2015-16. 2. Since all the issues involved in the present appeal and cross objection are common and identical and belongs to one assessee therefore, they have been clubbed, heard together and consolidated order is being passed. Firstly we shall take ITA No. 2878/Mum/2025, A.Y 2015-16 as lead case and facts narrated therein.
ITA No. 2878/Mum/2025, A.Y 2015-16
The revenue has raised the following grounds of appeal:
On facts and circumstances of case the ld. AO has erred in law by initiating re-opening proceedings u/s 147 of the income tax act. the notice u/s 148 is void abinitio, as the same is issued without satisfaction of income having 1 escaped assessment on the part of the AO and therefore, does not satisfy the fundamental requirements of the stature. the ld. AO. failed to dispose of the objections raised by the appellant challenging the re- issue of notice u/s 148. 2 Without prejudice to ground no.1, on the facts and circumstances of the case the ld. AO. is not justified in making an arbitrary disallowance of Rs. 63,65,163/- u/s 68 of the income tax act, without bringing out any adverse evidence in his possession and held to be against the assessee Ground No. 2, as the issue has not covered in 3. reasons recorded for reopening. The assessment of the assessee was reopened based on the information that the assessee is one of the beneficiaries of transactions in the scrips of M/s Green Crest Financial Services Pvt Ltd is a penny stock company, which was used by the entry
3 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. operator to provide bogus LTCG and enable the assessee to claim tax benefit through bogus exempt income u/s 10(38) of the Act.
However AO noted that assessee claimed total LTCG of Rs. 7,14,87,896/- as exempt income u/s 10(38) of the Act from three scrips namely (i) Greencrest Financial Services Pvt Ltd; (ii) GCM Securities Ltd; & (iii) Jisukh Dealers Ltd, in the annual return of income and proposed to tax the gain. Since the assessee had already declared the LTCG of Rs. 6,51,22,730/- from the sale of first two scrips in IDS 2016 and paid taxes. The AO treated the LTCG of Rs. 63,65,163/- from the sale of scrips of M/s Jaisukh Dealers Ltd as unexplained credit and completed the assessment. 5. Ld. CIT(A) after considering the detailed submissions of the parties partly allowed the same and deleted the additions. 6. We have heard the counsels for both the parties, perused the material placed on records, judgments cited before us and also the orders passed by the revenue authorities. Before we proceed further it is necessary to evaluate the orders passed by Ld. CIT(A) while adjudicating this ground raised by the revenue. The operative portion of is reproduced as under: 9. The next contention of the assessee is that the assessment was not valid as the AO made addition based on the sale of scrips of Jaisukh Dealers Ltd, which came to his knowledge only during re-assessment proceedings. As per the
4 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. assessee, the re-assessment proceedings was initiated based on the issue of LTCG from sale of scrips of M/s Greencrest Financial Services Pvt Ltd but was concluded without making any addition on the said issue. Instead, the addition was made on receipts from sale of scrips of Jaisukh Dealers Ltd which had no nexus whatsoever with the sale of scrips of M/s Greencrest Financial Services Pvt. This additon, as per the assessee, was not tenable. 10. As per old provisions of sub section (2) of section 148 of the Act, which was in existence till 31.03.2021, before issuing any notice u/s. 148 of the Act for re-opening the assessment, the Assessing Officer (AO) should record reasons in writing for issuing such notice. However, after having initiated proceedings u/s. 147 / 148 of the Act, if any issue/ground, based on which the assessment was re-opened, is found to be invalid or not correct, no addition could be made based on such issue/ground. 11. On the other hand, as per Explanation 3 to section 147 of the Act which was inserted in the statute by Finance (No.2) Act, 2009, with retrospective effect from 01.04.1989, it was clarified that the AO can assess or re-assess the income in respect of any issue/ground, which has escaped assessment, that comes to the knowledge of the AO subsequent to issue of notice u/s. 148 of the Act in the course of re-opened assessment proceedings, notwithstanding the fact that the reasons for such issue have not been included in the reasons recorded under sub section (2) of section 148 of the Act. 12. As such, in terms of Explanation 3 to section 147 of the Act, prima facie, the AO is authorised to make additions based on an issue (new issue) which comes to his knowledge during re-opened assessment proceedings initiated based on a different issue, which has no nexus with the new issue In this regard, a question would arise as to whether the AO can make addition based on a new issue, which did not form part of reasons recorded under sub section (2) of section 148 of the Act prior to issuing notice u/s. 148 of the Act, if no addition was made on the issue based on which the assessment was re- opened. The said question has been subject matter of dispute
5 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. before various High Courts, wherein there is divergence in views as per the judgements rendered thereof. 13. In this context, the substantial question of law raised before the High Courts is framed as under: "As per Explanation 3 to section 147 of the Act, whether the AO can make additions based on issues not covered by the reasons recorded under sub section (2) of section 148 of the Act, if no addition is contemplated based on the issues covered by the reasons recorded prior to issue of notice u/s. 148 of the Act." After having analysing the HC decisions rendered on this subject, the following decisions are found to be in favour of the Department:
6 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
7 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
8 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
As seen from the above, it is amply clear that there is a cleavage of opinion on the contentious issue under consideration which has not yet reached finality by way of decision by Hon'ble Supreme Court. 14.0 Coming to the facts of the present case, case the AO, while recording the 1 reasons for re-opening the assessment mentioned that the assessee was a beneficiary of bogus LTCG from the sale of scrips of M/s Greencrest Financial Services Pvt. Ltd. While concluding the assessment, the AO however did not make any addition on the original reason recorded. On the other hand, the AO treated the LTCG from sale of scrip of another penny stock entity viz., M/s Jaisukh Dealers Ltd as bogus and made an addition of Rs.63,65,163. The transaction with M/s Jaisukh Dealers Ltd., although similar to transaction with M/s Greencrest Financial Services Pvt. Ltd was not a part of the original reasons recorded prior to the issue of notice u/s 148. 15.0 Now, whether the AO can make additions on the issues not covered in reasons recorded, if no addition is contemplated on the issues recorded prior to issue of notice u/s. 148 of the
9 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Act is a legal issue on which the High Courts have rendered contradictory judgments. In the case of CIT -vs.- Sunil Kumar (1996) 212 ITR 238 (Raj.) and Subramaniam -vs.- Siemens India Ltd. (1985) 156 ITR 11 (Bom.) the courts, expounding the law of precedence, held that the decision of jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court and the contrary decision of another High Court is not relevant. Therefore, following the judicial precedent, I am bound by the decision of Hon'ble Bombay HC in the case of CIT vs. Jet Airways (1) Ltd. (2010) 195 taxmann.com 117 which is in favour of the assessee. Therefore, I direct the AO the delete the addition of Rs 63,65,163. The grounds of appeal no 1 & 2 are allowed. 7. After having gone through the facts of the case and arguments of both the parties, we are of the view that it is an undisputed and clear fact emanating from records that the additions based on the sale of scrips of Jaisukh Dealers Pvt Ltd came to the knowledge of the AO only during the reassessment proceedings. As the reassessment proceedings were initiated based on the issue of LTCG from sale of scrips of M/s Green Crest Financial Services P Ltd but was concluded without making any addition on the said issue. Instead the addition was made on receipts from the same of scrips of Jaisukh Dealers Pvt Ltd, which had no nexus whatsoever with the sale of scrips of M/s Green Crest Financial Services P Ltd. 8. It is equally true that as per old provisions of sub section (2) of section 148 of the Act, which was in existence till 31.03.2021, before issuing any notice u/s. 148 of the Act for re-opening the assessment, the
10 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Assessing Officer (AO) should record reasons in writing for issuing such notice. However, after having initiated proceedings u/s. 147 / 148 of the Act, if any issue/ground, based on which the assessment was re- opened, is found to be invalid or not correct, no addition thus could be made based on such issue/ground. 9. Even as per Explanation 3 to section 147 of the Act which was inserted in the statute by Finance (No.2) Act, 2009, with retrospective effect from 01.04.1989, it was clarified that the AO can assess or re-assess the income in respect of any issue/ground, which has escaped assessment, that comes to the knowledge of the AO subsequent to issue of notice u/s. 148 of the Act in the course of re-opened assessment proceedings, notwithstanding the fact that the reasons for such issue have not been included in the reasons recorded under sub section (2) of section 148 of the Act. 10. Therefore in terms of Explanation 3 to section 147 of the Act, prima facie, the AO is authorised to make additions based on an issue (new issue) which comes to his knowledge during re-opened assessment proceedings initiated based on a different issue, which has no nexus with the new issue. 11. Now we have to evaluate as to whether the AO can make addition based on New issue which did not form part of reasons recorded under Sub Sec (2) of Sec. 148 of the
11 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Act prior to issuing notice u/s 148 of the Act. If no addition was made on the issue based on which the assessment was reopened. The said question was a subject matter of dispute before various High Courts, which have been dealt in detail by Ld. CIT(A), in its order at para No. 13.0 which is reproduced herein below: 13. In this context, the substantial question of law raised before the High Courts is framed as under: "As per Explanation 3 to section 147 of the Act, whether the AO can make additions based on issues not covered by the reasons recorded under sub section (2) of section 148 of the Act, if no addition is contemplated based on the issues covered by the reasons recorded prior to issue of notice u/s. 148 of the Act." 11. After having analysing the HC decisions rendered on this subject, the following decisions are found to be in favour of the Department:
12 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
13 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
14 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai.
As seen from the above, it is amply clear that there is a cleavage of opinion on the contentious issue under consideration which has not yet reached finality by way of decision by Hon'ble Supreme Court. 12. We are also of the considered view that the AO, while recording the reasons for re-opening the assessment mentioned that the assessee was a beneficiary of bogus LTCG from the sale of scrips of M/s Greencrest Financial Services Pvt. Ltd. While concluding the assessment, the AO however did not make any addition on the original reason recorded. On the other hand, the AO treated the LTCG from sale of scrip of another penny stock entity viz., M/s Jaisukh Dealers Ltd as bogus and made an addition of Rs.63,65,163. The transaction with M/s Jaisukh Dealers Ltd., although similar to transaction with M/s Greencrest
15 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Financial Services Pvt. Ltd was not a part of the original reasons recorded prior to the issue of notice u/s 148. 13. Thus, in view that Hon’ble High Court in the case of CIT -vs.- Sunil Kumar (1996) 212 ITR 238 (Raj.) and Subramaniam -vs.- Siemens India Ltd. (1985) 156 ITR 11 (Bom.) expounding the law of precedence, and held that the decision of jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court and the contrary decision of another High Court is not relevant. Therefore, following the judicial precedent, we are bound by the decision of Hon'ble Bombay HC in the case of CIT vs. Jet Airways (1) Ltd. (2010) 195 taxmann.com 117. 14. Therefore in our considered view, AO cannot make additions on the issues not covered in reasons recorded. If no addition is contemplated on the issues recorded prior to the issue of notice u/s 148 of the Act. Therefore, we dismiss the grounds raised by the revenue and uphold the order of Ld. CIT(A) in declaring reassessment as legally invalid. Other grounds raised by the revenue are not being adjudicated in view of our above discussion. 15. In the result the appeal filed by the revenue is dismissed.
16 ITA No. 2878/Mum/2025 & CO No. 136/Mum/2025 Arvind Premchand Jain, Mumbai. Co. No. 25/Mum/2025, A.Y 2016-17 16. Since we have already dismissed the appeal filed by the revenue and therefore CO filed by the assessee stands dismissed as the same becomes infructuous. 17. In the result, the appeal filed by the revenue and the COs filed by the assessee stand dismissed. Order pronounced in the open court on 11/02/2026.
Sd/- Sd/- (PRABHASH SHANKAR) (SANDEEP GOSAIN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai: Dated: 11/02/2026 KRK, Sr. PS. Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.